SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K/A
Amendment No. 1
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 2002
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission File Number 1-12273
ROPER INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
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Delaware 51-0263969
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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2160 Satellite Boulevard, Suite 200
Duluth, Georgia 30097
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 495-5100
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class On Which Registered
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Common Stock, $0.01 Par Value New York Stock Exchange
Preferred Stock Purchase Rights with respect
to Common Stock, $0.01 Par Value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. |X|
Aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock, as of
December 31, 2002: $1,148,012,000.
Number of shares of Registrant's Common Stock outstanding as of December 31,
2002: 31,366,442.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be furnished to Shareholders in
connection with its Annual Meeting of Shareholders to be held on March 21, 2003,
are incorporated by reference into Part III of this Form 10-K.
EXPLANATORY NOTE
Roper Industries, Inc. is filing this amendment to its Annual Report on
Form 10-K to correct a typographical error in footnote 14 to its consolidated
financial statements as of October 31, 2002 and 2001 and for the three years in
the period ended October 31, 2002 (included in Item 8 of the Annual Report). The
table listing net sales in countries and regions outside of the United States in
footnote 14 has been amended as follows: "88,669" has been changed to "8,669" in
the Industrial Controls column for 2002 sales in Latin America.
PART I
ITEM 1. BUSINESS
GENERAL
Roper Industries, Inc. ("Roper," "we" or "us") designs, manufactures and
distributes specialty industrial controls, fluid handling and analytical
instrumentation products worldwide, serving selected segments of a broad range
of markets. The principal markets include oil and gas, scientific and industrial
research, medical, semiconductor, refrigeration, automotive, water / wastewater,
power generation and general industrial.
Roper pursues consistent and sustainable growth in sales and earnings by
emphasizing continuous improvement in the operating performance of our existing
businesses, and by acquiring other carefully selected businesses, that offer to
our customers high value-added, engineered industrial products and solutions and
that are capable of achieving and maintaining high margins. This strategy
continually emphasizes (i) increasing market share and market expansion, (ii)
new product development, (iii) improving productivity and reducing costs and
(iv) acquisition of similar new businesses. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - - (i) Year Ended
October 31, 2002 Compared to Year Ended October 31, 2001 and (ii) - - Year Ended
October 31, 2001 Compared to Year Ended October 31, 2000."
Market Share, Market Expansion and Product Development. We compete in many
narrowly defined niche markets. Our position in these markets is typically as
the market leader or as a competitive alternate to the market leader. In those
markets where we are a regional leader we seek to sustain growth through
geographic expansion of our marketing efforts and the development of new
products for associated markets.
We continued our growth in fiscal 2002 principally through the full-year
contributions from businesses acquired during fiscal 2001, in particular Struers
and Logitech, and the partial year contributions from businesses acquired during
fiscal 2002, principally Zetec. Other businesses acquired during fiscal 2002
were Duncan Technologies, Qualitek, QImaging, and Definitive Imaging. Our fiscal
2002 acquisitions were purchased for cash and financed through borrowings under
existing credit agreements. Total acquisition costs during fiscal 2002 were
$82.8 million.
The outstanding debt under our primary credit agreement was $186.4 million at
October 31, 2002. Total outstanding debt at that date was $332.1 million, or 47%
of total capital (calculated as the sum of total debt and stockholders' equity),
or 2.6 x fiscal 2002's (EBITDA calculated as earnings before change in
accounting principle, interest, taxes, depreciation and amortization) unadjusted
for acquisitions. We believe we are well positioned to further expand our
businesses.
International Sales. Sales outside the United States continue to play an
important part in our business. International sales include sales of products
exported from the United States as well as products manufactured and sold
abroad. In fiscal 2002, 2001 and 2000, our net sales outside the
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U.S. were 58%, 52% and 51%, respectively, of total net sales. Information
regarding international operations is set forth in Note 14 of the Notes to
Consolidated Financial Statements included elsewhere in this Form 10-K ("Annual
Report").
Research and Development. We conduct applied research and development to improve
the quality and performance of our products, to develop new products and to
enter new markets. Our research and development often includes extensive field
testing of our products. We expensed $29.9 million (4.8% of net sales), $26.3
million (4.5% of net sales), and $22.6 million (4.5% of net sales) in the years
ended October 31, 2002, 2001 and 2000, respectively, on research and development
activities.
ANALYTICAL INSTRUMENTATION
Our analytical instrumentation segment offers high performance digital imaging
products and software, equipment and consumables for materials analysis, fluid
properties testing equipment, and industrial leak testing equipment. These
products and solutions are provided through nine U.S.-based, six European-based
and one Canadian-based operating units. Selected financial information for the
analytical instrumentation segment is set forth in Note 14 of the Notes to
Consolidated Financial Statements included elsewhere in this Annual Report.
Digital Imaging Products and Software. We manufacture and sell extremely
sensitive, high-performance charge-coupled device cameras, detectors and related
software for a variety of scientific and industrial uses, which require high
resolution and/or high speed digital video, including transmission electron
microscopy and spectroscopy applications. We also manufacture and sell
spectrometers, monochrometers and optical components and coatings for various
high-end applications. These products are principally sold for use within
academic, government research, semiconductor, automotive, ballistic and
biological and material science end-user markets. They are frequently
incorporated into original equipment manufacturer ("OEM") products.
Materials Analysis Equipment and Consumables We manufacture and sell
semiconductor equipment and supplies various types of equipment necessary to
extract and shape certain materials for production and to prepare materials
samples for testing and analysis. This equipment includes specimen handling
products for use with electron and other microscopes that are incorporated into
OEM equipment and are also sold as a retrofit for microscopes currently in use.
Consumable supplies are also sold to assist customers with the preparation of
high quality samples. These products are mostly used within the academic,
government research, electronics, biological and material science end-user
markets.
Fluid Properties Testing Equipment. We manufacture and sell automated and manual
test equipment to determine certain physical and elemental properties, such as
sulfur and nitrogen content, flash point, viscosity, freeze point and
distillation, of liquids and gasses for the petroleum and other industries.
Industrial Leak Testing Equipment. We manufacture and sell products and systems
to determine any leaks and confirm the integrity of assemblies and
sub-assemblies in the automotive, medical and consumer products industries.
2
The following table sets forth information regarding each class of products
within the analytical instrumentation segment that accounted for at least 10% of
our total net sales in any of the periods presented (in thousands):
Year ended October 31,
--------------------------------
2002 2001 2000
-------- -------- --------
Digital imaging products and software $114,162 $123,055 $118,316
Materials analysis equipment
and consumables 118,819 61,970 33,829
Fluid properties testing equipment 68,180 63,022 51,499
The following chart shows the breakdown of the analytical instrumentation
segment's sales by end market for fiscal 2002:
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
General Industrial 13%
Semiconductor 5%
Research 32%
Automotive 10%
Oil & Gas 18%
Medical 3%
Electronics 4%
Other 15%
Backlog. Our analytical instrumentation companies have lead times of up to
several months on many of their product sales, although standard products are
often shipped within four weeks of receipt of order. Blanket purchase orders are
placed by certain OEMs and end-users, with continuing requirements for
fulfillment over specified periods of time. The segment's backlog of firm
unfilled orders, including blanket purchase orders, totaled $57.9 million at
October 31, 2002 compared to $62.6 million at October 31, 2001. The decrease was
attributed to successful efforts to reduce delivery times at Struers and
Logitech along with weaker markets conditions, particularly in the automotive,
electronics and semiconductor end markets.
Distribution and Sales. Distribution and sales are achieved through a
combination of manufacturers' representatives, agents, distributors and direct
sales offices in both the U.S. and various other countries.
3
Customers. Each of the operating units in the analytical instrumentation segment
sells to a variety of customers worldwide, with certain major OEMs in the
automotive, medical diagnostics and microscopy industries having operations
globally. Some of the operating units have sales to one or a few customers that
represent a significant portion of their respective sales and we expect the
relative importance of such a concentrated customer base for these operating
units to continue. However, none of this segment's customers accounted for as
much as 10% of its net sales during fiscal 2002.
INDUSTRIAL CONTROLS
Our industrial controls segment produces control systems, industrial valves and
controls and machinery vibration and other non-destructive inspection and
measurement instrumentation. These products and solutions are provided through
seven U.S.-based and one European-based operating units. Selected financial
information for the industrial controls segment is set forth in Note 14 of the
Notes to Consolidated Financial Statements included elsewhere in this Annual
Report.
Control Systems. We manufacture control systems and panels, and provides related
engineering and commissioning services, for applications involving compressors,
turbines, and engines in the oil and gas, pipeline, power generation and marine
engine markets.
Industrial Valves and Controls. We manufacture a variety of valves, sensors,
switches and control products used on engines, compressors, turbines and other
powered equipment for the oil and gas, pipeline, power generation,
refrigeration, marine engine and general industrial markets. Most of these
products are designed for use in hazardous environments.
Non-destructive Inspection and Measurement Instrumentation. We manufacture
non-destructive inspection and measurement solutions including measurement
probes, robotics, and machinery vibration sensors, switches and transmitters.
These solutions are applied in power generation, aerospace and broader
industrial markets. Many of these products are designed for use in hazardous
environments.
4
The following table sets forth information regarding each class of products
within the industrial controls segment that accounted for at least 10% of our
total net sales in any of the periods presented below were as follows (in
thousands):
Year ended October 31,
---------------------------------
2002 2001 2000
-------- -------- -------
Control systems $112,139 $109,325 $91,409
Industrial valves and controls 61,364 63,235 27,996
The following chart shows the breakdown of sales by end market for the
industrial controls segment during fiscal 2002:
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Refrigeration 15%
General Industrial 6%
Oil & Gas - Other 25%
Other 5%
Oil & Gas - Pipeline 35%
Power Generation 11%
Marine 3%
Backlog. The majority of this segment's business consists of larger engineered
oil and gas development and transmission projects with lead times of three to
nine months. As such, backlog typically fluctuates significantly dependent upon
the timing of large project awards. Standard products generally ship within two
weeks of receipt of order, while shipment of orders for specialty products
varies according to the complexity of the product and availability of the
required components. Our companies in this segment enters into blanket purchase
orders for the manufacture of products for certain OEMs and end-users over
periods of time specified by these customers. This segment's backlog of firm
unfilled orders, including blanket purchase orders, totaled $35.4 million at
October 31, 2002 compared to $31.2 million at October 31, 2001.
Distribution and Sales. Distribution and sales occur through direct sales
offices, manufacturers' representatives and industrial machinery distributors.
Customers. Each of the industrial controls segment's business units sells to a
variety of customers worldwide. RAO Gazprom, a Russian enterprise that is the
world's largest gas provider continued to be the biggest single customer in this
segment for fiscal 2002, accounting for approximately 28% of its sales, compared
to 25% in fiscal 2001. Gazprom has indicated its interest to continue
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purchases of control systems through 2007. However, we expect sales to Gazprom
in fiscal 2003 to be reduced in amount and as a percentage of this segment's
sales compared to fiscal 2002 levels. The continuation of this business with
Gazprom is subject to numerous risks, many of which are beyond our control,
including, but not limited to, increased competition, availability of acceptable
financing and customer delays in commissioning and start-up of installations.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Forward Looking Information".
FLUID HANDLING
Our fluid handling segment produces industrial pumps, semiconductor production
equipment and flow measurement and metering equipment. These products and
solutions are provided through five U.S.-based and one European-based operating
units. Selected financial information for the fluid handling segment is set
forth in Note 14 of the Notes to Consolidated Financial Statements included
elsewhere in this Annual Report.
Industrial Pumps. We design, manufacture and distribute a wide variety of pumps.
These pumps vary significantly in complexity and in pumping method employed,
which allows for the movement and application of a diverse range of liquids and
solids including low and viscosity liquids, high solids content slurries and
chemicals. Our pumps are used in large and diverse set of end markets such as
oil and gas, agricultural, water/wastewater, medical, chemical and general
industrial.
Semiconductor Production Equipment. We manufacture microprocessor-based
integrated dispense systems that are used principally in the semiconductor
industry to dispense chemicals in a precise and repeatable fashion during the
wafer fabrication process. These highly reliable dispense units either
incorporate no mechanical displacement, utilizing the application of
electronically regulated pressure, or utilize positive displacement technology.
Cabinet based systems manage the distribution of bulk chemicals used in wafer
fabrication to equipment such as the dispense systems mentioned above.
Flow Measurement and Metering Equipment. We manufacture turbine and positive
displacement flow meters, emissions measurement equipment and flow meter
calibration products for aerospace, automotive, power generation and other
industrial applications.
The following table sets forth information regarding each class of products
within the fluid handling segment that accounted for at least 10% of our total
net sales in any of the periods presented (in thousands):
Year ended October 31,
-------------------------------
2002 2001 2000
------- ------- -------
Industrial pumps $83,484 $90,315 $78,895
The following chart shows the breakdown of the fluid handling segment's sales by
end market during fiscal 2002:
6
[THE FOLLOWING TABLE WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL.]
Semiconductor 7%
Medical 7%
Power Generation 7%
Oil & Gas 6%
Food Processing 5%
Agriculture 7%
Aerospace 4%
Transportation 5%
Water and Wastewater 15%
General Industrial 25%
Other 12%
Backlog. The fluid handling operating units' sales also reflect a combination of
standard products and specifically engineered, application-specific products.
Standard products are typically shipped within two weeks of receipt of order.
Application-specific products typically ship within six-to-twelve weeks
following receipt of order, although larger project orders and blanket purchase
orders for certain OEMs may extend for longer periods. This segment's backlog of
firm unfilled orders, including blanket purchase orders, totaled $19.8 million
at October 31, 2002 compared to $21.7 million at October 31, 2001. The decrease
was attributed primarily to significantly reduced demand for semiconductor
equipment products as that market continued to be depressed throughout fiscal
2002.
Distribution and Sales. Distribution and sales occur through direct sales
personnel, manufacturers' representatives and stocking and non-stocking
distributors.
Customers. Some of the fluid handling segment's operating unit's have sales to
one or a few customers that represent a significant portion of that operating
unit's sales and the relative importance of such a concentrated customer base
for these operating unit's is expected to continue. However, no customer was
responsible for as much as 10% of this segment's net sales during fiscal 2002.
MATERIALS AND SUPPLIERS
We believe that most materials and supplies used by us are readily available
from numerous sources and suppliers throughout the world which are adequate for
our needs. Some high-performance components for digital imaging products can be
in short supply and/or suppliers have occasional difficulty manufacturing such
components to our specifications. We regularly investigate and identify
alternative sources where possible and we believe that these conditions equally
affect our competitors and, thus far, it has not had a significant adverse
effect on sales although delays in shipments have occurred following such supply
interruptions.
7
ENVIRONMENTAL MATTERS AND OTHER GOVERNMENTAL REGULATION
Roper's operations and properties are subject to increasingly stringent laws and
regulations relating to environmental protection, including laws and regulations
governing air emissions, water discharges, waste management and workplace
safety. These laws and regulations can result in the imposition of substantial
fines and sanctions for violations and could require the installation of costly
pollution control equipment or operational changes to limit pollution emissions
and/or decrease the likelihood of accidental hazardous substance releases. We
must conform our operations and properties to these laws and adapt to regulatory
requirements in all countries as these requirements change. It is our policy to
comply with all applicable regulatory requirements.
We use and generate hazardous substances and waste in our operations and, as a
result, could be subject to potentially material liabilities relating to the
investigation and clean-up of contaminated properties and to claims alleging
personal injury. We have experienced, and expects to continue to experience,
operating costs to comply with environmental laws and regulations. In connection
with our acquisitions, we may assume significant environmental liabilities, some
of which we may not be aware of at the time of acquisition. In addition, new
laws and regulations, stricter enforcement of existing laws and regulations, the
discovery of previously unknown contamination or the imposition of new clean-up
requirements could require us to incur costs or become the basis for new or
increased liabilities.
COMPETITION
Generally, the products and solutions we offer our business segments face
significant competition, usually from a limited number of competitors. Although
we believe that we are a leader in most of our markets, no single company is a
leading competitor with us over a significant number of product lines.
Competitors might be large or small in size, often depending on the life cycle
and maturity of the technology employed. We compete primarily on product
quality, performance, innovation, price, applications expertise and customer
service capabilities.
PATENTS AND TRADEMARKS
We own the rights under a number of patents and trademarks relating to certain
of our products and businesses. While it believes that none of our operating
unit's are substantially dependent on any single, or group, of patents,
trademarks or other items of intellectual property rights, the product
development and market activities of Compressor Controls, Gatan, Integrated
Designs, Redlake MASD and Roper Scientific, in particular, have been planned and
conducted in conjunction with important and continuing patent strategies.
Compressor Controls has been granted a series of U.S. and associated foreign
patents and a significant portion of its fiscal 2002 sales was of equipment that
incorporated innovations that are the subject of several such patents that will
not begin to expire until 2004. Integrated Designs was granted a U.S. patent in
1994 related to methods and apparatus claims embodied in its integrated dispense
systems that accounted for the majority of its fiscal 2002 sales. The U.S.
patent will expire in 2011.
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EMPLOYEES
As of October 31, 2002, we had approximately 3,100 total employees, of whom
approximately 2,100 were located in the United States.
OTHER INFORMATION
Roper was incorporated in Delaware in 1981.
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ITEM 2. PROPERTIES
In early January 2003, we relocated our corporate office to the Atlanta area
where we lease approximately 13,800 square feet of office space. We have
established sales and service locations around the world to support our
operations. The following table sets forth our principal properties.
Square footage
---------------------
Location Property Owned Leased Industry segment
- --------------------- ------------ --------- -------- --------------------------
Phoenix, AZ Office / Mfg -- 45,900 Fluid Handling
Tucson, AZ Office / Mfg -- 37,300 Analytical Instrumentation
Burnaby, B.C., Canada Office / Mfg -- 8,200 Analytical Instrumentation
Pleasanton, CA Office -- 19,400 Analytical Instrumentation
Richmond, CA Office / Mfg 67,400 -- Industrial Controls
San Diego, CA Office / Mfg -- 43,000 Analytical Instrumentation
Rodovre, Denmark Office / Mfg -- 114,000 Analytical Instrumentation
Verson, France Office / Mfg -- 22,500 Industrial Controls
Commerce, GA Office / Mfg 203,800 -- Fluid Handling
Buchen, Germany Office / Mfg 191,500 -- Fluid Handling
Lauda, Germany Office / Mfg 37,900 -- Analytical Instrumentation
Des Moines, IA Office / Mfg -- 88,000 Industrial Controls
Belle Chasse, LA Office / Mfg -- 33,200 Industrial Controls
Burr Ridge, IL Office / Mfg 55,000 -- Industrial Controls
Acton, MA Office / Mfg -- 32,700 Analytical Instrumentation
Silver Spring, MD Office -- 11,800 Analytical Instrumentation
Trenton, NJ Office / Mfg 40,000 -- Analytical Instrumentation
Syosset, NY Office / Mfg -- 27,500 Fluid Handling
Portland, OR Office / Mfg -- 128,000 Fluid Handling
Warrendale, PA Mfg -- 76,300 Analytical Instrumentation
Carrollton, TX Office / Mfg -- 22,000 Fluid Handling
Houston, TX Office / Mfg 16,200 -- Industrial Controls
Houston, TX Office / Mfg -- 35,000 Analytical Instrumentation
Houston, TX Office / Mfg -- 27,500 Analytical Instrumentation
McKinney, TX Office / Mfg -- 25,000 Industrial Controls
Bury St. Edmunds, U.K. Office / Mfg 90,000 -- Industrial Controls
Cambridge, U.K. Office / Mfg -- 14,000 Analytical Instrumentation
Glasgow, U.K. Office / Mfg 27,700 -- Analytical Instrumentation
Oxford, U.K. Office / Mfg 5,500 Analytical Instrumentation
Issaquah, WA Office / Mfg -- 86,400 Industrial Controls
We consider each of the above facilities to be in good operating condition and
adequate for its present use and believes that it has sufficient plant capacity
to meet its current and anticipated operating requirements.
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ITEM 3. LEGAL PROCEEDINGS
We are a defendant in various lawsuits involving product liability, employment
practices and other matters, none of which we believe would have a material
adverse effect on our consolidated financial position or results of operations.
The majority of such claims are subject to insurance coverage. Since 2001, we
and/or one of our subsidiaries have been named as defendants, along with many
other companies, in asbestos-related personal injury or wrongful death actions.
The allegations in these actions are vague, general and speculative, and the
actions are in their early stages. Given the state of these claims it is not
possible to determine the potential liability, in any.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matter was submitted to a vote of our security-holders during the fourth
quarter of fiscal 2002.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Roper's common stock trades on the New York Stock Exchange ("NYSE") under the
symbol "ROP". The table below sets forth the range of high and low sales prices
for our common stock as reported by the NYSE as well as cash dividends paid
during each of our fiscal 2002 and 2001 quarters.
Cash Dividends
High Low Paid
------- ------- --------------
2002 4th Quarter $ 39.14 $ 27.25 $ 0.0825
3rd Quarter 46.90 29.00 0.0825
2nd Quarter 51.90 41.04 0.0825
1st Quarter 52.91 35.90 0.0825
2001 4th Quarter $ 45.00 $ 31.00 $ 0.0750
3rd Quarter 45.80 34.99 0.0750
2nd Quarter 43.00 33.65 0.0750
1st Quarter 38.50 29.94 0.0750
Based on information available to us and our transfer agent, we believe that as
of December 31, 2002 there were 203 record holders of our common stock.
Dividends. Roper has declared a cash dividend in each fiscal quarter since our
February 1992 initial public offering and we have also annually increased our
dividend rate since our initial public offering. In November 2002, our board of
directors increased the quarterly dividend to be paid in the first quarter of
fiscal 2003 to $0.0875 per share, an increase of 6% from the prior rate.
However, the timing, declaration and payment of future dividends will be at the
sole discretion of our board of directors and will depend upon our
profitability, financial condition, capital needs, future prospects and other
factors deemed relevant by our board of directors. Therefore, there can be no
assurance as to the amount, if any, of cash dividends that will be declared in
the future.
Recent Sales of Unregistered Securities. None
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ITEM 6. SELECTED FINANCIAL INFORMATION
The consolidated selected financial data presented below have been derived from
Roper's audited consolidated financial statements and should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and with Roper's Consolidated Financial Statements
and related notes thereto included elsewhere in this Annual Report. The
Consolidated Financial Statements for fiscal years 1999 and 2000 were audited by
Arthur Andersen LLP (Andersen), a firm that has ceased operations. A copy of the
report previously issued by Andersen on our financial statements as of October
31, 2000 and 1999, and for the years then ended is included elsewhere in this
Report. Such report has not been reissued by Andersen.
Year ended October 31,
------------------------------------------------------------
2002(1) 2001(2) 2000(3) 1999(4) 1998(5)
-------- -------- -------- -------- --------
(in thousands, except per share data)
Operations data:
Net sales $627,030 $586,506 $503,813 $407,256 $389,170
Gross profit 336,319 308,970 258,824 210,503 190,953
Income from operations 114,829 98,428 88,196 77,955 66,092
Earnings before change in accounting principle 66,023 55,839 49,278 47,346 39,316
Per share data:
Earnings before change in accounting principle:
Basic $ 2.12 $ 1.82 $ 1.62 $ 1.56 $ 1.27
Diluted 2.08 1.77 1.58 1.53 1.24
Dividends 0.33 0.30 0.28 0.26 0.24
Balance sheet data:
Working capital $117,385 $128,812 $129,463 $ 89,576 $ 82,274
Total assets 828,973 762,122 596,902 420,163 381,533
Long-term debt, less current portion 311,590 323,830 234,603 109,659 120,307
Stockholders' equity 376,012 323,506 270,191 231,968 197,033
(1) Includes results of Zetec from August 2002 and several smaller businesses
acquired during fiscal 2002.
(2) Includes results of Struers and Logitech from September 2001 and several
smaller businesses acquired during fiscal 2001.
(3) Includes results of Redlake MASD from November 1999, Abel Pump from May
2000, Antek Instruments from August 2000, Hansen Technologies from
September 2000 and several smaller businesses acquired during fiscal 2000.
(4) Includes results of Petroleum Analyzer companies acquired in June 1999.
(5) Includes results of Photometrics from April 1998 and several smaller
businesses acquired during fiscal 1998.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion in conjunction with "Selection
Financial Information" and our consolidated financial statements and related
notes included elsewhere in this Annual Report. Within this Annual Report, we
have provided pro forma sales and sales orders information. This pro forma
information is not presented in accordance with generally accepted accounting
principles and does not conform to the pro forma information presented in our
consolidated financial statements. We present this pro forma information because
management believes that the information illustrates the impact of acquisitions
on our performance.
For the purposes of calculating pro forma net sales, net sales orders and sales
order backlog information, we have added sales and sales order information of
each company that Roper has acquired during one of the two periods being
compared to the appropriate period, so that the acquired company's results are
included for the same number of months for both periods. Further, pro forma net
sales, net sales orders and sales order backlog information exclude amounts
attributable to discontinued or divested operations for the period presented.
Application of Critical Accounting Policies
Our consolidated financial statements are prepared in conformity with generally
accepted accounting principles in the United States, or GAAP. A discussion of
our significant accounting policies can be found in the notes to our
consolidated financial statements for the year ended October 31, 2002 included
elsewhere in this Annual Report.
GAAP offers acceptable alternative methods for accounting for certain issues
affecting our financial results, such as determining inventory cost,
depreciating long-lived assets, recognizing revenues and issuing stock options
to employees. We have not changed the application of acceptable accounting
methods or the significant estimates affecting the application of these
principles in the last three years in a manner that had a material effect on our
financial statements, except for the adoption of Statement of Financial
Accounting Standards, or SFAS, No. 142, "Goodwill and Other Intangible Assets"
as discussed below.
The preparation of financial statements in accordance with GAAP requires the use
of estimates, assumptions, judgments and interpretations that can affect the
reported amounts of assets, liabilities, revenues and expenses, the disclosure
of contingent assets and liabilities and other supplemental disclosures.
The development of accounting estimates is the responsibility of our management.
Our management discusses those areas that require significant judgments with the
audit committee of our board of directors. The audit committee has reviewed all
financial disclosures in our annual filings with the SEC. Although we believe
the positions we have taken with regard to uncertainties are reasonable, others
might reach different conclusions and our positions can change over time as more
information becomes available. If an accounting estimate changes, its effects
are accounted for prospectively.
14
Our most significant accounting uncertainties are encountered in the areas of
accounts receivable collectibility, inventory utilization, future warranty
obligations, revenue recognition (percent of completion), income taxes and
goodwill analysis. These issues, except for income taxes, which are not
allocated to our business segments, affect each of our business segments. These
issues are evaluated primarily using a combination of historical experience,
current conditions and relatively short-term forecasting.
Accounts receivable collectibility is based on the economic circumstances of
customers and credits given to customers after shipment of products, including
in certain cases, credits for returned products. Accounts receivable are
regularly reviewed to determine customers who have not paid within agreed upon
terms, whether these amounts are consistent with past experiences, what
historical experience has been with amounts deemed uncollectible and the impact
that current and near-term forecast economic conditions might have on collection
efforts in general and with specific customers. The returns and other sales
credits histories are analyzed to determine likely future rates for such
credits. At October 31, 2002, our allowance for doubtful accounts receivable,
sales returns and sales credits was $3.8 million, or 3% of total gross accounts
receivable excluding securitized Gazprom receivables from a vendor financing
program. This percentage is influenced by the risk profile of the underlying
receivables. During 2002, that profile improved with the acquisition of Zetec
and other improvements in collections from core businesses, and the allowance
was reduced as a percent of net sales by 50 basis points.
We regularly compare inventory quantities on hand against anticipated future
usage, which we determine as a function of historical usage or forecasts related
to specific items in order to evaluate obsolescence and excessive quantities.
When we use historical usage, this information is also qualitatively compared to
business trends to evaluate the reasonableness of using historical information
as an estimate of future usage. Business trends can change rapidly and these
events can affect the evaluation of inventory balances. At October 31, 2002,
inventory reserves for excess and obsolete inventory were $20.2 million, or 18%
of gross first-in, first-out inventory cost. This percentage has increased by
390 basis points over the year as the relative age of inventory increased during
the cyclical downturn.
Most of our sales are covered by warranty provisions that generally provide for
the repair or replacement of qualifying defective items for a specified period
after the time of sale, typically 12 months. Future warranty obligations are
evaluated using, among other factors, historical cost experience, product
evolution and customer feedback. At October 31, 2002, the accrual for future
warranty obligations was $3.7 million or 0.5% of proforma sales. Our expense for
warranty obligations was less than 1% of net sales for each of the three years
ended October 31, 2002.
Revenues related to the use of the percentage-of-completion method of accounting
are dependent on a comparison of total costs incurred compared with total
estimated costs for a project. During fiscal 2002, 2001 and 2000, we recognized
revenue of approximately $1.9 million, $7.9 million and $5.6 million,
respectively using this method. In addition, approximately $8.3 million of
revenue related to unfinished percentage-of-completion contracts had yet to be
recognized at October 31, 2002. Contracts accounted for under this method are
generally not significantly different in profitability from revenues accounted
for under other methods.
15
Income taxes can be affected by estimates of whether and within which
jurisdictions, future earnings will occur and how and when cash is repatriated
to the United States, combined with other aspects of an overall income tax
strategy. Additionally, taxing jurisdictions could retroactively disagree with
our tax treatment of certain items, and some historical transactions have income
tax effects going forward. Accounting rules require these future effects to be
evaluated using current laws, rules and regulations, each of which can change at
any time and in an unpredictable manner. During fiscal 2002, our effective
income tax rate was reduced to 31% from 34%. Two of the key factors related to
the reduced rate were our expected utilization of all available foreign income
tax credits and the accounting change related to goodwill amortization that was
expensed for book purposes prior to the adoption of SFAS 142 but not deductible
for income tax purposes.
We adopted SFAS No. 142 effective November 1, 2001 - the beginning of our fiscal
2002. SFAS 142, issued in June 2001, requires the adoption of its provisions by
the beginning of our fiscal 2003, but the timing of our fiscal year end also
allowed it to elect to adopt SFAS 142 at the beginning of fiscal 2002. Based
primarily on investor interest to see results reflecting adoption of SFAS 142,
we elected to adopt this new standard at the earlier date.
The evaluation of goodwill under SFAS 142 requires valuations of each applicable
underlying business. These valuations can be significantly affected by estimates
of future performance and discount rates over a relatively long period of time,
market price valuation multiples and marketplace transactions in related
markets. These estimates will likely change over time. Some of our businesses
operate in cyclical industries and the valuation of these businesses can be
expected to fluctuate as a result of this cyclicality. The transitional business
valuation reviews required by SFAS 142 indicated a reduction of the carrying
value of goodwill for three business units in the analytical instrumentation and
industrial controls segments. This goodwill reduction has been reported as a
change in accounting principle retroactive to the beginning of fiscal 2002 and
resulted in a transitional charge to earnings of approximately $26 million.
After the adoption of SFAS 142, goodwill is required to be evaluated annually.
If this annual review indicates further impairment of goodwill balances, that
entire impairment will be recorded immediately and reported as a component of
current operations. Our acquisitions have generally included a large goodwill
component and we expect to continue with future acquisitions.
Prior to adopting SFAS 142, goodwill was amortized over periods not exceeding 40
years. With the adoption of this standard, goodwill is not amortized. It is
periodically reviewed for impairment as discussed above. SFAS 142 does not
permit retroactive application to years prior to adoption. Therefore, earnings
beginning in fiscal 2002 tend to be higher than earlier periods as a result of
this accounting change, except for the effects of any impairment provision on
current results. Note 5 to our consolidated financial statements includes a
reconciliation comparing earnings of pre-adoption periods to earnings of current
periods for those periods presented. Goodwill amortization prior to the adoption
of SFAS 142 was largest in the analytical instrumentation segment and the amount
of goodwill currently recorded is also largest for this segment. We believe it
inappropriate to conclude whether the likelihood of any impairment charge
resulting from subsequent annual reviews is more likely in any business segment
compared to another segment.
16
At October 31, 2002, Roper's total assets included $460.2 million of goodwill.
Goodwill was allocated $288.4 million to our analytical instrumentation segment,
$66.0 million to our fluid handling segment and $105.8 million to our industrial
controls segment. Total goodwill was allocated to 23 different business units
with individual amounts ranging from less than $1 million to approximately $78
million.
17
Results of Operations
General
The following tables set forth selected information for the years indicated.
Dollar amounts are in thousands and percentages are of net sales.
Year ended October 31,
--------------------------------------------
2002 2001 2000
---------- ---------- ----------
Net sales
Analytical Instrumentation(1) $ 318,839 $ 264,369 $ 223,164
Fluid Handling(2) 105,441 125,399 121,387
Industrial Controls(3) 202,750 196,738 159,262
---------- ---------- ----------
Total $ 627,030 $ 586,506 $ 503,813
========== ========== ==========
Gross profit:
Analytical Instrumentation 56.1% 55.9% 54.4%
Fluid Handling 46.2 48.4 48.5
Industrial Controls 53.7 51.1 49.3
---------- ---------- ----------
Total 53.6 52.7 51.4
Operating profit:
Analytical Instrumentation 18.2% 19.7% 19.9%
Fluid Handling 20.4 23.9 26.2
Industrial Controls 24.0 22.6 19.5
---------- ---------- ----------
Total 20.5 21.5 21.3
Operating profit 20.5% 21.5% 21.3%
Goodwill amortization -- (2.7) (2.5)
Corporate administrative expenses (2.2) (1.6) (1.3)
Restructuring charges(4) -- (0.4) --
---------- ---------- ----------
Income from operations 18.3 16.8 17.5
Interest expense (3.0) (2.7) (2.7)
Euro debt currency exchange loss (0.7) -- --
Other income 0.6 0.6 0.3
---------- ---------- ----------
Earnings before income taxes and change in accounting principle 15.2 14.7 15.1
Income taxes (4.7) (5.2) (5.3)
Goodwill adjustment effective November 1, 2001, net of taxes (4.1) -- --
---------- ---------- ----------
Net earnings 6.4% 9.5% 9.8%
========== ========== ==========
(1) Includes results of Antek Instruments from August 2000, Struers and
Logitech from September 2001 and several smaller businesses acquired
during the years presented.
(2) Includes results of Abel Pump from May 2000 and several smaller businesses
acquired during the years presented.
(3) Includes results of Hansen Technologies from September 2000, Zetec from
August 2002 and several smaller businesses acquired during the years
presented.
(4) Restructuring charges were $2,230,000, $279,000 and $50,000 in industrial
controls, fluid handling and analytical instrumentation, respectively.
18
Year Ended October 31, 2002 Compared to Year Ended October 31, 2001
Net sales for fiscal 2002 were $627.0 million, a 7% increase compared to fiscal
2001, and a 7% decrease on a pro-forma basis compared to fiscal 2001. The 7%
increase over prior year is attributable to the inclusion of full year sales
from Struers and Logitech, which were acquired in the fourth quarter of fiscal
2001 as well as sales from the acquisition of Zetec in the fourth quarter of
fiscal 2002. These sales increases were offset by exiting certain Petrotech
businesses and sales declines in other businesses due to widespread weak
economic conditions. The 7% decrease compared to pro forma net sales is
primarily attributable to exiting of certain Petrotech businesses, continued
declines in the semiconductor market and the downturn in oil and gas exploration
and certain industrial markets. The impact of these difficult market conditions
was somewhat mitigated by a 15% increase in sales to Gazprom and an 8% increase
in sales in our fluid properties testing businesses as their products help
customers respond to stricter environmental controls regarding sulfur content in
petroleum products.
In our Analytical Instrumentation segment, actual net sales increased 21% and
pro-forma net sales decreased 7%. The increase in actual net sales resulted
principally from the contribution of acquisitions and increased sales in our
fluid properties testing businesses. This was offset by lower sales into
semiconductor markets and lower motion product sales by Redlake due to the
pending release of a new generation of products that we anticipate to begin
shipping during the first half of fiscal 2003.
In our Fluid Handling segment, net sales declined 16% compared to fiscal 2001
primarily from the downturn in the semiconductor capital equipment market and
weakness in industrial and oil & gas exploration markets.
In our Industrial Controls segment, actual net sales increased 3% and pro-forma
net sales were roughly flat with fiscal 2001. Actual net sales increased
primarily as a result of the acquisition of Zetec and gains from certain oil &
gas control system applications, particularly those sold to Gazprom, partly
reduced by lower sales from exiting certain Petrotech businesses in fiscal 2001.
The increase in our overall gross profit percentage to 53.6% in fiscal 2002
compared to 52.7% to in fiscal 2001 was mostly due to exiting low margin
businesses at Petrotech. This also caused an increase in margins for the
industrial controls segment to 53.7% in fiscal 2002 compared to 51.1% in fiscal
2001. Analytical instrumentation gross margins were roughly flat at 56.1% in
fiscal 2002 compared to 55.9% in fiscal 2001. Fluid Handling's gross margins
decreased to 46.2% in fiscal 2002 compared to 48.4% in fiscal 2001. This
decrease was caused mostly by adverse volume leverage in our industrial pumps
businesses.
Excluding the effects from the accounting change related to goodwill and the
restructuring charges expensed in fiscal 2001, selling, general and
administrative ("SG&A") expenses increased to 35.3% of net sales in fiscal 2002
compared to 32.8% of sales in fiscal 2001. This increase is attributable to
higher SG&A expense levels at newly acquired businesses. SG&A expenses for
companies included in all of both 2002 and 2001 declined 2% in 2002 despite
significantly increased R&D and other engineering expenses at some of our
digital imaging companies. This spending was most notable at Redlake MASD as it
continues to develop new products it expects to be available in the
19
second quarter of fiscal 2003. There was also an increase in corporate SG&A due
primarily to an increase in medical insurance costs and salaries and related
employee relocation costs. As a percentage of net sales, SG&A expenses also
increased in 2002 compared to 2001 for each of our three business segments by
between 1% and 2%.
Interest expense increased $2.6 million, or 16%, for the year ended October 31,
2002 compared to the year ended October 31, 2001. Average borrowing levels were
approximately 36% higher during fiscal 2002 compared to the prior year and
effective interest rates were approximately 14% lower during fiscal 2002
compared to fiscal 2001. Higher borrowing levels in fiscal 2002 were primarily
from the September 2001 acquisition of Struers and Logitech and the July 2002
acquisition of Zetec.
A euro debt foreign exchange loss of $4.1 million arose from euro-denominated
debt that was carried in the U.S. and the strengthening of the euro against the
U.S. dollar during the third quarter of fiscal 2002. This debt matured near July
31, 2002 and was replaced with U.S. dollar denominated debt.
Income taxes were 31% of pretax earnings in fiscal 2002 compared to 35% in
fiscal 2001. Two of the key factors related to the reduced rate were the change
in accounting for goodwill amortization and our expected utilization of all
available foreign income tax credits associated with European tax structures.
During fiscal 2002, we completed a transition review for goodwill impairment
under SFAS 142 as of November 1, 2001. This review initially compared the fair
value of each previously acquired reporting unit to its carrying value. If an
impairment was indicated, the amount was then determined by comparing the
implied fair value of goodwill to its carrying amount. This impairment was
reported as a change in accounting principle, was a non-cash charge and was
related to the Redlake, Petrotech and Dynamco units.
At October 31, 2002, the functional currencies of our European subsidiaries were
stronger against the U.S. dollar compared to currency exchange rates at October
31, 2001. This strengthening resulted in a gain of $13.7 million in the foreign
exchange component of comprehensive earnings for fiscal 2002. Approximately $11
million of this adjustment related to goodwill and is not expected to directly
affect our expected future cash flows. Fiscal 2002's operating results also
benefited slightly from the stronger non-U.S. currencies. The benefits were less
than 2% of operating earnings. Foreign exchange differences related to our other
non-U.S. subsidiaries were immaterial to fiscal 2002's financial information.
20
The following table summarizes our net sales order information for the years
ended October 31 (dollar amounts in thousands).
2002 2001
-------------------------- -------------------------- Pro forma
Pro forma Actual Pro forma Actual change
----------- ----------- ----------- ----------- ---------
Analytical Instrumentation $ 314,237 $ 314,237 $ 339,935 $ 260,927 -8%
Fluid Handling 103,858 103,858 121,231 121,231 -14
Industrial Controls 196,933 196,933 207,292 200,681 -5
----------- ----------- ----------- ----------- ------
Total $ 615,028 $ 615,028 $ 668,458 $ 582,839 -8%
=========== =========== =========== ===========
Our fluid handling segment was more exposed to poor semiconductor conditions
than the other two segments. Semiconductor-related sales orders were down
significantly in fiscal 2002 compared to fiscal 2001. Excluding this business,
fluid handling's net sales orders decreased 10% in fiscal 2002 compared to
fiscal 2001.
The decrease in analytical instrumentation net sales orders was attributed to
weak semiconductor , electronics and automotive markets that more than offset
the increase in fluid properties testing. Aside from the semiconductor decline,
the fluid handling segment decline in net sales orders also reflected the weak
oil and gas exploration and power generation markets. A one-time supplemental
order of $20 million from Gazprom in fiscal 2001 caused unfavorable comparisons
in the industrial controls segment.
21
The following table summarizes sales order backlog information at October 31
(dollar amounts in thousands).
2002 2001
-------------------------- -------------------------- Pro forma
Pro forma Actual Pro forma Actual change
----------- ----------- ----------- ----------- ---------
Analytical Instrumentation $ 57,865 $ 57,865 $ 64,126 $ 62,609 -10%
Fluid Handling 19,799 19,799 21,678 21,678 -9
Industrial Controls 35,427 35,427 35,945 31,217 -1
----------- ----------- ----------- ----------- ------
Total $ 113,091 $ 113,091 $ 121,749 $ 115,504 -7%
=========== =========== =========== ===========
A significant impact on the decreased sales order backlog at October 31, 2002
compared to October 31, 2001 was the $11.5 million residual one-time
supplemental Gazprom order which is included in the prior year backlog for
industrial controls. Excluding this order, backlog is up 2%. Declines in
analytical instrumentation and fluid handling were attributable to weak
electronics and oil exploration markets, respectively.
Year Ended October 31, 2001 Compared to Year Ended October 31, 2000
Net sales for fiscal 2001 were $586.5 million, a 16% increase compared to fiscal
2000. Excluding sales to Gazprom, net sales increased 14% in fiscal 2001
compared to fiscal 2000. Fiscal 2001 pro forma net sales increased 5% compared
to pro forma net sales during fiscal 2000.
In our analytical instrumentation segment, actual net sales increased 18% in
fiscal 2001 and pro forma net sales increased 5%. The increase in actual net
sales resulted mostly from the contribution of companies acquired during fiscal
2001 and 2000. The increase in pro forma net sales resulted mostly from strong
digital imaging demand from research markets. Weakness in the automobile
industry adversely affected sales of our high-speed digital camera products and
our industrial leak test products.
In our fluid handling segment, actual net sales increased 3% in fiscal 2001 and
pro forma net sales decreased 7%. Actual net sales increased primarily as the
result of companies acquired during fiscal 2001 and 2000. Pro forma net sales
decreased primarily as the result of depressed business conditions in the
semiconductor industry. This segment's pro forma net sales to this industry
decreased 33% in fiscal 2001 compared to fiscal 2000. Net sales in fiscal 2001
for this segment's businesses not serving the semiconductor industry increased
2% compared to pro forma net sales in fiscal 2000.
In our industrial controls segment, actual net sales increased 24% and pro forma
net sales increased 13%. Actual net sales increased primarily as a result of
companies acquired since the beginning of fiscal 2000, increased shipments to
Gazprom and higher revenues from customers in energy markets. These increases
were partially offset by lower revenues at Petrotech that resulted from
restructuring activities that occurred during fiscal 2001. Pro forma net sales
increased primarily as a
22
result of additional sales to Gazprom. Sales to Gazprom were $49.3 million
during fiscal 2001, or an increase of 45% compared to fiscal 2000.
Our overall gross profit percentage increased to 52.7% in fiscal 2001 compared
to 51.4% in fiscal 2000. Several factors were the largest contributors to the
change. The largest factor was the growth in our Analytical Instrumentation
segment, the highest gross margin segment. Other large factors contributing to
increased margins were improved leverage on the additional sales to Gazprom and
the benefits from exiting certain low margin businesses at Petrotech during
2001. Increased sales from our lower margin refrigeration valves business that
was acquired in September 2000 adversely affected margins.
Analytical instrumentation's gross margin increased to 55.9% in fiscal 2001
compared to 54.4% in fiscal 2000. Most of this improvement resulted from
favorable leverage related to increased digital imaging sales and the
incremental sales at Struers and Logitech that were at relatively high margins.
Fluid handling's gross margin decreased to 48.4% in fiscal 2001 compared to
48.5% in fiscal 2000. This decrease was caused mostly by lower sales of its high
margin semiconductor-related products. Industrial controls' gross margin
increased to 51.1% in fiscal 2001 compared to 49.3% in fiscal 2000. This
increase was caused primarily by the favorable effects of increased sales to
Gazprom and lower sales from exited businesses, and was partially offset by
increased sales of lower-margin refrigeration valve products.
SG&A expenses as a percentage of net sales in fiscal 2001 and fiscal 2000 are
presented in the following table.
2001 2000
-------------------- -------------------
Total Adjusted* Total Adjusted*
----- --------- ----- ---------
Analytical Instrumentation 39.5% 36.2% 38.0% 34.5%
Fluid Handling 26.8 24.5 24.1 22.3
Industrial Controls 31.9 28.5 31.4 29.8
Corporate 1.7 1.7 1.3 1.3
---- ---- ---- ----
Total 35.9% 32.8% 33.9% 31.3%
==== ==== ==== ====
* Excludes goodwill amortization for fiscal 2001 and 2000 and
restructuring charges included in fiscal 2001.
The increase in SG&A costs as a percentage of net sales in fiscal 2001 compared
to fiscal 2000 for the fluid handling segment was caused by the adverse leverage
that resulted from the quick and deep cyclical decline in the segment's
semiconductor-related business. Other changes in the relationships between SG&A
costs and net sales were not considered significant.
Interest expense was $15.9 million in fiscal 2001 compared to $13.5 million in
fiscal 2000. Interest expense was higher in fiscal 2001 mostly due to the
borrowings associated with the acquisitions that occurred since the beginning of
fiscal 2000. All of these acquisitions, representing total costs of over $330
million during these two fiscal years, were paid for with cash provided by our
then-existing credit facilities. Short-term interest rates started to decline
dramatically early in calendar 2001. The effective interest rate was
approximately 6.5% during fiscal 2001 compared to approximately 6.9% during
fiscal 2000.
23
The provision for income taxes was 35.4% of pretax earnings in fiscal 2001
compared to 35.1% in fiscal 2000. This change was not considered significant.
The other components of comprehensive earnings in fiscal 2001 were currency
translation adjustments resulting from net assets denominated in currencies
other than the U.S. dollar. These net assets were primarily denominated in
euros, British pounds, Danish krone or Japanese yen. During fiscal 2001, the
U.S. dollar weakened against the euro, was relatively stable against the pound
and strengthened against the yen and krone (after the acquisition of Danish
assets in September 2001). During fiscal 2001, our consolidated net assets
increased $1.2 million due to foreign currency translation adjustments.
The following table summarizes net sales order information for the years ended
October 31 (dollar amounts in thousands).
2001 2000
-------------------------- -------------------------- Pro forma
Pro forma Actual Pro forma Actual change
----------- ----------- ----------- ----------- -------
Analytical Instrumentation $ 260,927 $ 260,927 $ 273,105 $ 239,903 -4%
Fluid Handling 121,231 121,231 142,858 128,925 -15
Industrial Controls 195,073 200,681 170,267 160,136 +15
----------- ----------- ----------- -----------
Total $ 577,231 $ 582,839 $ 586,230 $ 528,964 -2%
=========== =========== =========== ===========
The decrease in analytical instrumentation's pro forma net sales orders in
fiscal 2001 compared to fiscal 2000 was broad-based. Net sales orders for each
major product group declined from 2% - 9%. This segment's businesses were
adversely affected by poor market conditions in the automotive and semiconductor
industries. The decrease in pro forma net sales orders for the fluid handling
segment was caused largely by a decline in semiconductor-related orders. The
increase in pro forma net sales orders for the industrial controls segment was
caused primarily by additional orders from Gazprom.
The following table summarizes our sales order backlog information at October 31
(dollar amounts in thousands).
2001 2000
-------------------------- -------------------------- Pro forma
Pro forma Actual Pro forma Actual change
----------- ----------- ----------- ----------- -------
Analytical Instrumentation $ 62,609 $ 62,609 $ 68,092 $ 54,550 -8%
Fluid Handling 21,678 21,678 26,073 26,073 -17
Industrial Controls 31,217 31,217 25,166 29,246 +24
----------- ----------- ----------- -----------
Total $ 115,504 $ 115,504 $ 119,331 $ 109,869 -3%
=========== =========== =========== ===========
Changes in sales order backlog were consistent with changes in net sales orders.
24
Financial Condition, Liquidity and Capital Resources
Net cash provided by operating activities was $87.0 million in fiscal 2002,
$102.4 million in fiscal 2001 and $67.6 million during fiscal 2000. Most of this
decrease in fiscal 2002 compared to fiscal 2001 was attributed to the one-time
supplemental order for Gazprom, partially offset by improved cash generation
from assets. Cash flows from investing activities during each of fiscal 2002,
2001, and 2000 were mostly business acquisition costs. Cash flows from financing
activities during each of these years were mostly the borrowing activities
associated with the business acquisitions and the debt reductions from our other
net positive cash flows. Financing activities in fiscal 2000 also included
refinancing our then-existing $200 million credit agreement with our current
$275 million credit facility and the issuance of $125 million of senior notes.
Total current assets, excluding cash, exceeded total current liabilities,
excluding debt, by $125.5 million at October 31, 2002 compared to $115.6 million
at October 31, 2001. We acquired approximately $10 million of net current assets
through business acquisitions during fiscal 2002. We also financed a $20 million
one-time supplemental order for Gazprom. Working capital was otherwise reduced
by approximately $20 million during fiscal 2002 due to improved management of
our accounts receivable, inventories and payables. Total debt was $332.1 million
at October 31, 2002 (47% of total capital) compared to $326.8 million at October
31, 2001 (50% of total capital). Our increased debt at October 31, 2002 compared
to that a year ago was due to the borrowings incurred to fund fiscal 2002
business acquisitions in excess of cash generated by existing operations.
Our principal $275 million credit facility with a group of banks provides most
of our daily external financing requirements, consisting of revolving loans,
swing line loans and letters of credit. At October 31, 2002, utilization of this
facility included $144.7 million of U.S. denominated borrowings, the equivalent
of $41.7 million of non-U.S. denominated borrowings and $3.3 million of
outstanding letters of credit. Total unused availability under this facility was
$85.3 million at October 31, 2002. We expect that our available additional
borrowing capacity combined with the cash flows expected to be generated from
existing business will be sufficient to fund normal operating requirements and
finance some additional acquisitions. This facility matures May 2005. We also
have several smaller facilities that allow for borrowings or the issuance of
letters of credit in various foreign locations to support our non-U.S.
businesses. In total, these smaller facilities do not represent a significant
source of credit for us.
Our outstanding indebtedness at October 31, 2002 also included $125 million of
term notes maturing in May 2007 and May 2010 and do not require sinking fund
payments. We may prepay the notes by paying the holders thereof the discounted
present value of all remaining scheduled payments using a discount rate equal to
the sum of 50 basis points plus the yield of the U.S. Treasury Notes
corresponding to the then remaining average life of the notes being prepaid.
Capital expenditures of $7.8 million, $7.5 million and $15.2 million were
incurred during fiscal 2002, 2001 and 2000, respectively. We expect capital
expenditures in fiscal 2003 to be comparable as a percentage of sales to the
past two years.
25
In November 2002, Roper's Board of Directors increased the quarterly cash
dividend paid on our outstanding common stock to $0.0875 per share from $0.0825
per share, an increase of 6%. This represents the tenth consecutive year in
which the quarterly dividend has been increased since Roper's 1992 initial
public offering. Our board of directors has declared a dividend payable on
January 31, 2003. Payment of any additional dividends requires further action by
the board of directors.
Contractual Cash Obligations and Other Commercial Commitments and Contingencies
The following table quantifies our contractual cash obligations and
commercial commitments at October 31, 2002 (dollars in thousands).
Payments Due in Fiscal
Contractual
Cash Obligations Total 2003 2004 2005 2006 2007 Thereafter
---- ---- ---- ---- ---- ----------
Long-term debt $332,105 $20,515 $ 135 $186,455 $ 0 $40,000 $85,000
Operating Leases 38,900 8,900 6,800 4,900 3,600 2,800 11,900
-------- ------- ------ -------- ------ ------- -------
Total $371,005 $29,415 6,935 191,355 3,600 42,800 96,900
======== ======= ====== ======== ====== ======= =======
Amounts Expiring in Fiscal
Total
Other Commercial Amount
Commitments Committed 2003 2004 2005 2006 2007 Thereafter
---- ---- ---- ---- ---- ----------
Standby letters
of credit $ 3,336 $ 3,336 -- -- -- -- --
-------- ------- ------ -------- ------ ------- -------
Total $ 3,336 $ 3,336 $ -- -- -- -- --
======== ======= ====== ======== ====== ======= =======
At October 31, 2002 and 2001, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes.
We believe that internally generated cash flows and the remaining availability
under our various credit facilities will be adequate to finance normal operating
requirements and further acquisition activities. Although we maintain an active
acquisition program, any further acquisitions will be dependent on numerous
factors and it is not feasible to reasonably estimate if or when any such
acquisitions will occur and what the impact will be on our activities, financial
condition and results of operations. We may also explore alternatives to attract
additional capital resources.
26
We anticipate that our recently acquired companies as well as our other
companies will generate positive cash flows from operating activities, and that
these cash flows will permit the reduction of currently outstanding debt at a
pace consistent with that which has historically been experienced. However, the
rate at which we can reduce our debt during fiscal 2003 (and reduce the
associated interest expense) will be affected by, among other things, the
financing and operating requirements of any new acquisitions and the financial
performance of our existing companies; and none of these factors can be
predicted with certainty.
Recently Issued Accounting Standards
The Financial Accounting Standards Board ("FASB") issued SFAS 143 - "Accounting
for Asset Retirement Obligations" that Roper is required to adopt by November 1,
2002. Roper does not currently have, nor is it expected to have, any material
asset retirement obligations subject to this new standard.
The FASB issued SFAS 144 - "Accounting for the Impairment or Disposal of
Long-Lived Assets" that Roper is required to adopt by November 1, 2002. This new
standard does not apply to goodwill. Roper does not expect the adoption of this
standard to result in an impairment charge.
The FASB issued SFAS 145 that rescinded, amended or made technical corrections
to several previously issued statements. None of these changes are expected to
significantly affect Roper's accounting or financial reporting practices.
The FASB issued SFAS 146 - "Accounting for Costs Associated with Exit or
Disposal Activities" that Roper is required to adopt for applicable transactions
after December 31, 2002. This standard modifies the timing of when certain costs
are reported.
27
Outlook
We currently expect sales and net income for fiscal 2003 to be higher than for
fiscal 2002. Fiscal 2003 is expected to benefit from the full-year contributions
from the businesses acquired during fiscal 2002, especially Zetec, from
additional efforts to make our companies more efficient, and from reduced
interest expense resulting from paying down our debt. The conditions in the
semiconductor industry are currently poor and we do not expect any meaningful
recovery in this industry during fiscal 2003. The overall economic conditions of
the U.S.A. and Europe are sluggish and both the Federal Reserve Board and the
European Central Bank recently lowered discount rates yet again in an effort to
stimulate the respective economies. There continue to be terrorist threats
against the U.S. and its allies and also the possibility of military action
against Iraq. A significant terrorist attack or military action against Iraq
could cause changes in world economies that would adversely affect us. It is
impossible to isolate each of these factor's effects on current economic
conditions. It is also impossible to predict with any reasonable degree of
certainty what or when any additional events may occur that also will similarly
disrupt the economy.
We expect to continue an active acquisition program. However, completion of
future acquisitions and their impact on ours results or financial condition
cannot be accurately predicted.
Information About Forward Looking Statements
This Annual Report contains forward-looking statements within the meaning
of the federal securities laws. In addition, we, or our executive officers on
our behalf, may from time to time make forward-looking statements in reports and
other documents we file with the SEC or in connection with oral statements made
to the press, potential investors or others. Statements that are not historical
facts, including statements about our beliefs and expectations, are
forward-looking statements. Forward-looking statements include statements
preceded by, followed by or that include the words, "believes," "expects,"
"anticipates," "plans," "estimates" or similar expressions. These statements
include, among others, statements regarding our expected business outlook,
anticipated financial and operating results, strategies, contingencies,
financing plans, working capital needs, sources of liquidity, capital
expenditures and contemplated acquisitions.
Forward-looking statements are only predictions and are not guarantees of
performance. These statements are based on beliefs and assumptions of our
management, which in turn are based on currently available information.
Important assumptions relating to the forward-looking statements include, among
others, assumptions regarding demand for our products, expected pricing levels,
parts and components costs, the timing and cost of planned capital expenditures,
the estimated cost of environmental compliance, expected outcomes of pending
litigation, competitive conditions and general economic conditions. These
assumptions could prove inaccurate. The forward-looking statements also involve
risks and uncertainties, which could cause actual results to differ materially
from those contained in any forward-looking statement. Many of these factors are
beyond our ability to control or predict. Such factors include, but are not
limited to, the following:
o reductions in our business with Gazprom;
28
o unfavorable changes in foreign exchange rates;
o difficulties associated with exports;
o risks associated with our international operations;
o difficulty making acquisitions and successfully integrating acquired
businesses;
o increased product liability and insurance costs'
o increased warranty exposure;
o the fact that our former independent auditors, Arthur Andersen LLP
has ceased operations as described in the Notice filed as Exhibit
23.2 to this Annual Report;
o future competition;
o changes in the supply of, or price for, parts and components;
o environmental compliance costs and liabilities;
o risks and costs associated with asbestos-related litigation;
o potential write-offs of our substantial intangible assets; and
o the factors discussed in Exhibit 99.1 to this Annual Report under
the heading "Risk Factors."
We believe these forward-looking statements are reasonable; however, undue
reliance should not be placed on any forward-looking statements, which are based
on current expectations. Further, forward-looking statements speak only as of
the date they are made, and we undertake no obligation to update publicly any of
them in light of new information or future events.
29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to interest rate risks on its outstanding borrowings. We are
exposed to foreign currency exchange risks on our transactions denominated in
currencies other than the U.S. dollar. We are also exposed to equity market
risks pertaining to the traded price of our common stock.
At October 31, 2002, we had a combination of fixed-rate borrowings (primarily
$125 million of term notes) and relatively variable-rate borrowings (primarily
borrowings under the $275 million credit facility). Although each borrowing
under the $275 million credit facility has a fixed rate, the terms of these
individual borrowings are generally only 1-3 months.
At October 31, 2002, prevailing market interest rates were lower than the fixed
rates on the term notes by 2-3 percentage points. This resulted in the estimated
fair values of the term notes using a discounted cash flows model being greater
than the face amounts of the notes by an estimated $15.6 million and it
represented an unrecorded decrease in our net assets at October 31, 2002. There
was a comparable unrecorded decrease in our net assets of $11.7 million at
October 31, 2001. If interest rates had been 1% higher at October 31, 2002, the
difference between the fair values of the term notes and their face values would
have been approximately $7.1 million smaller. These interest rate differences do
not directly affect our reported earnings or cash flows.
At October 31, 2002, Roper's outstanding variable-rate borrowings under the $275
million credit facility were $186.4 million. An increase in interest rates of 1%
would increase our annualized interest costs by $1.9 million.
Several Roper companies have transactions and balances denominated in currencies
other than the U.S. dollar. Most of these transactions or balances are
denominated in euros, British pounds, Danish krone or Japanese yen.
Sales by companies whose functional currency was not the U.S. dollar were 28% of
our total sales and 80% of these sales were by companies with a European
functional currency. The U.S. dollar weakened against these European currencies
during fiscal 2002 and was relatively stable compared to other currencies. The
difference between fiscal 2002's operating results for these companies
translated into U.S. dollars at average currency exchange rates experienced
during fiscal 2002 and these operating results translated into U.S. dollars at
average currency exchange rates experienced during fiscal 2001 was not material.
If these currency exchange rates had been 10% different throughout fiscal 2002
compared to currency exchange rates actually experienced, the impact on our
expected net earnings would have been approximately $2 million.
The changes of these currency exchange rates relative to the U.S. dollar during
fiscal 2002 compared to currency exchange rates at October 31, 2001 resulted in
an increase in net assets of $13.7 million that was reported as a component of
comprehensive earnings, $10.9 million of which was attributed to goodwill.
Goodwill changes from currency exchange rate changes do not directly affect our
reported earnings or cash flows.
30
The trading price of Roper's common stock influences the valuation of stock
option grants and the effects these grants have on pro forma earnings disclosed
in our financial statements. The stock prices also influence the computation of
the dilutive effect of outstanding stock options to determine diluted earnings
per share. The stock price also affects our employees' perceptions of various
programs that involve our common stock. We believe the quantification of the
effects of these changing prices on our future earnings and cash flows is not
readily determinable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item begin at
page F-1 hereof.
31
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
Page
Consolidated Financial Statements:
Report of Independent Accountants (PricewaterhouseCoopers LLP) ...........F-2
Report of Independent Public Accountants (Arthur Andersen LLP) ...........F-3
Consolidated Balance Sheets as of October 31, 2002 and 2001 ..............F-4
Consolidated Statements of Earnings for the Years ended
October 31, 2002, 2001 and 2000 ........................................F-5
Consolidated Statements of Stockholders' Equity and Comprehensive
Earnings for the Years ended October 31, 2002, 2001 and 2000 ...........F-6
Consolidated Statements of Cash Flows for the Years ended
October 31, 2002, 2001 and 2000 ........................................F-7
Notes to Consolidated Financial Statements ...............................F-8
Supplementary Data:
Schedule II - Consolidated Valuation and Qualifying Accounts
for the Years ended October 31, 2002, 2001 and 2000 ....................S-2
F-1
Report of Independent Accountants
To the Shareholders of Roper Industries, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, stockholders' equity and comprehensive
earnings and cash flows present fairly, in all material respects, the financial
position of Roper Industries, Inc. and its subsidiaries at October 31, 2002 and
2001, and the results of their operations and their cash flows for the years
then ended in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. The consolidated financial
statements of Roper Industries, Inc. as of October 31, 2000, and for the year
then ended, prior to the revision described in Note 5, were audited by other
independent public accountants who have ceased operations. Those independent
public accountants expressed an unqualified opinion on those financial
statements in their report dated December 6, 2000.
As discussed in Note 1 to the consolidated financial statements, on November 1,
2001, Roper Industries, Inc. adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets".
As discussed above, the financial statements of Roper Industries, Inc. as of
October 31, 2000, and for the year then ended, prior to the revision described
in Note 5, were audited by other independent public accountants who have ceased
operations. As described in Note 5, these financial statements have been revised
to include the transitional disclosures required by Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which was
adopted by Roper Industries, Inc. as of November 1, 2001. We audited the
transitional disclosures described in Note 5. In our opinion, the transitional
disclosures for 2000 in Note 5 are appropriate. However, we were not engaged to
audit, review, or apply any procedures to the 2000 financial statements of Roper
Industries, Inc. other than with respect to such disclosures and, accordingly,
we do not express an opinion or any form of assurance on the 2000 financial
statements taken as a whole.
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 11, 2002
F-2
NOTE: THIS IS A COPY OF A REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP, OUR
FORMER INDEPENDENT PUBLIC ACCOUNTANTS. THIS REPORT HAS NOT BEEN REISSUED
BY ARTHUR ANDERSEN LLP IN CONNECTION WITH THE FILING OF ROPER'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCTOBER 31, 2002.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Roper Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Roper
Industries, Inc. (a Delaware corporation) and subsidiaries as of October 31,
2000 and 1999, and the related consolidated statements of earnings,
stockholders' equity and comprehensive earnings and cash flows for the years
then ended. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and the
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Roper Industries,
Inc. and subsidiaries as of October 31, 2000 and 1999, and the results of its
operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in Item 14 (II) of this Annual Report on Form 10-K is presented for the purpose
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Atlanta, Georgia
December 6, 2000
F-3
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 31, 2002 and 2001
(in thousands, except per share data)
2002 2001
--------- ---------
Assets
Cash and cash equivalents $ 12,362 $ 16,190
Accounts receivable, net 140,897 121,271
Inventories 88,991 90,347
Other current assets 5,372 4,884
--------- ---------
Total current assets 247,622 232,692
Property, plant and equipment, net 51,339 51,887
Goodwill, net 460,188 421,916
Other intangible assets, net 37,032 28,781
Other noncurrent assets 32,792 26,846
--------- ---------
Total assets $ 828,973 $ 762,122
========= =========
Liabilities and Stockholders' Equity
Accounts payable $ 35,963 $ 34,233
Accrued liabilities 66,141 61,020
Income taxes payable 7,618 5,617
Current portion of long-term debt 20,515 3,010
--------- ---------
Total current liabilities 130,237 103,880
Long-term debt 311,590 323,830
Other noncurrent liabilities 11,134 10,906
--------- ---------
Total liabilities 452,961 438,616
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value per share; 1,000 shares authorized;
none outstanding -- --
Common stock, $0.01 par value per share; 80,000 shares authorized;
32,593 shares issued and 31,363 outstanding at October 31, 2002 and
32,131 shares issued and 30,879 outstanding at October 31, 2001 326 321
Additional paid-in capital 89,153 80,510
Retained earnings 304,995 275,259
Accumulated other comprehensive earnings 5,940 (7,757)
Treasury stock, 1,230 shares October 31, 2002 and 1,252 shares at
October 31, 2001 (24,402) (24,827)
--------- ---------
Total stockholders' equity 376,012 323,506
--------- ---------
Total liabilities and stockholders' equity $ 828,973 $ 762,122
========= =========
See accompanying notes to consolidated financial statements.
F-4
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Years ended October 31, 2002, 2001 and 2000
(Dollar and share amounts in thousands, except per share data)
2002 2001 2000
--------- -------- --------
Net sales $ 627,030 $586,506 $503,813
Cost of sales 290,711 277,536 244,989
--------- -------- --------
Gross profit 336,319 308,970 258,824
Selling, general and administrative expenses 221,490 210,542 170,628
--------- -------- --------
Income from operations 114,829 98,428 88,196
Interest expense 18,506 15,917 13,483
Euro debt currency exchange loss 4,093 -- --
Other income 3,456 3,928 1,218
--------- -------- --------
Earnings before income taxes and change in accounting principle 95,686 86,439 75,931
Income taxes 29,663 30,600 26,653
--------- -------- --------
Earnings before change in accounting principle 66,023 55,839 49,278
Goodwill impairment, net of taxes of $11,130 (25,970) -- --
--------- -------- --------
Net earnings $ 40,053 $ 55,839 $ 49,278
========= ======== ========
Earnings per share:
Basic:
Earnings before change in accounting principle $ 2.12 $ 1.82 $ 1.62
Goodwill adjustment effective November 1, 2001 (0.84) -- --
--------- -------- --------
Net earnings $ 1.28 $ 1.82 $ 1.62
========= ======== ========
Diluted:
Earnings before change in accounting principle $ 2.08 $ 1.77 $ 1.58
Goodwill adjustment effective November 1, 2001 (0.82) -- --
--------- -------- --------
Net earnings $ 1.26 $ 1.77 $ 1.58
========= ======== ========
Weighted average common shares outstanding:
Basic 31,210 30,758 30,457
========= ======== ========
Diluted 31,815 31,493 31,182
========= ======== ========
See accompanying notes to consolidated financial statements.
F-5
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE EARNINGS
Years ended October 31, 2002, 2001 and 2000
(in thousands, except per share data)
Accumulated
Additional other Total Compre-
Common stock paid-in Retained comprehensive Treasury stockholders' hensive
Shares Amount capital earnings earnings stock equity earnings
------ ---- ------- --------- -------- -------- --------- ----------
Balances at October 31, 1999 30,282 $316 $71,084 $ 187,911 $ (2,172) $(25,171) $ 231,968
Net earnings -- -- -- 49,278 -- -- 49,278 $ 49,278
Exercise of stock options, net 308 3 3,949 -- -- -- 3,952 --
Currency translation adjustments -- -- -- -- (6,741) -- (6,741) (6,741)
Cash dividends ($0.28 per share) -- -- -- (8,537) -- -- (8,537) --
Treasury stock sold 9 -- 84 -- -- 187 271 --
------ ---- ------- --------- -------- -------- --------- ----------
Balances at October 31, 2000 30,599 319 75,117 228,652 (8,913) (24,984) 270,191 $ 42,537
==========
Net earnings -- -- -- 55,839 -- -- 55,839 $ 55,839
Exercise of stock options, net 272 2 5,293 -- -- -- 5,295 --
Currency translation adjustments -- -- -- -- 1,156 -- 1,156 1,156
Cash dividends ($0.30 per share) -- -- -- (9,232) -- -- (9,232) --
Treasury stock sold 8 -- 100 -- -- 157 257 --
------ ---- ------- --------- -------- -------- --------- ----------
Balances at October 31, 2001 30,879 321 80,510 275,259 (7,757) (24,827) 323,506 $ 56,995
==========
Net earnings -- -- -- 40,053 -- -- 40,053 $ 40,053
Stock option transactions 462 5 8,096 -- -- -- 8,101 --
Incentive bonus plan transactions 11 -- 325 -- -- 210 535 --
Currency translation adjustments -- -- -- -- 13,697 -- 13,697 13,697
Cash dividends ($0.33 per share) -- -- -- (10,317) -- -- (10,317) --
Treasury stock sold 11 -- 222 -- -- 215 437 --
------ ---- ------- --------- -------- -------- --------- ----------
Balances at October 31, 2002 31,363 $326 $89,153 $ 304,995 $ 5,940 $(24,402) $ 376,012 $ 53,750
====== ==== ======= ========= ======== ======== ========= ==========
See accompanying notes to consolidated financial statements.
F-6
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended October 31, 2002, 2001 and 2000
(in thousands)
2002 2001 2000
-------- --------- ---------
Cash flows from operating activities:
Net earnings $ 40,053 $ 55,839 $ 49,278
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization of property, plant
and equipment 11,721 9,993 8,623
Amortization of intangible assets 3,455 17,462 13,675
Goodwill transitional impairment, net of tax 25,970 -- --
Changes in operating assets and liabilities, net of
acquired businesses:
Accounts receivable 7,653 10,412 (13,863)
Inventories 10,723 7,418 (4,357)
Accounts payable and accrued liabilities (5,432) 5,790 14,001
Income taxes payable 6,723 1,725 786
Note receivable - supplier financing (11,710) (8,451) --
Other, net (2,187) 2,254 (504)
-------- --------- ---------
Net cash provided by operating activities 86,969 102,442 67,639
-------- --------- ---------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (82,813) (170,180) (161,546)
Capital expenditures (7,780) (7,455) (15,150)
Other, net (1,871) 906 (1,531)
-------- --------- ---------
Net cash used in investing activities (92,464) (176,729) (178,227)
-------- --------- ---------
Cash flows from financing activities:
Proceeds from notes payable and long-term debt 76,621 146,125 321,941
Principal payments on notes payable and long-term debt (74,363) (62,815) (208,012)
Cash dividends to stockholders (10,317) (9,232) (8,537)
Treasury stock sales 972 257 271
Proceeds from stock option exercises, net 7,867 4,531 3,952
-------- --------- ---------
Net cash provided by financing activities 780 78,866 109,615
-------- --------- ---------
Effect of exchange rate changes on cash 887 239 (1,145)
-------- --------- ---------
Net increase (decrease) in cash and cash equivalents (3,828) 4,818 (2,118)
Cash and cash equivalents, beginning of year 16,190 11,372 13,490
-------- --------- ---------
Cash and cash equivalents, end of year $ 12,362 $ 16,190 $ 11,372
======== ========= =========
Supplemental disclosures:
Cash paid for:
Interest $ 18,695 $ 16,102 $ 9,018
======== ========= =========
Income taxes, net of refunds received $ 22,940 $ 28,875 $ 25,867
======== ========= =========
Noncash investing activities:
Net assets of businesses acquired:
Fair value of assets, including goodwill $ 92,660 $ 184,158 $ 177,230
Liabilities assumed (9,847) (13,978) (15,684)
-------- --------- ---------
Cash paid, net of cash acquired $ 82,813 $ 170,180 $ 161,546
======== ========= =========
See accompanying notes to consolidated financial statements.
F-7
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(1) Summary of Accounting Policies
Basis of Presentation - These financial statements present consolidated
information for Roper Industries, Inc. and its subsidiaries ("Roper" or
the "Company"). All significant intercompany accounts and transactions
have been eliminated.
Reclassifications - Certain reclassifications of prior year information
were made to conform with the current presentation.
Nature of the Business - Roper designs, manufactures and distributes
specialty analytical instrumentation, fluid handling and industrial
controls products worldwide, serving selected segments of a broad range of
industrial markets.
Accounts Receivable - Accounts receivable were stated net of an allowance
for doubtful accounts of $3,762,000 and $4,344,000 at October 31, 2002 and
2001, respectively. Outstanding accounts receivable balances are reviewed
periodically, and allowances are provided at such time that management
believes reasonable doubt exists that such balances will be collected
within a reasonable period of time.
Cash and Cash Equivalents - Roper considers highly liquid financial
instruments with remaining maturities at acquisition of three months or
less to be cash equivalents. At October 31, 2002 and 2001, Roper had no
cash equivalents.
Earnings per Share - Basic earnings per share were calculated using net
earnings and the weighted average number of shares of common stock
outstanding during the respective year. Diluted earnings per share were
calculated using net earnings and the weighted average number of shares of
common stock and dilutive common stock equivalents outstanding during the
respective year. Common stock equivalents consisted of stock options, and
the effects of common stock equivalents were determined using the treasury
stock method.
As of and for the years ended October 31, 2002, 2001 and 2000, there were
345,000, 107,000 and 9,000 outstanding stock options that were not
included in the determination of diluted earnings per share because doing
so would have been antidilutive.
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities. Actual results could differ from those estimates.
Fair Value of Financial Instruments - Roper's long-term debt at October
31, 2002 included $125 million of fixed-rate term notes. Roper has
determined that current comparable interest rates at October 31, 2002 were
lower than the stated rates of the term notes by approximately 2-3
percentage points. A discounted cash flow analysis of anticipated cash
flows using October 31, 2002 interest rates indicated that the fair values
of the term notes were greater than the face amounts of the term notes by
$15.6 million. This liability is not reflected in Roper's basic financial
statements. At October 31, 2001, Roper had a similar unrecorded liability
of $11.7 million. The change compared to October 31, 2001 was caused
primarily from lower interest rates at October 31, 2002 compared to
October 31, 2001.
Most of Roper's other borrowings at October 31, 2002 were at various
interest rates that adjust relatively frequently under its $275 million
credit facility. The fair value for each of these borrowings at October
31, 2002 was estimated to be the face value of these borrowings.
In May 2000, Roper entered into a 3-year interest rate swap agreement for
a notional amount of $25 million. Under this agreement, Roper received a
fixed interest rate of 7.68% and paid a variable rate of 3-month
F-8
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
LIBOR plus a margin. In November 2000, Roper entered into another
agreement that effectively terminated this swap agreement for an
insignificant gain.
In February 1998 and April 1998, Roper entered into five-year interest
rate swap agreements for notional amounts of $50 million and $25 million,
respectively. In both agreements, Roper paid a fixed interest rate, and
the other party paid a variable interest rate. In May 2000, Roper
effectively terminated these agreements and received $1.8 million. This
gain is being amortized over the original term of the agreements.
The fair values for all of Roper's other financial instruments at October
31, 2002 approximated their carrying values.
Foreign Currency Translation - Assets and liabilities of subsidiaries
whose functional currency is not the U.S. dollar were translated at the
exchange rate in effect at the balance sheet date, and revenues and
expenses were translated at average exchange rates for the period in which
those entities were included in Roper's financial results. Translation
adjustments are reflected as a component of other comprehensive earnings.
Impairment of Long-Lived Assets - The company determines whether there has
been an impairment of long-lived assets, excluding goodwill and
identifiable intangible assets that are determined to have indefinite
useful economic lives, when certain indicators of impairment are present.
In the event that facts and circumstances indicate that the cost of any
long-lived assets may be impaired, an evaluation of recoverability would
be performed. If an evaluation is required, the estimated future gross,
undiscounted cash flows associated with the asset would be compared to the
asset's carrying amount to determine if a write-down to market value is
required. Future adverse changes in market conditions or poor operating
results of underlying long-lived assets could result in losses or an
inability to recover the carrying value of the long-lived assets that my
not be reflected in the assets' current carrying value, thereby possibly
requiring an impairment charge in the future.
Income Taxes - Roper is a U.S.-based multinational company and the
calculation of its worldwide provision for income taxes requires analysis
of many factors, including income tax structures that vary from country to
country and the United States' treatment of non-U.S. earnings. Roper does
not treat undistributed earnings of non-U.S. subsidiaries as being
permanently reinvested. United States income taxes, net of foreign income
taxes, have been provided on the undistributed earnings of non-U.S.
subsidiaries.
Certain assets and liabilities have different bases for financial
reporting and income tax purposes. Deferred income taxes have been
provided for these differences.
Goodwill and Other Intangibles - Previous to Roper's adoption of Statement of
Financial Accounting Standard 142, "Goodwill and Other Intangible Assets" ("SFAS
142"), goodwill was amortized on a straight-line basis over periods that ranged
from 5 to 40 years. Roper accounts for goodwill in a purchase business
combination as the excess of the cost over the fair value of net assets
acquired. Business combinations can also result in other intangible assets being
recognized. Amortization of intangible assets, if applicable, occurs over their
estimated useful lives. SFAS 142 requires companies to cease amortizing goodwill
that existed at June 30, 2001 and establishes a new two-step method for testing
goodwill for impairment on an annual basis (or an interim basis if an event
occurs that might reduce the fair value of a reporting unit below its carrying
value). Roper conducts this review for all of its reporting units during the
fourth quarter of the fiscal year. The transitional impairment that resulted
from Roper's adoption of this standard on November 1, 2002 has been reported as
a change in accounting principle - see Note 5. No impairment resulted from the
annual review performed in 2002. SFAS 142 also requires that an identifiable
intangible asset that is determined to have an indefinite useful economic life
not be amortized, but separately tested for impairment using a one-step fair
value based approach.
F-9
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Inventories - Inventories are valued at the lower of cost or market. Cost
is determined using either the first-in, first-out method or the last-in,
first-out method ("LIFO"). Inventories valued at LIFO cost comprised 9%
and 10% of consolidated inventories at October 31, 2002 and 2001,
respectively.
Any LIFO decrements recorded during any of the three years ended October
31, 2002 were immaterial to Roper's consolidated financial statements for
that year.
Other Comprehensive Earnings - Comprehensive earnings includes net
earnings and all other non-owner sources of changes in a company's net
assets. The differences between net earnings and comprehensive earnings
for Roper during fiscal 2002, 2001 and 2000 were currency translation
adjustments. Income taxes have not been provided on currency translation
adjustments.
Property, Plant and Equipment and Depreciation and Amortization -
Property, plant and equipment is stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are provided
for using principally the straight-line method over the estimated useful
lives of the assets as follows:
Buildings 20-30 years
Machinery 8-12 years
Other equipment 3-5 years
Recently Released Accounting Pronouncements - The Financial Accounting
Standards Board ("FASB") issued SFAS 143 - "Accounting for Asset
Retirement Obligations" that Roper is required to adopt by November 1,
2002. Roper does not have, nor do we expect it to have, any material asset
retirement obligations subject to this new standard.
The FASB issued SFAS 144 - "Accounting for the Impairment or Disposal of
Long-Lived Assets" that Roper is required to adopt by November 1, 2002.
This new standard does not apply to goodwill. We do not expect the
adoption of this standard to result in a material impairment charge.
The FASB issued SFAS 145 that rescinded, amended or made technical
corrections to several previously issued statements. None of these changes
are expected to significantly affect Roper's accounting or financial
reporting practices.
The FASB issued SFAS 146 - "Accounting for Costs Associated with Exit or
Disposal Activities" that Roper is required to adopt for applicable
transactions after December 31, 2002. This standard modifies the timing of
when certain costs are reported.
Research and Development - Research and development costs include salaries
and benefits, rents, supplies, and other costs related to various products
under development. Research and development costs are expensed in the
period incurred and totaled $29.9 million, $26.3 million and $22.6 million
for the years ended October 31, 2002, 2001 and 2000, respectively.
Revenue Recognition - The Company recognizes revenue from the sale of
product when title and risk of loss pass to the customer, which is
generally when product is shipped. The Company recognizes revenue from
services rendered upon customer acceptance. Revenues under certain
relatively long-term and relatively large-value construction projects are
recognized under the percentage-of-completion method using the ratio of
costs incurred to total estimated costs as the measure of performance.
Revenues recognized under the percentage-of-completion method totaled $1.9
million, $7.9 million and $5.6 million for the fiscal years ended October
31, 2002, 2001 and 2000, respectively. Estimated losses on any projects
are recognized as soon as such losses become known.
Stock Options - Roper accounts for stock-based compensation under the
provisions of Accounting Principles Board Opinion 25 - "Accounting for
Stock Issued to Employees." Stock-based compensation is measured at its
fair value at the grant date in accordance with an option-pricing model.
SFAS 123 - "Accounting for Stock-Based Compensation," provides that the
related expense may be recorded in the basic financial
F-10
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
statements or the pro forma effect on earnings may be disclosed in the
financial statements. Roper provides the pro forma disclosures.
Non-employee directors of Roper are eligible to receive stock options for
its common stock. These stock options are accounted for the same as stock
options granted to employees. Roper has never issued stock options other
than those issued to employees or its non-employee directors.
F-11
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(2) Business Acquisitions
On July 31, 2002, the company acquired all the outstanding shares of
Zetec, Inc. ("Zetec"). Zetec supplies non-destructive inspection solutions
using eddy current technology and related consumables, primarily for use
in power generating facilities and is included in the Industrial Controls
segment of the business. Zetec's principal facility is located near
Seattle, Washington. The results of Zetec's operations have been included
in the consolidated financial statements since the acquisition date.
The aggregate purchase price of the acquisition was $57.2 million of cash
and includes amounts paid to sellers, amounts incurred for due diligence
and other direct external costs associated with the acquisition.
The following table (in thousands) summarizes the estimated fair values of
the assets acquired and liabilities assumed at the date of acquisition.
The allocation includes estimates that were not finalized at October 31,
2002. Purchase price adjustments following the closing are also customary.
Roper does not anticipate that any such adjustments that were pending at
October 31, 2002 to be significant.
July 31, 2002
-------------
Current assets $12,448
Other assets 4,756
Intangible assets 7,060
Goodwill 40,574
-------
Total assets acquired 64,838
Current liabilities (7,615)
-------
Net assets acquired $57,223
=======
Of the $7.1 million of acquired intangible assets, $2.1 million was assigned to
trade names that are not subject to amortization. The remaining $5.0 million of
acquired intangible assets have a weighted-average useful life of approximately
6 years. The intangible assets that make up that amount include trade secrets of
$3.0 million (6 year weighted-average useful life), technology of $1.8 million
(5-year weighted-average useful life), and patents of $0.2 million (15-year
weighted-average useful life).
The $40.6 million of goodwill is not expected to be deductible for tax purposes.
In addition, in fiscal 2002, the company acquired the following four entities
for a total cost of $18.0 million, which was paid in cash:
o Acquired in August 2002, Quantitative Imaging Corporation,
(QImaging), based in Vancouver, Canada provides innovative,
high-performance digital cameras for scientific and industrial
imaging applications, complementing Roper's digital imaging
business within the Analytical Instrumentation segment.
o Acquired in July 2002, AiCambridge Ltd. ("Qualitek"), based in
Cambridge, England, is a designer and manufacturer of leak
detection equipment and systems for medical, pharmaceutical,
food, packaging and automotive industries, primarily in
Europe.
F-12
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
o Acquired in July 2002, Duncan Technologies, based in
Sacramento, California, is an innovative designer and
manufacturer of high-quality digital cameras for a variety of
markets including machine vision, remote sensing and traffic
monitoring.
o Acquired in September 2002, Definitive Imaging, based in
Cleveland, Ohio, provides image analysis software and
specialized knowledge for metallographic and science quality
control.
Goodwill recognized in those transactions amounted to $12.9 million and of that
amount approximately $0.8 million is expected to be fully deductible for tax
purposes. These businesses are included in the Analytical Instrumentation
segment.
On September 5, 2001, the company acquired all the outstanding shares of Struers
and Logitech. Struers develops, manufactures and markets materials analysis
preparation equipment and consumables used in quality inspection, failure
analysis and research of solid materials. Logitech develops, manufactures and
markets high-precision material-shaping equipment used primarily in the
production of advanced materials for the semiconductor and opto-electronics
markets. Struers is headquartered near Copenhagen, Denmark and Logitech is
headquartered near Glasgow, Scotland. Both companies also share sales and
service locations in the U.S., France, Germany and Japan. The results of these
operations have been included in the consolidated financial statements since the
acquisition date.
The aggregate purchase price of the acquisition was $150.9 million of cash and
includes amounts paid to sellers, amounts incurred for due diligence and other
direct external costs associated with the acquisition.
The following table (in thousands) summarizes the fair values of the assets
acquired and liabilities assumed at the date of acquisition.
September 5, 2001
-----------------
Current assets $ 30,482
Other assets 6,127
Intangible assets 20,680
Goodwill 106,964
---------
Total assets acquired 164,253
Current liabilities 12,401
Long-term liabilities 1,002
--------
Total liabilities 13,403
--------
Net assets acquired $150,850
========
Of the $20.7 million of acquired intangible assets, $4.9 million was assigned to
trade names that are not subject to amortization. The remaining $15.8 million of
acquired intangible assets have a weighted-average useful life of approximately
10 years. The intangible assets that make up that amount include an existing
customer base of $15.1 million (10-year useful life), and backlog of $0.7
million (1-year useful life).
The $107.0 million of goodwill is not expected to be deductible for tax
purposes.
In addition, in fiscal 2001, the company acquired the following two entities for
a total of cost of $23.2 million, which was paid in cash:
F-13
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
o Acquired in July 2001, Media Cybernetics, L.P. ("Media"), located in
Silver Springs, Maryland, is a leading image processing software
developer for scientific and industrial applications and is included
in the Analytical Instrumentation segment
o Acquired in May 2001, Dynamco, Inc. ("Dynamco") manufactures high
quality pneumatic valves, solenoids, relays and related products
that are sold to the semiconductor, packing, HVAC and medical
industries. Located in McKinney, Texas, Dynamco is included in the
Industrial Controls segment.
Goodwill recognized in those transactions amounted to $14.2 million and that
amount is expected to be fully deductible for tax purposes. Goodwill was
assigned to the analytical instrumentation and the fluid handling segments in
the amounts of $8.9 million and $5.2 million, respectively,
In fiscal 2000, the company completed nine business acquisitions for a total
cost of $161.5 million, which was paid in cash. The following provides a summary
of the significant acquisitions which represents 81% of the total aggregate
purchase price paid for fiscal year 2000 acquisitions.
o Acquired in September 2000, Hansen Technologies distributes
manufactured and outsourced shut-off and control valves,
auto-purgers and hermetic pumps for the commercial refrigeration
industry. Hansen Technologies' principal facility is located near
Chicago, Illinois and is included in the Industrial Controls
segment.
o Acquired in August 2000, Antek Instruments manufactures and supplies
spectrometers primarily used to detect sulfur, nitrogen and other
chemical compounds in petroleum, food and beverage processing and
other industries and is included in the Analytical Instrumentation
segment. Antek Instruments' principal facilities are located in
Houston, Texas.
o Acquired in May 2000, Abel Pump manufactures and supplies specialty
positive displacement pumps for a variety of industrial
applications, primarily involving abrasive or corrosive fluids or
those with high solids content and is included in the Fluid Handling
segment of the business. Abel Pump's principal facility is located
near Hamburg, Germany.
o Acquired in November 1999, MASD designs, manufacturers and markets
high-speed digital cameras used in automotive, industrial, military
and research markets. MASD also manufactures and markets
high-resolution digital cameras for the machine vision and image
conversion markets. MASD's principal facility is located in San
Diego, California. This business was subsequently merged with a
complementary business and currently operates as Redlake MASD and is
included in the Analytical Instrumentation segment.
The following unaudited pro forma summary presents Roper's consolidated results
of operations as if the acquisitions that occurred during fiscal 2002 and 2001
had occurred at the beginning of fiscal 2001. Goodwill associated with
acquisitions completed subsequent to June 30, 2001 has not been amortized for
purposes of this pro forma presentation to be consistent with current practice.
Also, actual results may have been different had the acquisitions occurred at an
earlier date and this pro forma information provides no assurance as to future
results. Data in the following table is in thousands, except per share data.
Unaudited
Year ended October 31,
----------------------
2002 2001
-------- --------
Net sales $674,251 $718,244
======== ========
Earnings before income taxes and change in accounting principle $101,004 $100,672
======== ========
Earnings before change in accounting principle $ 69,480 $ 65,127
======== ========
Earnings before change in accounting principle per share:
Basic $ 2.23 $ 2.12
======== ========
Diluted $ 2.18 $ 2.07
======== ========
F-14
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(3) Inventories
The components of inventories at October 31 were as follows (in
thousands):
2002 2001
--------- ---------
Raw materials and supplies $ 45,836 $ 47,339
Work in process 11,852 13,047
Finished products 32,456 31,284
LIFO reserve (1,153) (1,323)
--------- ---------
$ 88,991 $ 90,347
========= =========
(4) Property, Plant and Equipment
The components of property, plant and equipment at October 31 were as
follows (in thousands):
2002 2001
--------- ---------
Land $ 2,372 $ 2,944
Buildings 25,649 24,996
Machinery, tooling and other equipment 93,977 83,541
--------- ---------
121,998 111,481
Accumulated depreciation and amortization (70,659) (59,594)
--------- ---------
$ 51,339 $ 51,887
========= =========
Depreciation expense was $11,721, $9,993 and $8,623 for the three years
ended October 31, 2002, October 31, ,2001 and October 31, 2000,
respectively.
F-15
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(5) Goodwill, net
Analytical Fluid Industrial
Inst. Handling Controls Total
---------- -------- ---------- ---------
(in thousands)
Balances at October 31, 2001 $ 283,289 $ 64,721 $ 73,906 $ 421,916
Goodwill acquired 20,545 (204) 40,574 60,915
Impairment (27,900) -- (9,200) (37,100)
Currency translation adjustments 9,208 1,400 338 10,946
Reclassifications and other 3,261 94 156 3,511
--------- -------- --------- ---------
Balances at October 31, 2002 $ 288,403 $ 66,011 $ 105,774 $ 460,188
========= ======== ========= =========
Goodwill acquired during the year ended October 31, 2002 included a $7.6
million purchase price adjustment from the prior year's acquisition of the
Struers and Logitech businesses.
The impairment resulted from the transitional provisions of Roper's
adoption of SFAS 142. Impairment was recognized on the Redlake (analytical
instrumentation), Petrotech and Dynamco units. The reported change in
accounting principle for this impairment was net of income taxes.
SFAS 142, which Roper adopted at the beginning of fiscal 2002, does not
permit retroactive application of its method of accounting for goodwill
and other intangible assets. However, SFAS 142 does provide for the
following analysis comparing the current to the previous accounting
practice.
Year ended October 31,
----------------------------------------
2002 2001 2000
---------- ---------- ----------
Earnings before change in accounting principle, as reported $ 66,023 $ 55,839 $ 49,278
Add back: goodwill amortization, net of income taxes -- 12,287 10,130
---------- ---------- ----------
Earnings before change in accounting principle, adjusted $ 66,023 $ 68,126 $ 59,408
========== ========== ==========
Basic earnings per share:
Earnings before change in accounting principle, as reported $ 2.12 $ 1.82 $ 1.62
Add back: goodwill amortization, net of income taxes -- 0.40 0.33
---------- ---------- ----------
Earnings before change in accounting principle, adjusted $ 2.12 $ 2.22 $ 1.95
========== ========== ==========
Diluted earnings per share:
Earnings before change in accounting principle, as reported $ 2.08 $ 1.77 $ 1.58
Add back: goodwill amortization, net of income taxes -- 0.39 0.32
---------- ---------- ----------
Earnings before change in accounting principle, adjusted $ 2.08 $ 2.16 $ 1.90
========== ========== ==========
F-16
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(6) Other intangible assets, net
Accum. Net book
Cost amort. value
------- ------- --------
(in thousands)
Assets subject to amortization:
Existing customer base $14,723 $(1,704) $13,019
Unpatented technology 7,623 (1,459) 6,164
Patents and other protective rights 7,056 (3,371) 3,685
Trade secrets 3,010 (125) 2,885
Assets not subject to amortization:
Trade names 11,279 -- 11,279
------- ------- -------
Balances at October 31, 2002 $43,691 $(6,659) $37,032
======= ======= =======
Amortization expense of other intangible assets was $3,455, $1,754 and
$825 during fiscal 2002, 2001 and 2000, respectively. Estimated
amortization expense for the five years subsequent to fiscal 2002 is
$4,120, $4,120, $4,100, $3,327 and $2,458 for fiscal 2003, 2004, 2005,
2006 and 2007, respectively.
(7) Accrued Liabilities
Accrued liabilities at October 31 were as follows (in thousands):
2002 2001
--------- ---------
Wages and other compensation $ 25,169 $ 27,152
Commissions 8,482 8,376
Interest 5,515 5,704
Other 26,975 19,788
--------- ---------
$ 66,141 $ 61,020
========= =========
(8) Income Taxes
Earnings before income taxes and change in accounting principle for the
years ended October 31 consisted of the following components (in
thousands):
2002 2001 2000
-------- -------- --------
United States $ 67,402 $ 64,879 $ 61,074
Other 28,284 21,560 14,857
-------- -------- --------
$ 95,686 $ 86,439 $ 75,931
======== ======== ========
Components of income tax expense before any change in accounting
principle for the years ended October 31 were as follows (in thousands):
2002 2001 2000
-------- -------- --------
Current:
Federal $ 17,724 $ 21,709 $ 19,587
State 984 1,189 945
Foreign 9,216 6,909 5,559
Deferred expense (benefit) 1,739 793 562
-------- -------- --------
$ 29,663 $ 30,600 $ 26,653
======== ======== ========
F-17
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Reconciliations between the statutory federal income tax rate and the
effective income tax rate for the years ended October 31 were as follows:
2002 2001 2000
---- ---- ----
Federal statutory rate 35.0% 35.0% 35.0%
Extraterritorial Income Exclusion (5.1) -- --
Exempt income of Foreign Sales Corporation -- (4.3) (3.7)
Goodwill amortization 1.9 2.6 2.3
Other, net (0.8) 2.1 1.5
---- ---- ----
31.0% 35.4% 35.1%
==== ==== ====
Components of the deferred tax assets and liabilities at October 31 were
as follows (in thousands):
2002 2001
-------- --------
Deferred tax assets:
Reserves and accrued expenses $ 7,504 $ 7,735
Inventories 4,447 3,617
Postretirement medical benefits 714 631
Foreign taxes -- 575
Amortizable intangible assets 4,499 --
-------- --------
Total deferred tax assets 17,164 12,558
-------- --------
Deferred tax liabilities:
Amortizable intangible assets -- 2,629
Plant and equipment 1,584 1,599
Former IC-DISC recapture 462 577
-------- --------
Total deferred tax liabilities 2,046 4,805
-------- --------
Net deferred tax asset $ 15,118 $ 7,753
======== ========
Roper has not recognized a valuation allowance since management has
determined that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize all deferred
tax assets.
(9) Long-Term Debt
Total debt at October 31 consisted of the following (table amounts in
thousands):
2002 2001
-------- --------
$275 million credit facility $186,358 $178,114
7.58% Senior Secured Notes 40,000 40,000
7.68% Senior Secured Notes 85,000 85,000
Supplier financing agreement 20,377 20,377
Other 370 3,349
-------- --------
Total debt 332,105 326,840
Less current portion 20,515 3,010
-------- --------
Long-term debt $311,590 $323,830
======== ========
The $275 million credit facility is with a group of banks and provides for
revolving loans, swing line loans and letters of credit. Interest on
outstanding borrowings is influenced by the type and currency of the
borrowings. Interest on outstanding borrowings under this facility is a
base rate plus a margin. The margin is influenced by certain financial
ratios of Roper and can range from 0.625% to 1.125%. This facility also
F-18
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
provides that Roper will maintain certain financial ratios addressing,
among other things, coverage of fixed charges, total debt under other
agreements, consolidated net worth and capital expenditures. Other costs
and provisions of this facility are believed to be customary. Repayment of
Roper's obligations under this facility is guaranteed by its U.S.
subsidiaries and the pledge of some of the stock of some of Roper's
non-U.S. subsidiaries. This agreement matures on May 18, 2005.
At October 31, 2002, utilization of the credit facility included $144.7
million of U.S. denominated borrowings, $41.7 million of borrowings
denominated in euros and $3.3 million of outstanding letters of credit.
The weighted average interest rate on these outstanding borrowings at
October 31, 2002 was 3.3%.
The Senior Secured Notes are with a group of insurance companies that
consist of $40 million of term notes due May 18, 2007 and $85 million of
term notes due May 18, 2010. The guarantees, pledges and financial
covenants associated with these notes are similar, but slightly less
restrictive, than those in the $275 million credit facility.
On September 28, 2001, Roper entered into a supplier financing credit
agreement (the "credit agreement") with a foreign financial institution.
Under the terms of the credit agreement, the maximum borrowing capacity
available to Roper was $20,377, which was fully drawn on October 1, 2001.
Roper is required to repay the principal amount of the borrowing in four
equal, consecutive quarterly installments beginning December 30, 2002 with
a scheduled maturity date of October 1, 2003. Under the terms of the
credit agreement, on October 1, 2001, the interest rate was fixed at 5.76%
through the maturity date. Interest is payable in arrears on October 1,
2002, January 1, 2003, April 1, 2003, July 1, 2003 and October 1, 2003.
The restrictive covenants associated with the credit agreement are
similarly restrictive to those in the $275 million credit facility.
At October 31, 2002, the Company was in compliance with its restrictive
covenants.
Future maturities of long-term debt during each of the next five years
ending October 31 and thereafter were as follows (in thousands):
2003 $ 20,515
2004 135
2005 186,455
2006 --
2007 40,000
Thereafter 85,000
--------
$332,105
========
(10) Retirement and Other Benefit Plans
Roper maintains two defined contribution retirement plans under the
provisions of Section 401(k) of the Internal Revenue Code covering
substantially all U.S. employees not subject to collective bargaining
agreements. Roper partially matches employee contributions. Its costs
related to these two plans were $4,549,000, $4,126,000 and $3,956,000 in
fiscal 2002, 2001 and 2000, respectively.
Roper also maintains various defined benefit retirement plans covering
employees of non-U.S. subsidiaries and a plan that supplements certain
employees for the contribution ceiling applicable to the Section 401(k)
plans. The costs and accumulated benefit obligations associated with each
of these plans were not material.
Pursuant to the fiscal 1999 Petroleum Analyzer acquisition, Roper agreed
to assume a defined benefit pension plan covering certain U.S. employees
subject to a collective bargaining agreement. Roper obtained the necessary
regulatory approvals to terminate this plan during fiscal 2002 and all
plan assets were distributed during fiscal 2002.
F-19
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
All U.S. employees are eligible to participate in Roper's stock purchase
plan whereby they may designate up to 10% of eligible earnings to purchase
Roper's common stock at a 10% discount to the average closing price of its
common stock at the beginning and end of a quarterly offering period. The
common stock sold to the employees may be either treasury stock, stock
purchased on the open market, or newly issued shares. During the years
ended October 31, 2002, 2001 and 2000, participants of the employee stock
purchase plan purchased 11,000, 8,000 and 9,000 shares, respectively, of
Roper's common stock for total consideration of $437,000, $257,000 and
$271,000, respectively. All of these shares were purchased from Roper's
treasury shares.
(11) Common Stock Transactions
Roper's restated Certificate of Incorporation provides that each
outstanding share of Roper's common stock entitles the holder thereof to
five votes per share, except that holders of outstanding shares with
respect to which there has been a change in beneficial ownership during
the four years immediately preceding the applicable record date will be
entitled to one vote per share.
Roper has a Shareholder Rights Plan whereby one Preferred Stock Purchase
Right (a "Right") accompanies each outstanding share of common stock. Such
Rights only become exercisable, or transferable apart from the common
stock, ten business days after a person or group acquires various
specified levels of beneficial ownership, with or without the Board's
consent. Each Right may be exercised to acquire one one-thousandth of a
newly issued share of Roper's Series A Preferred Stock, at an exercise
price of $170, subject to adjustment. Alternatively, upon the occurrence
of certain specified events, the Rights allow holders to purchase Roper's
common stock having a market value at such time of twice the Right's
exercise price. The Rights may be redeemed by Roper at a redemption price
of $0.01 per Right at any time until the tenth business day following
public announcement that a 20% position has been acquired or 10 business
days after commencement of a tender or exchange offer. The Rights expire
on January 8, 2006.
Roper periodically enters into agreements with the management of
newly-acquired companies for the issuance of Roper's common stock based on
the achievement of specified goals. A similar agreement was made with a
corporate executive during fiscal 1996 that matured during fiscal 2002.
During fiscal 2002, 20,000 shares of common stock were issued under such
agreements. At October 31, 2002, there were no such agreements
outstanding.
(12) Stock Options
Roper has two stock incentive plans (the "1991 Plan" and the "2000 Plan")
which authorize the issuance of shares of common stock to certain
directors, key employees, and consultants of Roper as incentive and/or
nonqualified stock options, stock appreciation rights or equivalent
instruments. Stock options under both plans must be granted at prices not
less than 100% of market value of the underlying stock at the date of
grant. All stock options granted under these plans vest annually and
ratably over a five-year period from the date of the grant. Stock options
expire ten years from the date of grant. Options may no longer be granted
under the 1991 Plan. The 2000 Plan has no expiration date for the granting
of options and had the capacity to grant an additional 682,000 options or
equivalent instruments at October 31, 2002.
Roper also has a stock option plan for non-employee directors (the
"Non-employee Director Plan"). The Non-employee Director Plan provides for
each non-employee director appointed or elected to the Board initial
options to purchase 4,000 shares of Roper's common stock and thereafter
options to purchase an additional 4,000 shares each year under terms and
conditions similar to the above-mentioned stock option plans, except that
following their grant, all options become fully vested at the time of the
Annual Meeting of Shareholders
F-20
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
following the grant date and are exercisable ratably over five years
following the date of grant. At October 31, 2002, the Non-Employee
Director Plan had the capacity to grant an additional 92,000 options.
A summary of stock option transactions under these plans and information
about stock options outstanding at October 31, 2002 are shown below:
Outstanding options Exercisable options
---------------------- ----------------------
Average Average
exercise exercise
Number price Number price
--------- -------- --------- --------
October 31, 1999 2,117,000 $ 17.67 1,226,000 $ 14.67
Granted 365,000 33.18
Exercised (320,000) 13.68
Canceled (79,000) 25.76
---------
October 31, 2000 2,083,000 20.69 1,199,000 16.45
Granted 515,000 34.85
Exercised (292,000) 18.34
Canceled (75,000) 25.39
---------
October 31, 2001 2,231,000 24.11 1,171,000 17.91
Granted 651,000 41.11
Exercised (469,000) 17.12
Canceled (118,000) 31.89
---------
October 31, 2002 2,295,000 $ 29.97 1,034,000 $ 22.59
=========
Outstanding options Exercisable options
----------------------------------------- ----------------------
Average Average Average
exercise remaining exercise
Exercise price Number price life (years) Number price
--------------- --------- ---------- ------------ --------- ---------
$ 3.75 - 15.00 169,000 $ 10.95 1.7 169,000 $ 10.95
15.01 - 25.00 583,000 18.76 3.6 488,000 18.79
25.01 - 35.00 735,000 31.48 7.0 287,000 30.38
35.01 - 48.76 808,000 40.65 9.0 90,000 40.32
--------- ---------
$ 3.75 - 48.76 2,295,000 $ 29.97 6.4 1,034,000 $ 22.59
========= =========
For pro forma disclosure purposes, the following fair values and the
primary assumptions used to determine these fair values were used. All
stock options granted during each of the years ended October 31, 2002,
2001 and 2000 were at exercise prices equal to the market price of
Roper's common stock when granted.
2002 2001 2000
----------- ----------- ---------
Weighted average fair value per share ($) 16.77 16.86 15.37
Risk-free interest rate (%) 4.00 - 5.00 5.00 - 6.00 6.75
Average expected option life (years) 7.0 7.0 7.0
Expected volatility (%) 33 - 37 31 - 45 35 - 49
Expected dividend yield (%) 0.75 0.75 1.00
F-21
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Had Roper recognized compensation expense during fiscal 2002, 2001 and
2000 for the fair value of stock options granted in accordance with the
provisions of SFAS 123, pro forma earnings and pro forma earnings per
share would have been approximately as presented below.
2002 2001 2000
---------- ---------- ----------
Net earnings, as reported (in thousands) $ 40,053 $ 55,839 $ 49,278
Net earnings, pro forma (in thousands) 32,589 50,859 45,385
Net earnings per share, as reported:
Basic 1.28 1.82 1.62
Diluted 1.26 1.77 1.58
Net earnings per share, pro forma:
Basic 1.04 1.65 1.49
Diluted 1.02 1.61 1.46
The disclosed pro forma effects on earnings do not include the effects of
stock options granted prior to fiscal 1996 (affecting fiscal 2000) since
the provisions of SFAS 123 are not applicable to stock options for this
purpose. The pro forma effects of applying SFAS 123 to fiscal 2002, 2001
and 2000 may not be representative of the pro forma effects in future
years. Based on the vesting schedule of Roper's stock option grants, the
pro forma effects on earnings are most pronounced in the early years
following each grant. The timing and magnitude of any future grants is at
the discretion of Roper's Board of Directors and cannot be assured.
(13) Contingencies
Roper, in the ordinary course of business, is the subject of, or a party
to, various pending or threatened legal actions, including those
pertaining to product liability and employment practices. It is vigorously
contesting all lawsuits that, in general, are based upon claims of the
kind that have been customary over the past several years. Based upon
Roper's past experience with resolution of its product liability and
employment practices claims and the limits of the primary, excess, and
umbrella liability insurance coverages that are available with respect to
pending claims, management believes that adequate provision has been made
to cover any potential liability not covered by insurance, and that the
ultimate liability, if any, arising from these actions should not have a
material adverse effect on the consolidated financial position, results of
operations or cash flows of Roper. Included in other noncurrent assets at
October 31, 2002 are estimated insurable settlements receivable from
insurance companies of $2.6 million. At October 31, 2001, the estimated
insurable settlements receivable from insurance companies was $1.7
million.
There recently has been a significant increase in certain U.S. states in
asbestos-related litigation claims against numerous industrial companies.
Roper or its subsidiaries have been named defendants in some such cases.
No significant resources have been required by Roper to respond to these
cases and Roper believes it has valid defenses to such claims and, if
required, intends to defend them vigorously. Given the state of these
claims it is not possible to determine the potential liability, if any.
Roper's future minimum lease commitments totaled $38.9 million at October
31, 2002. These commitments included $8.9 million in fiscal 2003, $6.8
million in fiscal 2004, $4.9 million in fiscal 2005, $3.6 million in
fiscal 2006, $2.8 million in fiscal 2007 and $11.9 million thereafter.
(14) Segment and Geographic Area Information
F-22
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Roper's operations are grouped into three business segments based on
similarities between products and services: analytical instrumentation,
fluid handling and industrial controls. The analytical instrumentation
segment's products include fluid properties testing products, materials
analysis products, industrial leak test products and digital imaging
products. Products included within the fluid handling segment are rotary
gear, progressing cavity, membrane, positive displacement, centrifugal and
piston-type metering pumps; flow metering products; and precision
integrated chemical dispensing systems. The industrial controls segment's
products include industrial valve, control and measurement products;
microprocessor-based turbomachinery control systems and associated
technical services; and non-destructive inspection and measurement
solutions. Roper's management structure and internal reporting are also
aligned consistent with these three segments.
There were no material transactions between Roper's business segments
during any of the three years ended October 31, 2002. Sales between
geographic areas are primarily of finished products and are accounted for
at prices intended to represent third-party prices. Operating profit by
business segment and by geographic area is defined as sales less operating
costs and expenses. These costs and expenses do not include unallocated
corporate administrative expenses. Items below income from operations on
Roper's statement of earnings are not allocated to business segments.
Identifiable assets are those assets used primarily in the operations of
each business segment or geographic area. Corporate assets were
principally comprised of cash, recoverable insurance claims, deferred
compensation assets, unamortized deferred financing costs and property and
equipment.
Selected financial information by business segment for the years ended
October 31 follows (in thousands):
Analytical Fluid Industrial
Inst. Handling Controls Corporate Total
---------- --------- ---------- --------- --------
2002
Net sales $318,839 $ 105,441 $202,750 $ -- $627,030
Operating profit 58,160 21,511 48,685 (13,527) 114,829
Total assets:
Operating assets 133,470 45,275 108,009 -- 286,754
Intangible assets, net 317,430 66,982 112,808 -- 497,220
Other 26,774 (1,550) 786 18,989 44,999
--------
Total 828,973
Capital expenditures 4,172 1,396 1,999 213 7,780
Goodwill amortization -- -- -- -- --
Depreciation and other amortization 8,846 3,203 3,020 107 15,176
2001
Net sales $264,369 $ 125,399 $196,738 $ -- $586,506
Operating profit 43,157 27,123 37,836 (9,688) 98,428
Total assets:
Operating assets 148,389 50,714 78,807 -- 277,910
Intangible assets, net 310,725 65,887 74,085 450,697
Other 16,310 (1,262) 5,135 13,332 33,515
--------
Total 762,122
Capital expenditures 3,307 1,804 2,233 111 7,455
Goodwill amortization 8,745 2,616 4,347 -- 15,708
Depreciation and other amortization 5,467 3,248 2,663 369 11,747
2000
Net sales $223,164 $ 121,387 $159,262 $ -- $503,813
Operating profit 36,509 29,600 28,460 (6,373) 88,196
Total assets:
Operating assets 117,174 57,590 77,772 -- 252,536
Intangible assets, net 184,065 66,884 70,965 1,281 323,195
Other 7,312 (2,090) 3,695 12,254 21,171
--------
Total 596,902
Capital expenditures 4,773 6,380 3,936 61 15,150
Goodwill amortization 7,969 2,209 2,672 -- 12,850
Depreciation and other amortization 4,019 2,712 2,423 294 9,448
F-23
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Summarized data for Roper's U.S. and foreign operations (principally in
Europe and Japan) for the years ended October 31 were as follows (in
thousands):
Corporate
United and elimi-
States Non-U.S. nations Total
----------- ----------- ----------- -----------
2002
Sales to unaffiliated customers $ 447,769 $ 179,261 $ -- $ 627,030
Sales between geographic areas 35,629 17,534 (53,163) --
----------- ----------- ----------- -----------
Net sales $ 483,398 $ 196,795 $ (53,163) $ 627,030
=========== =========== =========== ===========
Long-lived assets $ 382,002 $ 188,279 $ 11,070 $ 581,351
=========== =========== =========== ===========
2001
Sales to unaffiliated customers $ 451,189 $ 135,317 $ -- $ 586,506
Sales between geographic areas 41,752 9,394 (51,146) --
----------- ----------- ----------- -----------
Net sales $ 492,941 $ 144,711 $ (51,146) $ 586,506
=========== =========== =========== ===========
Long-lived assets $ 367,537 $ 154,230 $ 7,663 $ 529,430
=========== =========== =========== ===========
2000
Sales to unaffiliated customers $ 370,351 $ 133,462 $ -- $ 503,813
Sales between geographic areas 29,435 6,958 (36,393) --
----------- ----------- ----------- -----------
Net sales $ 399,786 $ 140,420 $ (36,393) $ 503,813
=========== =========== =========== ===========
Long-lived assets $ 327,311 $ 49,251 $ 6,385 $ 382,947
=========== =========== =========== ===========
Export sales from the United States during the years ended October 31,
2002, 2001 and 2000 were $223 million, $238 million and $195 million,
respectively. In the year ended October 31, 2002 these exports were
shipped primarily to Russia (27%), elsewhere in Europe (28%), Japan (10%),
elsewhere in Asia excluding the Middle East (14%), Latin America (9%) and
other (12%).
F-24
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
Sales to customers outside the United States accounted for a significant
portion of Roper's revenues. Sales are attributed to geographic areas
based upon the location where the product is ultimately shipped. Foreign
countries that accounted for at least 5% of Roper's net sales in any of
the past three years have been individually identified in the following
table (in thousands). Other countries have been grouped by region.
Analytical Fluid Industrial
Inst. Handling Controls Total
----------- ----------- ----------- -----------
2002
Russia $ 2,590 $ 23 $ 60,024 $ 62,637
Germany 26,163 8,709 4,597 39,469
Elsewhere in Europe 63,851 10,215 32,115 106,181
Japan 40,730 2,301 1,258 44,289
Elsewhere in Asia excluding the Middle East 34,617 2,685 10,971 48,273
Latin America 14,337 1,189 8,669 24,195
Rest of the world 16,496 6,677 15,457 38,630
----------- ----------- ----------- -----------
Total $ 198,784 $ 31,799 $ 133,091 $ 363,674
=========== =========== =========== ===========
2001
Russia $ 1,389 $ -- $ 58,389 $ 59,778
Germany 21,735 7,852 4,017 33,604
Elsewhere in Europe 50,185 10,592 30,216 90,993
Japan 32,299 4,044 910 37,253
Elsewhere in Asia excluding the Middle East 28,131 2,890 7,372 38,393
Latin America 10,419 1,361 6,923 18,703
Rest of the world 10,364 6,993 11,222 28,579
----------- ----------- ----------- -----------
Total $ 154,522 $ 33,732 $ 119,049 $ 307,303
=========== =========== =========== ===========
2000
Russia $ 992 $ -- $ 39,980 $ 40,972
Germany 15,156 3,654 3,692 22,502
Elsewhere in Europe 41,031 7,157 27,814 76,002
Japan 27,783 7,767 822 36,372
Elsewhere in Asia excluding the Middle East 19,204 2,686 8,304 30,194
Latin America 9,085 881 8,436 18,402
Rest of the world 10,361 8,064 16,382 34,807
----------- ----------- ----------- -----------
Total $ 123,612 $ 30,209 $ 105,430 $ 259,251
=========== =========== =========== ===========
(15) Restructuring Activities
During the three months ended April 30, 2001, Roper recorded $2,559,000 of
expenses, reported as part of selling, general and administrative
expenses, related to activities to close certain activities at its
Petrotech unit and to consolidate certain other facilities. These expenses
included approximately $950,000 of personnel costs, $1,100,000 of asset
impairment and $509,000 of other related exit costs. All significant
restructuring activities were completed by October 31, 2001. These
Petrotech activities represented 1% of Roper's total net sales during
fiscal 2001 and 4% of net sales during fiscal 2000. The operating profit
of these activities was immaterial to Roper during each of fiscal 2001 and
fiscal 2000. The total workforce reduction pursuant to these restructuring
activities was approximately 150 people, or about 6% of Roper's total
workforce at that time.
F-25
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
October 31, 2002, 2001 and 2000
(16) Quarterly Financial Data (unaudited)
First Second Third Fourth
quarter quarter quarter quarter
--------- --------- --------- ---------
(in thousands, except per share data)
2002
Net sales $ 149,584 $ 153,809 $ 154,640 $ 168,997
Gross profit 79,429 83,080 82,787 91,023
Income from operations 24,647 30,452 27,957 31,773
Earnings before change in accounting principle 14,510 17,456 15,033 19,024
Earnings before change in accounting principle
per common share:
Basic* 0.47 0.56 0.48 0.61
Diluted 0.46 0.55 0.47 0.60
2001
Net sales $ 137,664 $ 146,830 $ 137,969 $ 164,043
Gross profit 69,741 75,658 73,819 89,752
Income from operations 21,864 24,125 23,304 29,135
Net earnings 11,760 13,862 13,133 17,084
Earnings per common share:
Basic* 0.38 0.45 0.43 0.55
Diluted 0.38 0.44 0.41 0.54
Earnings before change in accounting principle in fiscal 2002 is
comparable to net earnings in fiscal 2001. In the fourth quarter of fiscal
2002, Roper completed its adoption of SFAS 142 retroactive to the
beginning of fiscal 2002.
* The sum of the four quarters does not agree with the total for the
year due to rounding.
F-26
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
Of Roper Industries, Inc:
Our audit of the consolidated financial statements referred to in our report
dated December 11, 2002 also included an audit of the financial statement
schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements The consolidated financial statements and
financial statement schedule of Roper Industries, Inc. as of October 31, 2000,
and for the year then ended, were audited by other independent accountants who
have ceased operations. Those independent accountants expressed an unqualified
opinion on those financial statements and financial statement schedules in their
report dated December 6, 2000.
PricewaterhouseCoopers LLP
Atlanta, Georgia
December 11, 2002
S-1
ROPER INDUSTRIES, INC. AND SUBSIDIARIES
Schedule II - Consolidated Valuation and Qualifying Accounts
for the Years ended October 31, 2002, 2001 and 2000
Additions
Balance at charged to Balance at
beginning costs and end
of year expenses Deductions Other of year
--------- --------- ---------- --------- ---------
(in thousands)
Allowance for doubtful accounts and sales allowances:
2002 $ 4,344 $ 1,460 $ (2,491) $ 449 $ 3,762
2001 4,294 822 (1,513) 741 4,344
2000 3,760 1,805 (1,543) 272 4,294
Reserve for inventory obsolescence:
2002 $ 15,486 $ 4,632 $ (3,658) $ 3,771 $ 20,231
2001 10,704 5,103 (4,044) 3,723 15,486
2000 6,769 2,636 (1,644) 2,943 10,704
Deductions from the allowance for doubtful accounts represented the net
write-off of uncollectible accounts receivable. Deductions from the inventory
obsolescence reserve represented the disposal of obsolete items.
Other included the allowance for doubtful accounts and reserve for inventory
obsolescence of acquired businesses at the dates of acquisition, the effects of
foreign currency translation adjustments for those companies whose functional
currency was not the U.S. dollar, reclassifications and other.
S-2
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On May 14, 2002, Roper terminated its relationship with Arthur Andersen LLP
("Arthur Andersen") as our independent public accountants and engaged
PricewaterhouseCoopers LLP as our independent public accountants. The decision
to change independent public accountants was recommended by the audit committee
and approved by our board of directors.
In connection with the audits of our consolidated financial statements as of and
for the two fiscal years ended October 31, 2001, and with respect to the
subsequent period through January 31, 2002, there were no disagreements with
Arthur Andersen on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements, if
not resolved to Arthur Andersen's satisfaction, would have caused them to make
reference in connection with their report on our consolidated financial
statements to the subject matter of the disagreement.
Arthur Andersen's reports on our consolidated financial statements for the past
two years ended October 31, 2001 did not contain any adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
We provided Arthur Andersen with a copy of the foregoing disclosure. Attached as
Exhibit 16 is a copy of Arthur Andersen's letter, dated May 31, 2002, stating
its agreement with such statements.
32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be included under the captions "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS -- Proposal 1: Election of Three (3) Directors"
and "-- Executive Officers", and -- "COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES AND EXCHANGE ACT OF 1934" in our definitive Proxy Statement which
relates to our 2003 Annual Meeting of Shareholders to be held on March 21, 2003
to be filed within 120 days after the close of our 2002 fiscal year, which
information is incorporated herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be included under the captions "BOARD OF
DIRECTORS AND EXECUTIVE OFFICERS -- Compensation of Directors" and "--
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions"; and "EXECUTIVE COMPENSATION" contained in the Proxy Statement, which
information is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATERS
Reference is made to the information included under the captions "COMMON STOCK
OWNERSHIP BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS" and "EQUITY COMPENSATION
PLAN INFORMATION" in the Proxy Statement, which information is incorporated
herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 14. CONTROLS AND PROCEDURES
Based on their evaluation as of a date within 90 days of the filing of this
Annual Report, our principal executive officer and our principal financial
officer have concluded that our disclosure controls and procedures (as defined
in Rule 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
33
amended) are effective to ensure that information required to be disclosed by us
in reports that we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation. There were no significant deficiencies or material weaknesses and,
therefore, there were no corrective actions taken.
34
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The Consolidated Financial Statements listed in Item 8 of Part II
are filed as a part of this Annual Report.
(a)(2) The following consolidated financial statement schedule on page
S-2 is filed in response to this Item. All other schedules are
omitted or the required information is either inapplicable or is
presented in the consolidated financial statements or related
notes:
II. Consolidated Valuation and Qualifying Accounts for the Years ended
October 31, 2002, 2001 and 2000.
(b) Reports on Form 8-K
We filed the following reports on Form 8-K during the fourth
quarter of fiscal 2002.
On August 1, 2002, we reported under Item 5 the acquisition of
three businesses, provided guidance on third quarter results,
and announced our participation at an upcoming investor
conference. No financial statements were required to be filed
with this report and no financial statements were filed.
On September 13, 2002, we reported under Item 9 the filing of
our Form 10-Q for the quarterly period ended July 31, 2002 and
the accompanying certifications of our Chief Executive Officer
and our Chief Financial Officer.
(c) Exhibits
The following exhibits are separately filed with this Annual
Report.
Number Exhibit
- ------ -------
2.1 Agreement and Plan of Merger by and among RPR Acquisition
Subsidiary, Inc., Roper Industries, Inc. and Zetec, Inc.,
dated as of July 31, 2002.
(a) 2.2 Share Sale and Purchase Agreement dated July 9, 2001,
regarding Struers Holding A/S.
(b) 3.1 Amended and Restated Certificate of Incorporation, including
Form of Certificate of Designation, Preferences and Rights of
Series A Preferred Stock
(c) 3.2 Amended and Restated By-Laws
35
(d)4.01 Rights Agreement between Roper Industries, Inc. and SunTrust
Bank, Atlanta, Inc. as Rights Agent, dated as of January 8,
1996, including Certificate of Designation, Preferences and
Rights of Series A Preferred Stock (Exhibit A), Form of Rights
Certificate (Exhibit B) and Summary of Rights (Exhibit C)
(c)4.02 Credit Agreement dated as of May 18, 2000
(c)4.03 Note Purchase Agreement dated as of May 18, 2000
(b)10.01 1991 Stock Option Plan, as amended +
10.02 Non-employee Director Stock Option Plan, as amended +
(e)10.03 Form of Amended and Restated Indemnification Agreement +
(f)10.04 Employee Stock Purchase Plan +
(f)10.05 2000 Stock Incentive Plan +
10.06 Roper Industries, Inc. Non-Qualified Retirement Plan, as
amended +
(g)10.07 Brian D. Jellison Employment Agreement dated as of November 6,
2001 +
(g)10.08 C. Thomas O'Grady offer letter dated February 19, 2001 +
10.09 Timothy J. Winfrey offer letter dated May 20, 2002 +
(h)16 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission dated May 31, 2002
21 List of Subsidiaries
23.1 Consent of Independent Public Accountants
23.2 Notice Regarding Consent of Arthur Andersen LLP
99.1 Risk Factors
- ------------------------
(a) Incorporated herein by reference to Exhibit 99.1 to the Roper Industries,
Inc. Current Report on Form 8-K filed December 13, 2001 (file no. 1-12273).
36
(b) Incorporated herein by reference to Exhibits 3.1 and 10.2 to the Roper
Industries, Inc. Annual Report on Form 10-K filed January 21, 1998 (file
no. 1-12273).
(c) Incorporated herein by reference to Exhibits 3.2, 4.02, 4.03 and 10.06 to
the Roper Industries, Inc. Form 10-Q filed September 13, 2000 (file no.
1-12273).
(d) Incorporated herein by reference to Exhibit 4.02 to the Roper Industries,
Inc. Current Report on Form 8-K filed January 18, 1996 (file no. 0-19818).
(e) Incorporated herein by reference to Exhibit 10.04 to the Roper Industries,
Inc. Quarterly Report on Form 10-Q filed August 31, 1999 (file no.
1-12273).
(f) Incorporated herein by reference to Exhibits 10.04 and 10.05 to the Roper
Industries, Inc. Quarterly Report on Form 10-Q filed June 12, 2000 (file
no. 1-12273).
(g) Incorporated herein by reference to Exhibits 10.07 and 10.09 to the Roper
Industries, Inc. Annual Report on Form 10-K filed January 22, 2002 (file
no. 1-12273).
(h) Incorporated herein by reference to Exhibit 16 to the Roper Industries,
Inc. Amended Current Report on Form 8-K/A filed June 3, 2002 (file no.
1-2273).
+ Management contract or compensatory plan or arrangement.
37
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Roper has duly caused this amended Report to be signed on its
behalf by the undersigned, therewith duly authorized.
ROPER INDUSTRIES, INC.
(Registrant)
By: /S/ BRIAN D. JELLISON January 22, 2003
-------------------------------------
Brian D. Jellison
President and Chief Executive Officer
38
CERTIFICATIONS
I, Brian D. Jellison, certify that:
1. I have reviewed this annual report on Form 10-K of Roper Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14, for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Effective Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 22, 2003
By: /s/ BRIAN D. JELLISON
----------------------------------------------------------
Brian D. Jellison, President and Chief Executive Officer
39
CERTIFICATIONS
I, Martin S. Headley, certify that:
1. I have reviewed this annual report on Form 10-K of Roper Industries, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14, for the registrant and
have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) Presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Effective Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing
equivalent functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: January 22, 2003
By /s/ MARTIN S. HEADLEY
----------------------------------------------------------
Martin S. Headley, Vice President and Chief Financial Officer
40
EXHIBIT INDEX
Number Exhibit
(a)2.1 Agreement and Plan of Merger by and among RPR Acquisition
Subsidiary, Inc., Roper Industries, Inc. and Zetec, Inc., dated as
of July 31, 2002.
2.2 Share Sale and Purchase Agreement (Struers A/S & Logitech Limited)
incorporated herein by reference to Exhibits 99.1 to the Roper
Industries, Inc. Current Report on Form 8-K filed December 13, 2001
(File No. 1-12273).
3.1 Amended and Restated Certificate of Incorporation, including Form of
Certificate of Designation, Preferences and Rights of Series A
Preferred Stock incorporated herein by reference to Exhibit 3.1 and
10.2 to the Roper Industries, Inc. Annual Report on Form 10-K filed
January 21, 1998 (File No. 1-12273).
3.2 Amended and Restated By-Laws incorporated herein by reference to
Exhibit 3.2, 4.02, 4.03 and 10.06 to the Roper Industries, Inc. Form
10-Q filed September 13, 2000 (File No. 1-12273).
4.01 Rights Agreement between Roper Industries, Inc. and SunTrust Bank,
Atlanta, Inc. as Rights Agent, dated as of January 8, 1996,
including Certificate of Designation, Preferences and Rights of
Series A Preferred Stock (Exhibit A), Form of Rights Certificate
(Exhibit B) and Summary of Rights (Exhibit C), incorporated herein
by reference to Exhibit 4.02 to the Roper Industries, Inc. Current
Report on Form 8-K filed January 18, 1996 (File No. 0-19818).
4.02 Credit Agreement Dated as of May 18, 2000, incorporated herein by
reference to Exhibits 3.2, 4.02, 4.03 and 10.06 to the Roper
Industries, Inc. Form 10-Q filed September 13, 2000 (File No.
1-12273).
4.03 Note Purchase Agreement Dated as of May 18, 2000, incorporated
herein by reference to Exhibits 3.2, 4.02, 4.03 and 10.06 to the
Roper Industries, Inc. Form 10-Q filed September 13, 2000 (File No.
1-12273).
10.01 1991 Stock Option Plan, as amended incorporated herein by reference
to Exhibits 3.1 and 10.2 to the Roper Industries, Inc. Annual Report
on Form 10-K filed January 21, 1998 (File No. 1-12273).
10.02 Non-employee Director Stock Option Plan, as amended.
10.03 Form of Amended and Restated Indemnification Agreement incorporated
herein by reference to Exhibit 10.04 to the Roper Industries, Inc.
Quarterly Report on Form 10-Q filed August 31, 1999 (File No.
1-12273).
10.04 Employee Stock Purchase Plan incorporated herein by reference to
Exhibits 10.04 and 10.05 to the Roper Industries, Inc. Quarterly
Report on Form 10-Q filed June 12, 2000 (File No. 1-12273).
10.05 2000 Stock Incentive Plan herein by reference to Exhibits 10.04 and
10.05 to the Roper Industries, Inc. Quarterly Report on Form 10-Q
filed June 12, 2000 (File No. 1-12273).
10.06 Roper Industries, Inc. Non-Qualified Retirement Plan, as amended.
10.07 Brian D. Jellison Employment Agreement dated as of November 6,
2001 incorporated herein by reference to Exhibits 10.07 and 10.09 to
the Roper Industries, Inc. Annual Report on Form 10-K filed January
22, 2002 (file no. 1-2273).
10.08 C. Thomas O'Grady letter dated February 19, 2001 incorporated herein
by reference to Exhibits 10.07 and 10.09 to the Roper Industries,
Inc. Annual Report on Form 10-K filed January 22, 2002 (file No.
1-12273)..
10.09 Timothy J. Winfrey offer letter dated May 20, 2002.
21 List of Subsidiaries
23.1 Consent of Independent Public Accountants
23.2 Notice Regarding Consent of Artnur Andersen LLP
99.1 Risk Factors
- ----------------
(a) The following schedules or similar attachments to this exhibit has been
omitted and will be furnished supplementally upon request.
Disclosure Schedules
Section 2(c) - Officers and Directors of Corporation
Section 3.A.(a) - Organization of the Company and its Subsidiary
Section 3.A.(c) - Noncontravention
Section 3.A.(e) - Capitalization; Company Shares
Section 3.A.(f) - Redemptions
Section 3.A.(g) - Shareholder Debt
Section 3.B.(a) - Financial Statements
Section 3.B.(b) - Events Subsequent to December 31, 2001
Section 3.B.(c) - Undisclosed Liabilities
Section 3.B.(d) - Legal Compliance
Section 3.B.(e) - Tax Matters
Section 3.B.(f) - Real Property
Section 3.B.(g) - Intellectual Property
Section 3.B.(h) - Software
Section 3.B.(i) - No Infringement
Section 3.B.(j) - Tangible Assets
Section 3.B.(l) - Contracts
Section 3.B.(m) - Notes and Accounts Receivable
Section 3.B.(n) - Powers of Attorney
Section 3.B.(o) - Insurance
Section 3.B.(q) - Product Warranty
Section 3.B.(s) - Employees
Section 3.B.(t) - Employee Benefits
Section 3.B.(v) - Environment, Health, and Safety
Section 3.B.(w) - Certain Business Relationships with the company and its
Subsidiary
Section 3.B.(z) - Knowledge Group
Exhibits:
Exhibit A - Amended and Restated Escrow, Release, and Indemnification Agreement
Exhibit B - Required Consents
Exhibit C - Consent, Termination and Release Agreement
Exhibit D - Noncompetition and Assignment of Inventions Agreement
Exhibit E - Form of Opinion of Counsel to the Company
Exhibit F - Form of Opinion of Counsel to Stockholders
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
RPR ACQUISITION SUBSIDIARY, INC.,
ROPER INDUSTRIES, INC.,
and
ZETEC, INC.
dated as of July 31, 2002
TABLE OF CONTENTS
Page
----
1. DEFINITIONS ........................................................................ 1
2. MERGER ............................................................................. 9
(a) Inventory Count ......................................................... 9
(b) Merger .................................................................. 9
(c) Execution of Merger ..................................................... 10
(d) Effect of Merger ........................................................ 10
(e) Payment of Aggregate Consideration ...................................... 10
(f) Surrender of Certificates ............................................... 11
(g) The Closing ............................................................. 11
(h) Deliveries at the Closing ............................................... 11
(i) Satisfaction of Denton Note ............................................. 12
(j) Minimum Net Working Capital Adjustment .................................. 12
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND THE COMPANY ................. 14
(a) Organization of the Company and its Subsidiary .......................... 14
(b) Authorization of Transaction ............................................ 14
(c) Noncontravention ........................................................ 14
(d) Title to Company Shares ................................................. 15
(e) Capitalization; Company Shares .......................................... 15
(f) Redemption .............................................................. 15
(g) Shareholder Debt ........................................................ 16
(h) Company Equity Securities ............................................... 16
(a) Financial Statements .................................................... 16
(b) Events Subsequent to December 31, 2001 .................................. 17
(c) Undisclosed Liabilities ................................................. 19
(d) Legal Compliance ........................................................ 19
(e) Tax Matters ............................................................. 19
(f) Real Property ........................................................... 21
(g) Intellectual Property ................................................... 21
(h) Software ................................................................ 24
(i) No Infringement ......................................................... 25
(j) Tangible Assets ......................................................... 26
(k) Inventory ............................................................... 26
(l) Contracts ............................................................... 26
(m) Notes and Accounts Receivable ........................................... 28
(n) Powers of Attorney ...................................................... 28
(o) Insurance ............................................................... 28
(p) Litigation .............................................................. 28
(q) Product Warranty ........................................................ 29
(r) Product Liability ....................................................... 29
1
(s) Employees ............................................................... 29
(t) Employee Benefits ....................................................... 30
(u) Guaranties .............................................................. 32
(v) Environment, Health, and Safety ......................................... 33
(w) Certain Business Relationships with the Company and its Subsidiary ...... 33
(x) Brokers ................................................................. 33
(y) Disclosure .............................................................. 33
(z) Knowledge Group ......................................................... 34
4. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE BUYER ......................... 34
(a) Organization of the Parent and the Buyer ................................ 34
(b) Authorization of Transaction ............................................ 34
(c) Noncontravention ........................................................ 34
(d) Broker's Fees ........................................................... 35
(e) Disclosure .............................................................. 35
(f) Financial Capability .................................................... 35
(g) Reliance ................................................................ 35
5. CONDITIONS TO OBLIGATION TO CLOSE .................................................. 35
(a) Conditions to Obligation of Parent and Buyer ............................ 35
(b) Conditions to Obligation of the Company ................................. 37
6. PRE-CLOSING COVENANTS .............................................................. 38
(a) Access and Investigation ................................................ 38
(b) Operation of the Businesses of the Company and its Subsidiary ........... 39
(c) Negative Covenant ....................................................... 39
(d) No Merger or Solicitation ............................................... 41
(e) Accounting and Securities Matters ....................................... 41
(f) Pre-Closing Funding of Pension Plan ..................................... 42
7. POST-CLOSING COVENANTS ............................................................. 42
(a) General ................................................................. 42
(b) Litigation Support ...................................................... 42
(c) Transition .............................................................. 42
(d) Tax Matters ............................................................. 43
(e) Company Charter Provisions .............................................. 44
8. REMEDIES FOR BREACHES OF THIS AGREEMENT ............................................ 44
(a) Survival of Representations and Warranties .............................. 44
(b) Indemnification Provisions Relating to Section 3.A Representations
for Benefit of the Parent and the Surviving Corporation ................. 44
(c) Indemnification Provisions Relating to Section 3.B Representations
and Covenants for Benefit of the Parent and the Surviving Corporation ... 45
(d) Escrow .................................................................. 46
(e) Indemnification Provisions for Benefit of the Stockholders .............. 46
(f) Matters Involving Third Parties ......................................... 47
2
(g) Determination of Adverse Consequences ................................... 48
(h) Post-Closing ............................................................ 48
9. TERMINATION ........................................................................ 48
(a) Termination Events ...................................................... 48
(b) Effect of Termination ................................................... 49
10. MISCELLANEOUS ...................................................................... 49
(a) Press Releases and Public Announcements ................................. 49
(b) No Third-Party Beneficiaries ............................................ 49
(c) Entire Agreement ........................................................ 49
(d) Succession and Assignment ............................................... 49
(e) Counterparts ............................................................ 49
(f) Headings ................................................................ 50
(g) Notices ................................................................. 50
(h) Governing Law ........................................................... 51
(i) Amendments and Waivers .................................................. 51
(j) Severability ............................................................ 51
(k) Expenses ................................................................ 51
(l) Construction ............................................................ 52
(m) Incorporation of Exhibits and Schedules ................................. 52
(n) Specific Performance .................................................... 52
(o) Submission to Jurisdiction .............................................. 52
(p) Arbitration ............................................................. 53
Table of Exhibits:
Exhibit A--Form of Escrow, Release, and Indemnification Agreement
Exhibit B--Required Consents
Exhibit C--Clyde Denton Consent, Termination, and Release Agreement
Exhibit D--Form of Noncompetition and Assignment of Inventions Agreement
Exhibit E--Form of Opinion of Riddell Williams P.S.
Exhibit F--Form of Opinion of Powell, Goldstein, Frazer & Murphy LLP
3
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is entered into on
_______, 2002, by and among RPR ACQUISITION SUBSIDIARY, INC., a Delaware
corporation (the "Buyer"), ROPER INDUSTRIES, INC., a Delaware corporation and
parent of Buyer ("Parent"), and ZETEC, INC., a Washington corporation (the
"Company"). The Buyer, Parent, and the Company are referred to collectively
herein as the "Parties". As a condition to closing, the Stockholders shall
approve this Agreement pursuant to the provisions of the Escrow, Release, and
Indemnification Agreement.
The Company, through itself and its wholly-owned subsidiary, Zetec Foreign
Sales Corporation, is in the business of the design, manufacture, and assembly
of eddy current instruments, software, probes, and accessories, and providing
field, application, product support, and training services in eddy current
testing and technology.
This Agreement contemplates a transaction in which the Buyer shall merge
with the Company, with the Company being the surviving corporation, and in
connection therewith, the Stockholders will receive consideration in the form of
cash.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. DEFINITIONS.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, penalties, fines, costs, amounts paid in
settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees,
including court costs and reasonable attorneys' fees and expenses.
"Affiliated Group" means any affiliated group within the meaning of Code
Section 1504(a) (or any similar group defined under a similar provision of
state, local, or foreign law).
"Aggregate Consideration" has the meaning set forth in Section 2(d)(i)
below.
"Applicable Rate" means the corporate base rate of interest announced from
time to time by Bank One, NA.
"Business" means the business conducted by the Company and its Subsidiary
prior to and as of the Closing Date, which is the business of the design,
manufacture, and assembly of eddy current instruments, software, probes, and
accessories, and providing field, application, product support, and training
services in eddy current testing and technology.
"Buyer" has the meaning set forth in the preface above.
"Buyer's Advisors" has the meaning set forth in Section 6(a)(i) below.
1
"Capital Expenditures Budget" has the meaning set forth in Section
3.B(b)(v) below.
"Certificates" has the meaning set forth in Section 2(f) below.
"Closing" has the meaning set forth in Section 2(g) below.
"Closing Date" has the meaning set forth in Section 2(g) below.
"Closing Date Balance Sheet" has the meaning set forth in Section
2(j)(iii) below.
"COBRA" has the meaning set forth in Section 3.B(t)(x) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Disclosure Schedule" has the meaning set forth in Section 3.A
below.
"Company Plans" has the meaning set forth in Section 3.B(t)(ii) below.
"Company Shares" means the shares of the common stock, par value $0.01 per
share, of the Company.
"Compensation Memo" has the meaning set forth in Section 3.B(b)(xv) below.
"Confidential Information" means: (a) confidential data and confidential
information relating to the business of any Party (the "Protected Party") which
is or has been disclosed to another Party (the "Recipient") or of which the
Recipient became aware as a consequence of or through its relationship with the
Protected Party and which has value to the Protected Party and is not generally
known to its competitors and which is designated by the Protected Party as
confidential or otherwise restricted; and (b) information of the Protected
Party, without regard to form, including, but not limited to, Intellectual
Property, technical or nontechnical data, algorithms, formulas, patents,
compilations, programs, devices, methods, techniques, drawings, processes,
financial data, financial plans, product or service plans or lists of customers
or suppliers which is not commonly known or available to the public and which
information (i) derives economic value from not being generally known to, and
not being readily ascertainable by proper means by, other Persons who can obtain
economic value from its disclosure or use, and (ii) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy.
Notwithstanding anything to the contrary contained herein, Confidential
Information shall not include any data or information that (v) has been
voluntarily disclosed to the public by the Protected Party, (w) has been
independently developed and disclosed to the public by others, (x) otherwise
enters the public domain through lawful means, (y) was already known by
Recipient prior to such disclosure (as evidenced by written documentation) or
was lawfully and rightfully disclosed to Recipient by another Person, or (z)
that is required to be disclosed by law or order without the availability of
applicable protective orders or treatment.
"Delaware Act" means the General Corporation Law of the State of Delaware,
as amended.
2
"Denton Agreements" means each of (i) that certain Stock Redemption
Agreement by and among Clyde Denton, the Company, and the then-existing
stockholders of the Company and their respective spouses, dated as of January
29, 1997; (ii) that certain Promissory Note in the original principal amount of
thirty nine million two hundred sixty thousand and six hundred thirty five
dollars ($39,260,635.00), dated as of January 29, 1997, by the Company in favor
of Clyde Denton; (iii) that certain Guaranty Agreement by the then-existing
stockholders of the Company and their respective spouses, in favor of Clyde
Denton, dated as of January 29, 1997; (iv) that certain Pledge Agreement by the
Company and the then-existing stockholders of the Company and their respective
spouses, in favor of Clyde Denton, dated as of January 29, 1997; (v) that
certain Notice and Instructions to Pledgeholder, by and among the Company, the
then-existing stockholders of the Company and their respective spouses, Clyde
Denton, and Garvey, Schubert & Barer, dated as of January 29, 1997; (vi) that
certain Release and Indemnification Agreement by the Company, the then-existing
stockholders of the Company and their respective Spouses, in favor of Clyde
Denton, dated as of January 29, 1997; and (vii) the Shareholder Agreement.
"Denton Note" means that certain Promissory Note in the original principal
amount of thirty nine million two hundred sixty thousand and six hundred thirty
five dollars ($39,260,635.00), dated as of January 29, 1997, by the Company in
favor of Clyde Denton, as secured pursuant to (i) that certain Guaranty
Agreement by the then-existing stockholders of the Company and their respective
spouses, in favor of Clyde Denton, dated as of January 29, 1997, and (ii) that
certain Pledge Agreement by the Company and the then-existing stockholders of
the Company and their respective spouses in favor of Clyde Denton, dated as of
January 29, 1997.
"Denton Payoff" has the meaning set forth in Section 2(i) below.
"Effective Date" means the date specified in the Articles of Merger as the
effective date of the consummation of the Merger, as set forth in Section 2.
"Employee Benefit Plan" means any (i) nonqualified deferred compensation
or retirement plan or arrangement, including any Employee Pension Benefit Plan
(as defined in ERISA Section 3(2)), (ii) qualified defined contribution
retirement plan or arrangement, including any Employee Pension Benefit Plan,
(iii) qualified defined benefit retirement plan or arrangement, including any
Employee Pension Benefit Plan (including any Multiemployer Plan), (iv) employee
welfare benefit plan, including any Employee Welfare Benefit Plan (as defined in
ERISA Section 3(1)), (v) fringe benefit plan or program, and (vi) each
employment, severance, salary continuation or other contract, incentive plan,
insurance plan arrangement, bonus plan and any equity plan or arrangement
without regard to whether such plan, arrangement, program or contract exists
under US or any similar non-US law, rule or regulation.
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other US and non-US laws
(including rules, regulations, state law rulings, codes, plans, permits,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, natural resources, public
health and safety, or employee health and safety,
3
including, but not limited to, laws relating to emissions, discharges, releases,
or threatened releases of Hazardous Substances in ambient air, surface water,
drinking water, wetlands, ground water, or lands or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
recycling, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Fund" shall have the meaning defined in the Escrow Agreement.
"Escrow Agent" means SunTrust Bank, N.A.
"Escrow Agreement" means the Escrow, Release, and Indemnification
Agreement dated the Closing Date, entered into among the Parent, the Buyer, the
Company, the Stockholders, the respective spouses of the Stockholders, and the
Escrow Agent with respect to the indemnification obligations of the Stockholders
and the Company under Section 8 of this Agreement, and pursuant to which the
Stockholders and their respective spouses will agree to be bound by the terms of
this Agreement, the form of which is set forth as Exhibit A.
"Extremely Hazardous Substance" has the meaning set forth in Section 302
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended,
and any counterpart or similar non-US law.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Final Adjustment Schedule" has the meaning set forth in Section 2(j)(iii)
below.
"Financial Statements" has the meaning set forth in Section 3.B(a) below.
"Founders" shall mean each of Edward McKee, Alfred Lucero and Lloyd Lamb.
"GAAP" means United States generally accepted accounting principles as in
effect as of the date hereof.
"Hazardous Substance" means any substance regulated under or defined by
Environmental, Health, and Safety Laws, including, but not limited to, any
pollutant, contaminant, hazardous substance, hazardous constituent, hazardous
waste, special waste, solid waste, industrial waste, petroleum derived substance
or waste, or toxic substance.
"Indebtedness" means (i) all indebtedness for borrowed money or for the
deferred purchase price of property, including the current portion of such
indebtedness, and (ii) all obligations evidenced by notes, bonds, debentures or
similar instruments.
"Indemnified Party" has the meaning set forth in Section 8(f)(i) below.
"Indemnifying Party" has the meaning set forth in Section 8(f)(i) below.
"Intellectual Property" means, with respect to the Company and the
Business:
4
(a) all inventions (whether patentable or unpatentable and whether
or not reduced to practice), all improvements thereto, and all US and non-US
patents, patent applications, and patent disclosures, together with all
reissuances, continuations, divisionals, continuations-in-part, revisions,
extensions, and reexaminations thereof;
(b) all US and non-US trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith;
(c) all copyrightable works, all US and non-US copyrights, and all
applications, registrations, and renewals in connection therewith;
(d) all mask works and all applications, registrations, and renewals
in connection therewith;
(e) all trade secrets and confidential business information
(including without limitation ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals);
(f) all other proprietary rights;
(g) all Owned Software and all Licensed Software;
(h) all right, title, and interest in and to the name "Zetec";
(i) all right, title, and interest in and to the world wide web
internet domain name "www.zetec.com", and each other world wide web internet
domain name owned by the Company, and each other world wide web internet domain
name used in the Business; and
(j) with respect to each of the foregoing, all copies and tangible
embodiments thereof (in whatever form or medium).
"Inventory Count" has the meaning set forth in Section 2(a) below.
"Knowledge of the Company" means the actual knowledge as of the date of
this Agreement of the Stockholders listed in Section 3.B(z) of the Company
Disclosure Schedule, together with such knowledge as they would reasonably be
expected to have as a result of their positions with the Company.
"Leased Real Property" has the meaning set forth in Section 3.B(f)(ii)
below.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
5
"Licensed Software" has the meaning set forth in Section 3.B(h)(i) below.
"Lucero Compensation Agreement" means that certain Compensation Agreement
by and between the Company and Alfred Lucero dated as of January 29, 1997.
"Marlow Agreement" means that certain Consulting Agreement between Zetec,
Inc. and Richard E. Marlow dated October 1, 1998.
"McKee Compensation Agreement" means that certain Compensation Agreement
by and between the Company and Edward McKee dated as of January 29, 1997.
"Merger" has the meaning set forth in Section 2(b) below.
"Merger Consideration" has the meaning set forth in Section 2(d)(i) below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Net Working Capital" means the excess of total current assets, including
without limitation cash, accounts receivable, net inventories (calculated in a
first-in, first-out basis), prepaid expenses, and other current assets, less
total current liabilities (including without limitation accounts payable),
year-to-date accruals of the type included in the Company's 2001 audited
financial statements (including but not limited to Liability for claims under
the Company's self-insurance arrangements, accrued employee bonus payments,
accrued benefits and accrued profit sharing payments), accrued liabilities, and
deferred rent expense (but excluding liabilities to the extent reflected in
amounts payable under Section 2(e)(ii) of this Agreement), in each case
determined in accordance with GAAP. To the extent that the Denton Payoff exceeds
thirty million three hundred thousand dollars ($30,300,000.00), such excess
shall be a reduction in Net Working Capital, and to the extent that the Denton
Payoff is less than thirty million three hundred thousand dollars
($30,300,000.00), such amount shall be an increase in Net Working Capital. All
accounting entries will be made regardless of their amount and all detected
errors and omissions will be corrected regardless of their materiality.
"Noncompetition and Assignment of Inventions Agreement" shall mean those
Noncompetition and Assignment of Inventions Agreements, the form of which is
attached hereto as Exhibit D.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Owned Software" has the meaning set forth in Section 3.B(h)(i) below.
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Process Agent" has the meaning set forth in Section 10(o) below.
6
"Product Warranty Claims" means claims of the customers of the Company and
its Subsidiary and/or users made at any time following Closing in the Ordinary
Course of Business with respect to products sold, manufactured, leased or
delivered by the Company and its Subsidiary on or prior to the Closing Date,
which (i) are based solely on the Company's written product warranties disclosed
to Buyer, or with respect to Probes, consistent with the Ordinary Course of
Business, and (ii) are only for repair or replacement remedies.
"Prohibited Transaction" has the meaning set forth in Section
3.B(t)(ix)(B) below.
"Purchase Price Adjustment" has the meaning set forth in Section 2(j)(i)
below.
"Redemptions" has the meaning set forth in Section 3.A(f) below.
"Related Person" means with respect to a particular individual: (a) each
other member of such individual's Family; (b) any Person that is directly or
indirectly controlled by such individual or one or more members of such
individual's Family; (c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and (d) any Person with respect to which such individual or one or more members
of such individual's Family serves as a director, manager, officer, partner,
executor, or trustee (or in a similar capacity). With respect to a specified
Person other than an individual: (A) any Person that directly or indirectly
controls, is directly or indirectly controlled by, or is directly or indirectly
under common control with such specified Person; (B) any Person that holds a
Material Interest in such specified Person; (C) each Person that serves as a
director, manager, officer, partner, executor, or trustee of such specified
Person (or in a similar capacity); (D) any Person in which such specified Person
holds a Material Interest; (E) any Person with respect to which such specified
Person serves as a general partner or a trustee (or in a similar capacity); and
(F) any Related Person of any individual described in clause (B) or (C).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934,
as amended) of voting securities or other voting interests representing at least
10% of the outstanding voting power of a Person or equity securities or other
equity interests representing at least 10% of the outstanding equity securities
or equity interests in a Person.
"Requisite Shareholder Vote" has the meaning set forth in Section 3.A(b)
below.
"R&W Insurance Policy" means that certain Representations and Warranties
Insurance Policy by Gulf Underwriters Insurance Company in the form previously
approved by the Parties, to be issued at Closing in favor of the Parent, the
subsidiaries and affiliates of the Parent, the Company, the Surviving
Corporation, and each of their respective current and former officers and
directors.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens incurred in the Ordinary Course of Business not yet due and
payable, (b) liens for Taxes not yet due and
7
payable, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, and (d) other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money.
"Severally" means each Stockholder is liable alone for his or her own
share of a claim, proportionate to that Stockholder's percentage ownership of
the Company Shares as reflected in Section 3.A(e) of the Company Disclosure
Schedule.
"Shareholder Agreement" means that certain Shareholder Agreement by and
among the Company and the then-existing stockholders of the Company and their
respective spouses, dated as of January 29, 1997, as amended.
"Software" has the meaning set forth in Section 3.B(h)(i) below.
"Stockholder Representatives" means the individuals (and their successors)
specified in the Escrow, Release, and Indemnification Agreement as the
Stockholder Representatives, who have been appointed by the Stockholders for the
purpose of acting on behalf of the Stockholders with respect to the transactions
contemplated by this Agreement, including without limitation acting as transfer
agent for the Company Shares, administering the Aggregate Consideration, as
adjusted, as set forth in Section 2 below, and making decisions with respect to
indemnity claims and amendments to this Agreement, the Escrow, Release, and
Indemnification Agreement, or any ancillary agreements.
"Stockholders" means each of Michael Collins, an individual resident of
the State of Washington; Gregory Colvin, an individual resident of the State of
Washington; James Cox, an individual resident of the State of Washington; Dan
Dahl, an individual resident of the State of Washington; Neal Farenbaugh, an
individual resident of the State of Washington; Charles Handy, an individual
resident of the State of Washington; Douglas Handy, an individual resident of
the State of Washington; Howard E. Houserman, an individual resident of the
State of Washington; Scott Hower, an individual resident of the State of
Washington; Robert Jones, an individual resident of the State of Washington;
Becky Lichtenhagen, an individual resident of the State of Washington; Alfred L.
Lucero, an individual resident of the State of Washington; Edward Owens McKee,
an individual resident of the State of Washington; Thomas O'Dell, an individual
resident of the State of Washington; Beth A. Taylor, an individual resident of
the State of Washington; Michael Trask, an individual resident of the State of
Washington; Robert Vollmer, an individual resident of the State of Washington;
Stephen H. Von Fuchs, an individual resident of the State of Washington; and
Richard Warlick, an individual resident of the State of Washington.
"Subsidiary" means any corporation, limited partnership, limited liability
company, or other entity with respect to which a specified Person (or a
Subsidiary thereof) owns a majority of the common stock, units or other equity
interests or has the power to vote or direct the voting of sufficient securities
to elect a majority of the directors, and means specifically, with respect to
the Company, Zetec Foreign Sales Corporation, a corporation organized under the
laws of Barbados.
"Surviving Corporation" has the meaning set forth in Section 2(b) below.
8
"Takeover Proposal" means any written inquiry, proposal or offer from any
Person relating to (A) any direct or indirect acquisition or purchase of (i) the
assets of the Company or its Subsidiary outside of the Ordinary Course of
Business, or (ii) any securities of the Company or its Subsidiary, or (B) any
merger, consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving the Company or its Subsidiary
(other than the transactions contemplated by this Agreement).
"Tax" means any federal, state, local, or foreign income, built-in gains
(within the meaning of Code Section 1374 or any comparable foreign, state or
local provisions), gross receipts, excess net passive income (within the meaning
of Code Section 1375 or any comparable foreign, state or local provisions),
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
retailer's occupation taxes and other taxes commonly understood to be sales or
use taxes, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(f)(i) below.
"Undisclosed Liabilities" has the meaning set forth in Section 3.B(c)
below.
"Washington Act" means the Washington Business Corporation Act, as
amended.
2. MERGER.
(a) Inventory Count.
Not earlier than three (3) days prior to the Closing Date, the
Company, at its expense, shall conduct a physical inventory count of the
inventory of the Company and its Subsidiary (the "Inventory Count"), which
Inventory Count shall be completed prior to the Closing. The Parent and the
Buyer shall have the right to observe the Inventory Count.
(b) Merger.
At the Effective Date and subject to the terms and conditions of
this Agreement, Buyer shall be merged with and into the Company (the "Merger"),
in accordance with the relevant provisions of the Washington Act and the
Delaware Act, the separate corporate existence of the Buyer shall cease and the
Company shall continue as the surviving corporation (the "Surviving
Corporation"). The Merger shall otherwise have the effect set forth in the
Washington Act.
9
(c) Execution of Merger.
At the Closing, the Parties shall cause articles of merger to be
delivered to the Secretary of State of Washington and the Secretary of State of
Delaware executed in accordance with relevant provisions of the Washington Act
and the Delaware Act for filing thereby. Each such articles of merger shall
specify that the merger shall be effective as of the Effective Date, and that
the Articles of Incorporation of the Company shall be amended and restated in
its entirety to effect the replacement of the terms of the Articles of
Incorporation of the Company with those of the Certificate of Incorporation of
the Buyer, and such Amended and Restated Articles of Incorporation of the
Company shall be the Articles of Incorporation of the Surviving Corporation;
provided, however, that the name of the Surviving Corporation shall be Zetec,
Inc. The bylaws of the Buyer as in effect immediately prior to the Closing Date,
shall be the bylaws of the Surviving Corporation. As of Closing, the officers
and directors of the Surviving Corporation shall be as set forth on Section 2(c)
of the Company Disclosure Schedule, in each case, until their respective
successors are duly elected and qualified. Upon request of the Surviving
Corporation, the directors and officers of the Zetec Foreign Sales Corporation
will resign.
(d) Effect of Merger.
At the Closing, by virtue of the Merger and without any action on
the part of the holders thereof:
(i) all of the Company Shares shall be canceled and converted
into, and represent the right to receive in the manner provided in
Section 2(e) below, the aggregate of Twenty Five Million Eight
Hundred Ninety-Four Thousand Three Hundred Forty-Five Dollars
($25,894,345.00) (the "Aggregate Consideration, subject to
post-Closing adjustment as provided in Section 2(j) below (the net
amount referred to as the "Merger Consideration");
(ii) each share of capital stock of the Company that is held
in the treasury of the Company, if any, shall be cancelled and
retired and cease to exist and no consideration shall be issued in
exchange therefor; and
(iii) each issued and outstanding share of capital stock of
Buyer shall be converted into and become one fully paid and
non-assessable share of capital stock of the Surviving Corporation.
(e) Payment of Aggregate Consideration.
At the Closing Date, the Aggregate Consideration shall be paid and
allocated as follows:
(i) Five Million Eight Hundred Thousand Dollars
($5,800,000.00) shall be paid to the Escrow Agent, to be held and
disbursed as provided in Section 8 below and the Escrow Agreement;
10
(ii) Six Hundred Thousand Dollars ($600,000.00), which
represents the fees and expenses of the Stockholders' advisors, as
contemplated in Section 10(k) of this Agreement, shall be paid as
directed by the Stockholder Representatives;
(iii) the balance of the Aggregate Consideration shall be paid
to such accounts as may be designated in writing to the Buyer by the
Stockholder Representatives at least two business days prior to the
Closing Date, by wire transfer or other immediately available funds,
which amount shall be paid to the Stockholders pro rata based upon
the number of Company Shares held by each Stockholder as set forth
in Section 3.A(e) of the Company Disclosure Schedule.
(f) Surrender of Certificates.
Pursuant to the Escrow Agreement, the Stockholders shall appoint the
Stockholder Representatives as transfer agent for the purpose of surrendering
certificates representing the Company Shares for each Stockholder's portion of
the Aggregate Consideration, as set forth in Section 2(e) above. At the Closing,
each Stockholder shall deliver an executed assignment separate from certificate,
in a form reasonably satisfactory to the Parent, together with those original
certificates that immediately prior to the Closing represented the Company
Shares held by the Stockholders, or a duly executed affidavit of lost
certificate and indemnity for any Certificate which has been lost, stolen,
seized or destroyed (the "Certificates"), to Parent. Upon the surrender of
Certificates to Parent, the Stockholders shall be entitled to receive in
exchange therefor the Aggregate Consideration in accordance with Section
2(e)(iii) and the Certificates so surrendered shall be forthwith cancelled.
(g) The Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Riddell Williams P.S. at 10:00
a.m., on July 31, 2002, to be effective as of the commencement of business on
August 1, 2002, or such other date and time, or in such other manner, as the
Parties may agree (the "Closing Date").
(h) Deliveries at the Closing.
At the Closing, the Company and the Stockholders will deliver to the
Parent and the Buyer the various certificates, instruments, and documents
referred to in Section 5(a) below; (ii) the Parent and the Buyer will deliver to
the Company and the Stockholder Representatives the various certificates,
instruments, and documents referred to in Section 5(b) below; (iii) the Company
and the Stockholders will execute, acknowledge (if appropriate), and deliver to
the Parent and the Buyer such documents as the Parent, the Buyer and their
counsel may reasonably request; (iv) the Buyer will execute, acknowledge (if
appropriate), and deliver to the Company such documents as the Company and the
Stockholder Representatives and their counsel reasonably may request; and (v)
the Buyer will deliver to the Stockholders, and others specified in Section
2(e), the Aggregate Consideration.
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(i) Satisfaction of Denton Note.
Prior to the Closing, the Company shall obtain from Clyde Denton a
payoff letter, indicating the amount of principal and accrued interest unpaid as
of the Closing Date in respect to the Denton Note, which payoff letter shall
indicate that upon wire transfer of such amount to an account designated by
Denton, the Denton Note shall be paid and satisfied fully and all obligations
under the Denton Agreements shall be terminated and satisfied (the "Denton
Payoff"). During the Closing: the Parties shall deliver the documents and
instruments described in Paragraph (b) above; the Parent shall make a capital
contribution to the Surviving Corporation in an amount equal to the Denton
Payoff; and the Surviving Corporation shall pay the amount of the Denton Payoff
to Clyde Denton.
(j) Minimum Net Working Capital Adjustment.
(i) The Aggregate Consideration shall be increased or reduced,
as the case may be, on a dollar-for-dollar basis to the extent that
the Net Working Capital of the Company as of the close of business
on the Closing Date is greater or less than Twelve Million Five
Hundred Thousand Dollars ($12,500,000.00). Any decrease or increase
in the Aggregate Consideration pursuant to this Section 2(j) shall
be referred to as a "Purchase Price Adjustment".
(ii) As part of the calculation of Net Working Capital, the
Company shall be credited with any funds received as a result of any
refund from the purchase or extension of any insurance policies that
are terminated on or after Closing. The Company will endeavor in
good faith to complete an inventory count and valuation as of June
30, 2002 and the Parent will reasonably cooperate in an effort to
agree with the Company prior to the Closing with respect to a
valuation methodology and range in accordance with GAAP that would
be applicable to the inventory count and valuation as of June 30,
2002, and to the inventory count and valuation that will occur as of
the Closing Date in connection with the Closing Date Balance Sheet
and the Final Adjustment Schedule. Failure to agree on a valuation
methodology and range prior to Closing shall in no event delay the
Closing or give rise to a claim of breach of this Agreement.
(iii) No later than forty five (45) days after the Closing
Date, the Parent shall deliver to the Stockholder Representatives
(i) a balance sheet and a statement of operations of the Company for
the period ended as of the close of business on the Closing Date,
prepared in accordance with GAAP (the "Closing Date Balance Sheet"),
and (ii) a separate statement calculating Net Working Capital of the
Company as of the close of business on the Closing Date, based on
the Closing Date Balance Sheet, showing any calculations with
respect to any necessary Purchase Price Adjustment, prepared in
accordance with GAAP (the "Final Adjustment Schedule"). The
Stockholder Representatives shall have the right to examine and make
copies of the work papers and such other documents that are
generated or reviewed by the Parent in connection with the
preparation of the Closing Date Balance Sheet and the Final
Adjustment Schedule.
12
(iv) The Stockholder Representatives shall, within forty-five
(45) days following their receipt of the Closing Date Balance Sheet
and the Final Adjustment Schedule, accept or reject the Purchase
Price Adjustment submitted by the Parent. If the Stockholder
Representatives disagree with such calculation, they shall give
written notice to the Parent of such disagreement and any reason
therefor within such forty-five (45) day period. Should the
Stockholder Representatives fail to notify the Parent of a
disagreement within such forty-five (45) day period, the
Stockholders shall be deemed to agree with the Parent's calculation.
Any disagreement with respect to the determination of any Purchase
Price Adjustment shall be resolved in the manner set forth in
Section 10(p) below, except that the arbitrator shall be a certified
public accountant at Ernst & Young, selected by the manager of the
Seattle office of that firm. The arbitrator shall issue its report
as to the Net Working Capital as of the close of business on the
Closing Date, and the determination of the Purchase Price Adjustment
reflected in the Final Adjustment Schedule within sixty (60) days
after such dispute is referred to such arbitrator. The Stockholder
Representatives (on behalf of the Stockholders) on the one hand, and
the Parent on the other hand, shall bear all costs and expenses
incurred by it in connection with such arbitration, except that (1)
the costs and expenses of the Stockholder Representatives shall be
paid from the Escrow Fund, and (2) the fees and expenses of the
arbitrator hereunder shall be borne by the Stockholder
Representatives (on behalf of the Stockholders) and the Parent in
such proportion as such arbitrator shall determine based on the
relative merit of the position of the parties. This provision for
arbitration shall be specifically enforceable by the Parties and the
decision of such arbitrator in accordance with the provisions hereof
shall be final and binding with respect to the matters so arbitrated
and there shall be no right of appeal therefrom.
(v) If, based on the Final Adjustment Schedule as finally
determined pursuant to this Section 2(j), (i) the Net Working
Capital of the Company as of the close of business on the Closing
Date is less than Twelve Million Five Hundred Thousand Dollars
($12,500,000.00), the Stockholders Severally, coordinated by the
Stockholder Representatives, shall pay and deliver to the Parent an
amount equal to such deficit, or (ii) the Net Working Capital of the
Company as of the close of business on the Closing Date is greater
than Twelve Million Five Hundred Thousand Dollars ($12,500,000.00),
the Parent shall pay to the Stockholders, by and through the
Stockholder Representatives, an amount equal to such excess for
distribution to the Stockholders in accordance with the percentages
specified in Section 3.A(e) of the Company Disclosure Schedule,
after payment or reserves for payment of fees and expenses of
Stockholder Advisors. Final amounts due hereunder shall be paid no
later than five (5) business days following the Stockholder
Representatives' agreement with the Parent's calculation of the
Purchase Price Adjustment, or in the event of a disagreement,
following the resolution of such disagreement by written agreement
of the Parent and the Stockholder Representatives, or the
determination of the Arbitrator pursuant to Section 2(j)(iii) above.
13
3. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND THE COMPANY.
A. Fundamental Representations of the Stockholders. The Stockholders
Severally represent and warrant to the Parent and the Buyer that the statements
contained in this Section 3.A (the "Section 3.A Representations") are true,
correct and complete as of the date hereof, and will be true, correct and
complete as of the Closing Date, except: as specified to the contrary in the
corresponding paragraph of the disclosure schedule prepared by the Company
accompanying this Agreement and initialed by the Stockholder Representatives and
the Buyer (the "Company Disclosure Schedule"). The Company Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 3.A.
(a) Organization of the Company and its Subsidiary.
(i) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Washington and is duly qualified to conduct business in the
jurisdictions set forth on Section 3.A(a)(i) of the Company
Disclosure Schedule.
(ii) Zetec Foreign Sales Corporation is a Subsidiary of the
Company, and is a corporation duly organized, validly existing, and
in good standing under the laws of Barbados. The Company is the sole
record and beneficial owner of the capital stock of Zetec Foreign
Sales Corporation. Zetec Foreign Sales Corporation has nominal
assets, no liabilities and has not engaged in any business activity
since January of 2001.
(b) Authorization of Transaction.
The Board of Directors of the Company has approved this Agreement
and recommended its approval by the Stockholders. The Company has the full power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder, subject to obtaining the approval of the stockholders by
the affirmative vote of at least two-thirds (66 2/3%) of the issued and
outstanding shares of the Company's stock at a shareholders meeting to be held
prior to the Closing (the "Requisite Stockholder Vote"), and the satisfaction of
or waiver of each of the Conditions to Closing, including the execution of the
Escrow Agreement by each of the Stockholders prior to Closing. Each Stockholder
has the full legal capacity and authority to enter into and carry out the
transactions contemplated by this Agreement. This Agreement constitutes the
valid and legally binding obligation of the Company, enforceable in accordance
with its terms and conditions.
(c) Noncontravention.
(i) Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will
violate any constitution, statute, law, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to
which the Company, its Subsidiary, or the Stockholders is subject or
any
14
provision of the articles of incorporation or the bylaws of the
Company or its Subsidiary.
(ii) No Stockholder or other Person has notified any member of
the Board of Directors of the Company of any intention to exercise
any of his or her right to dissent to the Merger or any of the other
transactions contemplated by this Agreement under the Washington
Act.
(iii) Neither the Company, its Subsidiary, nor the
Stockholders need to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any governmental
agency in order for the Parties to consummate the transactions
contemplated by this Agreement or the merger to be effective, except
that the parties have mutually agreed that no filing under the Hart
Scott Rodino Antitrust Improvements Act of 1976, as amended (15 USC
ss.18a) is required in this transaction.
(d) Title to Company Shares.
The Stockholders have good title to the Company Shares. Upon the
payment of the Denton Note pursuant to Section 2(i) and the termination of the
Shareholder Agreement pursuant to the Escrow Agreement, both of which will occur
as a condition to Closing, the Stockholders will have the right to convey the
Company Shares to the Buyer. Upon the transfer of the Company Shares to the
Buyer, the Stockholders will have conveyed, good title and interest in and to
the Company Shares free and clear of all Security Interests.
(e) Capitalization; Company Shares.
Section 3.A(e) of the Company Disclosure Schedule sets forth the
number of authorized, issued, and outstanding equity securities of each of the
Company and its Subsidiary, and indicates the record legal owners of such
securities. The equity securities of each of the Company and its Subsidiary set
forth on Section 3.A(e) of the Company Disclosure Schedule constitute all of the
issued and outstanding capital stock of the Company and its Subsidiary, are
validly issued, fully paid and non-assessable and owned, legally and of record,
by the stockholders set forth on Section 3.A(e) of the Company Disclosure
Schedule, and none of such equity securities are subject to, nor have any been
issued in violation of, pre-emptive, rights of first offer, or similar rights,
whether arising under the articles of incorporation or bylaws of the Company, or
by contract.
(f) Redemption.
The Company has previously redeemed shares from certain of its
former shareholders listed on the Company Disclosure Schedule (the
"Redemptions"). Each of those Redemptions was valid and effective to fully
redeem the Company Shares previously held by the former shareholders, none of
whom currently hold any Company Shares.
15
(g) Shareholder Debt.
Except for the Denton Note, neither the Company nor its Subsidiary
is the maker or obligor in respect to any Indebtedness owed to any current or
former stockholder or other equity interest holder of the Company or its
Subsidiary. Except for amounts due under the Denton Note, none of the Company,
or any of the current officers or directors of the Company, have any Liabilities
or obligations to Clyde Denton relating to the business of the Company.
(h) Company Equity Securities.
All issuances, sales and repurchases by the Company of equity
interests in the Company and its Subsidiary have been effected in compliance
with all applicable laws, including, without limitation, applicable federal and
state securities laws. The Stock Ledgers and other corporate records of the
Company dated January 29, 1997 or later contain a complete and correct record of
all issuances and transfers of equity interests in the Company. No options,
warrants, conversion or other rights, agreements, commitments, arrangements or
understandings of any kind obligating the Company and its Subsidiary, contingent
or otherwise, to issue or sell any shares of its common stock or any securities
convertible into or exchangeable for any such shares or any other securities,
are outstanding, and no authorizations therefor have been given. The Company has
no Liability arising out of the issuance, sale, transfer or redemption of shares
of capital stock of the Company.
B. Representations of the Company. The Company hereby represents and
warrants that the statements contained in this Section 3.B (the "Section 3.B
Representations") are true, correct and complete as of the date hereof, and will
be true, correct, and complete as of the Closing Date, except (1) as specified
to the contrary in the corresponding paragraph of the Company Disclosure
Schedule, or (2) as specified in any Updated Disclosure provided in accordance
with Section 3.C below.
(a) Financial Statements.
Attached as Section 3.B(a) of the Company Disclosure Schedule are
audited consolidated balance sheets and related consolidated statements of
income and retained earnings, comprehensive income and cash flow of the Company
and its Subsidiary as of December 31, 2001, and unaudited interim consolidated
balance sheets and related consolidated statements of income and retained
earnings, comprehensive income and cash flow of the Company and its Subsidiary
through May 31, 2002 (the "Financial Statements").
(i) Each of the Financial Statements is true, correct,
complete and consistent with the books and records of the Company.
Each of the Financial Statements has been prepared in conformity
with GAAP and, to the extent in compliance with GAAP, on a
consistent basis throughout the periods covered thereby and presents
fairly the financial condition and results of operations and cash
flows of the Company and its Subsidiary at the dates and for the
periods specified, subject, in the case of unaudited financial
statements, to the absence of notes and the absence of normal
recurring year-end adjustments and procedures (none of which are
inconsistent with past practice). At closing, the Company will
16
have no Indebtedness, except: the Denton Note, and the obligations
reflected in Section 3.B(a)(i) of the Company Disclosure Schedule.
(ii) Neither the Company nor its Subsidiary have any debt,
liability or obligation of the type required by GAAP to be reflected
on the Financial Statements that is not reflected or reserved
against in the Financial Statements. Accounts payable reflected in
the Financial Statements have arisen from bona fide transactions.
All debts, liabilities and obligations of the Company and its
Subsidiary incurred after the date of the Financial Statements were
incurred in the Ordinary Course of Business, arose from bona fide
transactions, and are usual and normal in amount both individually
and in the aggregate. Neither the Company nor its Subsidiary are
directly or indirectly liable to or obligated to provide funds in
respect of or to guaranty or assume any obligation of any person
except to the extent reflected and fully reserved against in the
Financial Statements.
(b) Events Subsequent to December 31, 2001.
Since December 31, 2001, there has not been any material adverse
change in the business, financial condition, operations, or results of
operations of the Company. Without limiting the generality of the foregoing,
since that date, the Company:
(i) has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, except for sales of inventory in the
Ordinary Course of Business;
(ii) has not entered into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and
licenses) either involving more than $500,000, or outside the
Ordinary Course of Business, or modified any such agreement,
contract, lease or license, the modification of which involves more
than $500,000 or is outside the Ordinary Course of Business;
(iii) has not and, to the Knowledge of the Company, no party
has accelerated, terminated or canceled any agreement, contract,
lease, or license (or series of related agreements, contracts,
leases, and licenses) involving more than $250,000 to which the
Company is a party or by which it is bound;
(iv) has not imposed or permitted any Security Interest upon
any of its assets, tangible or intangible;
(v) has not made any capital expenditure in excess of the
Company's "Capital Expenditures Budget", which is attached to the
Company Disclosure Schedule;
(vi) has not made any capital investment in, any loan to, or
any acquisition of the securities of, any other Person;
(vii) has not issued any note, bond, or other debt security or
created, incurred, assumed, or guaranteed any Indebtedness;
17
(viii) has not delayed or postponed the payment of accounts
payable or other Liabilities outside of the Ordinary Course of
Business;
(ix) has not canceled, compromised, waived, or released any
right or claim (or series of related rights and claims) outside the
Ordinary Course of Business;
(x) has not granted any license or sublicense of any rights
under or with respect to any Intellectual Property outside the
Ordinary Course of Business;
(xi) has not changed or authorized any change in its articles
of incorporation, bylaws, or similar charter documents;
(xii) has not experienced any material damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xiii) has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees;
(xiv) has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the
terms of any existing such contract or agreement;
(xv) has not granted any increase in the compensation of any
of its directors, officers, and employees, except as described in
that certain Memorandum from Howard Houserman to Thomas O'Grady
dated July 8, 2002 (the "Compensation Memo");
(xvi) has not adopted, amended, modified or terminated any
bonus, profit-sharing incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other
Employee Benefit Plan), except as described in the Compensation
Memo;
(xvii) has not made any other change in employment terms for
any of its directors, officers, and employees, except as described
in the Compensation Memo;
(xviii) has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xix) has not declared or paid any dividend or other
distribution, whether in cash or other property; and
(xx) has not entered into a commitment to do any of the
foregoing.
18
(c) Undisclosed Liabilities.
Neither the Company nor its Subsidiary have any Liability arising
from a fact or circumstance that is not the subject of a representation or
warranty contained in Section 3.B of this Agreement,, except for: (i)
Liabilities set forth on the face of the Financial Statements; (ii) Liabilities
which have arisen after the date of the Financial Statements in the Ordinary
Course of Business; and (iii) Liabilities set forth on Section 3.B(c) of the
Company Disclosure Schedule ("Undisclosed Liabilities").
(d) Legal Compliance.
The Company and its Subsidiary have complied with all applicable
laws (including rules, regulations, codes, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies or instrumentality thereof), the failure to comply
with which, individually or in the aggregate, will result in Adverse
Consequences in excess of Two Hundred Thousand Dollars ($200,000). To the
Knowledge of the Company, no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, audit or notice has been filed or commenced
against the Company and its Subsidiary alleging or relating to any failure so to
comply. The Company and its Subsidiary have duly filed all reports and returns
required to be filed by it with governmental authorities and obtained all
governmental permits and licenses and other governmental consents which are
required in connection with the businesses and operations of the Company and its
Subsidiary; all of such permits, licenses and consents are in full force and
effect, and no proceedings for the suspension or cancellation of any of them are
pending or threatened, except where any of the above would not have a material
adverse effect on the Company and its Subsidiary. The Company and its Subsidiary
is not and has not been threatened with being suspended or debarred from
contracting with any federal, state, or local government.
(e) Tax Matters.
(i) From its inception until April 1, 1988, the Company was a
C Corporation within the meaning of the Code for tax purposes. From
that date until January 29, 1997, the Company had in effect a valid
and binding election to be treated either as an "S Corporation" or a
"qualified subchapter S subsidiary", as the case may be, within the
meaning of Code Sections 1361 et seq. for federal income tax
purposes. From January 30, 1997, to the present, the Company has
been treated as a "C Corporation."
(ii) The Company and its Subsidiary have filed all Tax Returns
that they were required to file. All such Tax Returns were true,
correct and complete in all material respects. All Taxes owed by the
Company and its Subsidiary which are required to be paid prior to
Closing, except as otherwise set forth on Section 3B(e)(ii) of the
Company Disclosure Schedule and except for sales or use Taxes
reflected on the Closing Date Balance Sheet, have been paid. The
reserves set forth on the Financial Statements and on the Closing
Date Balance Sheet are adequate to satisfy in full any and all Tax
Liabilities arising in respect to those matters set forth on Section
3B(e)(ii) of the Company Disclosure Schedule. All
19
Taxes owing but not yet due as a result of operations of the Company
prior to Closing will be accrued on the Financial Statements of the
Company. There are no Security Interests on any of the assets of the
Company or its Subsidiary that arose in connection with any failure
(or alleged failure) to pay any Tax. Neither the Company nor its
Subsidiary have been a member of an Affiliated Group (other than a
group the common parent of which was the Company) that has filed a
"consolidated return" within the meaning of Code Section 1501, or
has filed a combined or consolidated return with any entity other
than its Subsidiary with any other taxing authority.
(iii) The Company and its Subsidiary withheld the Taxes as
required in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder, or other third party
and such withheld amounts have either been paid to the appropriate
governmental agency or set aside in appropriate accounts for such
purpose.
(iv) Neither the Company nor its Subsidiary are currently
under audit with respect to Taxes by any authority, and have not
received any notice or other indication that any authority is
considering assessing any additional Taxes for any period for which
Tax Returns have been filed. There is no dispute or claim concerning
any Tax Liability of the Company or its Subsidiary either to the
Company's Knowledge has been claimed or raised by any authority in
writing or based upon personal contact with any agent or
representative of such authority. The Company has previously
disclosed to the Parent true and accurate copies of all federal
income tax returns filed with respect to the Company and its
Subsidiary for taxable periods ended on or after December 31, 1997.
State tax returns filed by the Company for that period have also
been made available to the Parent, and the Company has disclosed to
the Parent the existence of disputes relating to state and local tax
issues.
(v) Neither the Company nor its Subsidiary have waived any
statute of limitations in respect of Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(vi) Neither the Company nor its Subsidiary have made any
payments, are obligated to make any payments, or is a party to any
agreement that could obligate any of them to make any payments that
will not be deductible under Code Section 280G. Neither the Company
nor its Subsidiary is a party to any Tax allocation or sharing
agreement. Neither the Company nor its Subsidiary (A) have been a
member of an Affiliated Group filing a consolidated federal income
Tax Return (other than a group the common parent of which was the
Company) or (B) have any Liability for the Taxes of any Person
(other than the Company) under Treas. Reg. Section 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee
or successor, by contract, or otherwise.
20
(f) Real Property.
(i) Neither the Company nor its Subsidiary own any real
property.
(ii) Section 3.B(f)(ii) of the Company Disclosure Schedule
lists all real property leased to the Company and its Subsidiary
(the "Leased Real Property"). The Company has delivered to the Buyer
true, correct and complete copies of the leases for the Leased Real
Property (as amended to date). With respect to each lease for Leased
Real Property:
(A) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(B) neither the Company nor its Subsidiary are, and to
the Knowledge of the Company and its Subsidiary, no party to
the lease or sublease is, in breach or default, and no event
has occurred which, with ;notice or lapse of time, would
constitute a breach or default on the part of the Company or
permit termination, modification or acceleration thereunder;
(C) neither the Company nor its Subsidiary have, and to
the Knowledge of the Company and its Subsidiary, no party to
the lease or sublease has, repudiated any provision thereof;
(D) the Company has not received any notice of disputes
or forbearance programs in effect as to the lease;
(E) neither the Company nor its Subsidiary have
assigned, transferred, conveyed, mortgaged, deeded in trust,
or encumbered any interest in the leasehold; or
(F) During the period the premises have been occupied by
the Company, all facilities leased thereunder have received
all approvals of governmental authorities (including licenses
and permits) required in connection with the operation thereof
and have been operated and maintained by the Company in all
material respects in accordance with applicable laws, rules,
and regulations.
(g) Intellectual Property.
(i) The Company owns, or has the right to use pursuant to
license, sublicense, agreement, or permission, all of the
Intellectual Property necessary or used in the operation of the
Business as presently conducted or as proposed to be conducted. No
present or former employee of the Company licenses to the Company
any Intellectual Property which is used in the Business. Each item
of Intellectual Property owned or used by the Company or its
Subsidiary immediately prior to the Closing hereunder will be owned
or available for use by the Surviving Corporation on identical terms
and conditions immediately
21
subsequent to the Closing hereunder. Except with respect to those
Liabilities arising under those licenses, sublicenses, agreements,
or permissions for Intellectual Property to which the Company or its
Subsidiary is a party and which Intellectual Property is owned by a
third party, as set forth on Section 3.B(g)(iv) of the Company
Disclosure Schedule, neither the Company nor its Subsidiary has any
Liability to any Person with respect to the Intellectual Property,
or with respect to the creation, development, design,
implementation, or adaptation of the Intellectual Property to the
Business. Neither the Company nor its Subsidiary have granted or
permitted any government agency or instrumentality, foreign or
domestic, to obtain unlimited or government purpose license rights
or any ownership interest in any technical data or invention
belonging to the Company or its Subsidiary.
(ii) To the Knowledge of the Company, neither the Company nor
its Subsidiary have interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties, and neither the
Company nor its Subsidiary have ever received within the past five
(5) years any charge, complaint, claim, demand, or notice alleging
any such interference, infringement, misappropriation, or violation
(including any claim that the Company or its Subsidiary must license
or refrain from using any Intellectual Property rights of any third
party) . To the Knowledge of the Company, no third party has
interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the Company
or its Subsidiary.
(iii) Section 3.B(g)(iii) of the Company Disclosure Schedule
identifies each patent or registration which has been issued or
transferred to the Company or its Subsidiary with respect to any of
its Intellectual Property, identifies each pending patent
application for registration which the Company or its Subsidiary has
made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which the
Company or its Subsidiary has granted to any third party with
respect to any of its Intellectual Property. The Company and its
Subsidiary have made available to the Buyer true, correct and
complete copies of all such patent, trademark and copyright
registrations, applications, licenses, agreements, and permissions
(as amended to date) and has made available to the Buyer true,
correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such
item. Section 3.B(g)(iii) of the Company Disclosure Schedule also
identifies each trade name or unregistered trademark used by the
Company and its Subsidiary in connection with the Business. With
respect to each item of Intellectual Property required to be
identified in Section 3.B(g)(iii) of the Company Disclosure
Schedule:
(A) the Company and its Subsidiary possess all right,
title, and interest in and to the item, free and clear of any
Security Interest or other restriction;
22
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge; and
(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the
Knowledge of the Company, threatened, which challenges the
legality, validity, enforceability, use, or ownership of the
item.
(iv) Except for non-custom, off the shelf software, Section
3.B(g)(iv) of the Company Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that the
Company and its Subsidiary uses pursuant to license, sublicense,
agreement, or permission. The Company has delivered to the Buyer
true, correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to
each item of Intellectual Property required to be identified in
Section 3.B(g)(iv) of the Company Disclosure Schedule, to the
Knowledge of the Company:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and
in full force and effect;
(B) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby
(including the Merger referred to in Section 2 above);
(C) neither the Company, its Subsidiary, nor to the
Knowledge of the Company, any other party to the license,
sublicense, agreement, or permission, is in breach or default
thereunder;
(D) neither the Company nor its Subsidiary have, and to
the Knowledge of the Company, no other party to the license,
sublicense, agreement, or permission has, repudiated any
provision thereof;
(E) with respect to each sublicense, the representations
and warranties set forth in subsections (A) through (D) above
are true and correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(G) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to the
Knowledge of the Company, threatened, which challenges the
legality, validity, or enforceability of the underlying item
of Intellectual Property; and
23
(H) neither the Company nor its Subsidiary has granted
any sublicense or similar right with respect to the license,
sublicense, agreement, or permission.
(h) Software.
(i) The "Owned Software" shall mean all computer programs
(source code or object code) which were developed for or on behalf
of, or have been purchased by, the Company and its Subsidiary and
which are currently used internally by the Company and its
Subsidiary or which have been distributed by the Company and its
Subsidiary and all computer programs under development by the
Company and its Subsidiary but not currently distributed. Section
3.B(h)(i) of the Company Disclosure Schedule sets forth under the
caption "Licensed Software" a true, correct and complete list of all
computer programs (source code or object code) licensed to the
Company and its Subsidiary by another person which are currently
used internally by the Company and its Subsidiary or which have been
distributed by the Company and its Subsidiary, whether as integrated
or bundled with any Owned Software or as a separate stand-alone
product (specifically excluding any non-custom, off-the-shelf
computer program) (collectively, the "Licensed Software" and,
together with the Owned Software, the "Software").
(ii) The Company and its Subsidiary have good, marketable and
exclusive title to, and the valid and enforceable power and the
right to sell, license, lease, transfer, use, create derivative
works of, or otherwise exploit, all versions and releases of the
Owned Software and all copyrights thereof, free and clear of all
Security Interests. The Company and its Subsidiary are in actual
possession of the source code and object code for the Owned
Software, and the Company and its Subsidiary are in possession of
all other documentation, including without limitation all related
engineering specifications, program flow charts, installation and
user manuals, and know-how necessary for the effective use of the
Software as currently used in the Business. The Software constitutes
all of the computer programs necessary to conduct the Business as
now conducted, and includes all of the computer programs licensed or
offered for license to the Company's and its Subsidiary's customers
and potential customers or otherwise used in the development,
marketing, licensing, sale or support of the products and the
services presently offered by the Company and its Subsidiary. No
person other than the Company and its Subsidiary has any right or
interest of any kind or nature in or with respect to the Owned
Software or any portion thereof or any rights to sell, license,
lease, transfer, use or otherwise exploit the Owned Software or any
portion thereof. Except with respect to those Liabilities arising
under those licenses, sublicenses, agreements, or permissions for
Licensed Software to which the Company is a party, as set forth on
Section 3.B(h)(i) of the Company Disclosure Schedule, neither the
Company nor its Subsidiary has any Liability to any Person with
respect to the Software, or with respect to the creation,
development, design, implementation, or adaptation of the Software
to the Business.
24
(iii) Section 3.B(h)(iii) of the Company Disclosure Schedule
sets forth a true, correct and complete list, of (A) all persons
other than the Company and its Subsidiary that have been provided
with the source code or have a right to be provided with the source
code (including any such right that may arise after the occurrence
of any specified event or circumstance, either with or without the
giving of notice or passage of time or both) for any of the Owned
Software, and (B) all source code escrow agreements relating to any
of the Owned Software (setting forth as to any such escrow agreement
the source code subject thereto and the names of the escrow agent
and all other persons who are actual or potential beneficiaries of
such escrow agreement), and identifies with specificity all
agreements and arrangements pursuant to which the execution,
delivery and performance of this Agreement or the consummation of
the transactions contemplated hereby would entitle any third party
or parties to receive possession of the source code for any of the
Owned Software or any related technical documentation.
(iv) None of the sale, license, lease, transfer, use,
reproduction, distribution, modification or other exploitation by
the Company and its Subsidiary of any version or release of any
computer program included in the Owned Software obligates or will
obligate the Company or its Subsidiary to pay any royalty, fee, or
other compensation to any other person.
(v) Except as specified in Section 3.B(h)(v) of the Company
Disclosure Schedule, no agreement, license or other arrangement
pertaining to any of the Software (including, without limitation,
any development, distribution, marketing, use or maintenance
agreement, license or arrangement) to which the Company and its
Subsidiary is a party will become terminable by any party thereto as
a result of the execution, delivery or performance of this Agreement
or the consummation of the transactions contemplated hereby.
(i) No Infringement.
To the Knowledge of the Company, the existence, sale, license,
lease, transfer, use, reproduction, distribution, modification or other
exploitation by Company or its Subsidiary or any of its successors or assigns of
any Owned Software or Intellectual Property, as such Software or Intellectual
Property, as the case may be, is or was, or is currently contemplated to be
sold, licensed, leased, transferred, used or otherwise exploited by such persons
in connection with the Business, does not (A) infringe on any patent, trademark,
copyright or other right of any other person, (B) constitute a misuse or
misappropriation of any trade secret, know-how, process, proprietary information
or other right of any other person or a violation of any relevant agreement
governing the license of the Licensed Software to Company, or (C) entitle any
other person to any interest therein, or right to compensation from Company, its
Subsidiary, or any of its respective successors or assigns, by reason thereof.
Neither the Company nor its Subsidiary has not received any complaint,
assertion, threat or allegation or otherwise has notice of any lawsuit, claim,
demand, proceeding or investigation involving matters of the type contemplated
by the immediately preceding sentence or has Knowledge of any facts or
circumstances that
25
could reasonably be expected to give rise to any such lawsuit, claim, demand,
proceeding or investigation.
(j) Tangible Assets.
The Company and its Subsidiary own or lease all buildings,
machinery, equipment, and other tangible assets necessary for the conduct of the
Business as presently conducted. At Closing, the Company will have good title to
all of the assets of the Company free and clear of any Security Interest. The
assets are in sufficient operating condition to enable the Company to operate
its business.
(k) Inventory.
The inventory of the Company and its Subsidiary consists of raw
materials and supplies, manufactured and purchased parts, goods in process, and
finished goods, all of which is accurately reflected on the Financial Statements
in accordance with GAAP.
(l) Contracts.
Section 3.B(l) of the Company Disclosure Schedule lists the
following contracts and other agreements, written or oral, to which the Company
or any of its Subsidiary is a party:
(i) all customer orders accepted by the Company or its
Subsidiary which constitute commitments in excess of $500,000 and in
order backlog as of May 31, 2002;
(ii) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease
payments in excess of $100,000 per annum;
(iii) any agreement for the purchase or sale of raw materials,
commodities, supplies, products, or other personal property, or for
the furnishing or receipt of services, the performance of which
involves consideration, in excess of $500,000;
(iv) any agreement that constitutes a partnership or joint
venture;
(v) any agreement (or group of related agreements) under which
any of them have created, incurred, assumed, or guaranteed any
Indebtedness, under which any of them have imposed a Security
Interest on any of their assets, tangible or intangible;
(vi) any agreement limiting the Company's right to compete or
to enter into a line of business;
(vii) except the Denton Agreements, any agreement involving
the Stockholders to which the Company or its Subsidiary is a party;
26
(viii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of any of its current directors,
officers, and employees or those that remain in effect with respect
to any former directors, officers or employees;
(ix) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis , which cannot be
terminated by the Company on thirty (30) days' notice or less
without penalty;
(x) any agreement under which any of them have advanced or
loaned any amount to any of their directors, officers, and
employees; and
(xi) any agreement which requires the consent or approval of
any governmental agency in connection with the transactions
contemplated by this Agreement.
The Company has made available to the Buyer a true, correct and
complete copy of each written agreement listed in Section 3.B(l) of
the Company Disclosure Schedule (as amended to date) and a written
summary setting forth the terms and conditions of each oral
agreement referred to in Section 3.B(l) of the Company Disclosure
Schedule. To the Company's Knowledge, the Customer Orders listed in
Section 3.B(l) were all priced at amounts consistent with past
practices and in excess of the cost to the Company of purchasing and
manufacturing such goods. To the Company's Knowledge, there is no
basis for the termination or cancellation of any of those orders.
With respect to each such agreement: (A) the agreement is legal,
valid, binding, enforceable, and in full force and effect, subject
to applicable bankruptcy, insolvency, fraudulent conveyance or
transfer, reorganization, arrangement, moratorium or other similar
laws from time to time affecting creditor's rights generally; (B) to
the Knowledge of the Company and its Subsidiary, the agreement will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby, subject to applicable bankruptcy,
insolvency, fraudulent conveyance or transfer, reorganization,
arrangement, moratorium or other similar laws from time to time
affecting creditor's rights generally; (C) neither the Company nor
its Subsidiary are, and to the Knowledge of the Company and its
Subsidiary, no other party, is in material breach or default, and no
event has occurred which with notice or lapse of time would
constitute a material breach or default, or permit termination,
modification, or acceleration, under the agreements; (D) no party
has repudiated any provision of the agreement; (E) such agreement
does not prohibit or require consent in the event of a change of
control of the Company or its Subsidiary; and (F) to the Knowledge
of the Company and its Subsidiary, no claim or setoff has been
asserted under or against such agreement. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any of the contracts listed or required to
be listed in Section 3.B(l) of
27
the Company Disclosure Schedule (or result in the imposition of any
Security Interest upon any of its assets).
(m) Notes and Accounts Receivable.
The loans, notes and accounts receivable reflected in the Financial
Statements, and all such loans, notes and accounts receivable arising after the
applicable dates of the Financial Statements, arose and have arisen, from bona
fide transactions and are not subject to any setoffs or counterclaims, and the
bad debt reserves established in connection with such loans, notes, and accounts
receivable are reflected on the Financial Statements in conformity with GAAP,
and to the extent in compliance with GAAP, on a consistent basis throughout the
periods covered thereby.
(n) Powers of Attorney.
There are no outstanding powers of attorney executed on behalf of
the Company or its Subsidiary.
(o) Insurance.
The Company has provided to the Parent a summary of the Company's
current insurance coverages, which is attached to the Company Disclosure
Schedule. With respect to each such insurance policy: (A) all policy premiums
due to date have been paid in full, and to the Knowledge of the Company and its
Subsidiary, the policy is legal, valid, binding, enforceable, and in full force
and effect with respect to the periods for which it purports to provide coverage
subject to applicable bankruptcy, insolvency, fraudulent conveyance or transfer,
reorganization, arrangement or moratorium or other similar laws from time to
time affecting creditor's rights generally; (B) neither the Company nor its
Subsidiary or, to the Knowledge of the Company and its Subsidiary, any other
party to the policy, is in breach or default (including with respect to the
payment of premiums or the giving of notices), and, to the Knowledge of the
Company, no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy, other than provisions which may be triggered by
a change of control of the Company; and (C) no party to the policy has
repudiated any provision thereof. Section 3.B(o) of the Company Disclosure
Schedule describes any self-insurance arrangements affecting the Company and its
Subsidiary.
(p) Litigation.
Neither the Company nor its Subsidiary (i) are subject to any
outstanding injunction, judgment, order, decree, ruling, or charge and (ii) are
a party nor, to the Knowledge of the Company and its Subsidiary, have been
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator.
28
(q) Product Warranty.
To the Knowledge of the Company, each product manufactured, sold,
leased, or delivered by the Company and its Subsidiary or service provided by
the Company and its Subsidiary has been in conformity with all applicable
contractual commitments and all express warranties. The Company does not have
any Liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
it giving rise to any Liability) for replacement or repair thereof or other
damages in connection therewith, except for Product Warranty Claims in the
Ordinary Course of Business. To the Knowledge of the Company, the Company does
not have any Liability for any material returns of products. No reserves for
product warranty claims are set forth on the Financial Statements. No product
manufactured, sold, leased, or delivered by the Company and its Subsidiary is
subject to any guaranty, warranty, or other indemnity beyond the applicable
standard terms and conditions of sale or lease. The Company has provided to the
Parent copies of the standard terms and conditions of sale or lease for the
Company and its Subsidiary (containing applicable guaranty, warranty, and
indemnity provisions).
(r) Product Liability.
There are no existing or, to the Knowledge of the Company and its
Subsidiary, threatened, claims against the Company and its Subsidiary arising
out of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased, or delivered by
the Company and its Subsidiary which could result in Liability to the Company
and its Subsidiary. To the Company's Knowledge, no events have occurred which
would result in such claims.
(s) Employees.
The Company has provided to the Buyer a schedule entitled "Employee
Census" dated June 8, 2002, which accurately reflects: (A) the name, (B) the
current annual salary (or hourly wage), including any bonus or commitment to pay
any other amount or benefit in connection with a termination of employment, if
applicable, and (C) the specific identity of the employing entity, of all
present employees, consultants, and independent contractors employed by the
Company and its Subsidiary. To the Knowledge of the Company, no executive, key
employee, or group of employees has any immediate plans to terminate employment
with the Company or its Subsidiary. Neither the Company nor its Subsidiary are a
party to or bound by any collective bargaining agreement, nor has it experienced
any strikes, grievances, claims of unfair labor practice. The Company has no
Knowledge of any organizational effort presently being made or threatened by or
on behalf of any labor union with respect to its employees. There is no claim
outstanding or, to the Knowledge of the Company, threatened or claims respecting
employment of any past or present employee of the Company and its Subsidiary
including, without limitation, claims of personal injury (unless fully covered
by worker's compensation, liability or indemnity insurance) discrimination,
wage, hours or similar laws or regulations. There are no written employment or
similar agreements for a fixed term between any employee of the Company and its
Subsidiary and the Company and its Subsidiary; each employee of the Company and
its Subsidiary is an at-will employee.
29
(t) Employee Benefits.
(i) No other corporation, trade, business, or other entity,
would, together with the Company and its Subsidiary constitute a
single employer within the meaning of Code Section 414.
(ii) Section 3.B(t) of the Company Disclosure Schedule
contains a true and complete list of all of the Employee Benefit
Plans which are presently in effect for the benefit of current or
former employees, officers, directors or consultants of the Company
and its Subsidiary, together with any plans formerly in effect for
which the Company still has any Liability (the "Company Plans").
There are no Company Plans established or maintained outside of the
United States primarily for the benefit of persons substantially all
of whom are nonresident aliens.
(iii) Each Company Plan has been administered in all material
respects in accordance with its terms and is in compliance in all
material respects with the applicable provisions of law. All
reports, returns and similar documents required to be filed with any
governmental agency or distributed to any participant of each
Company Plan have been duly and timely filed or distributed in all
material respects.
(iv) No actions, suits or claims (other than routine claims
for benefits in the ordinary course) are pending or, to the
Knowledge of the Company and its Subsidiary, threatened, with
respect to any Company Plan, and, to the Knowledge of the Company,
no event or condition exists which would result in Liability to the
Company, except as reflected on the Financial Statements and except
for the Zetec, Inc. Pension Plan.
(v) The Company and its Subsidiary have made all contributions
or payments to or under each Company Plan required by law, or by the
terms of such Company Plan.
(vi) There is no lien outstanding upon any assets of the
Company or its Subsidiary pursuant to Code Section 412(n) in favor
of any Company Plan.
(vii) The Company does not have any past, present or future
obligation or liability to contribute to any multiemployer plan as
defined in ERISA Section 3(37).
(viii) Neither the Company nor its Subsidiary are obligated,
contingently or otherwise, under any agreement to pay any amount
which would be treated as a "parachute payment," as defined in Code
Section 280G(b) (determined without regard to Code Section
280G(b)(2)(A)(ii)).
(ix) With respect to each of the Company Plans:
30
(A) each of the Company Plans has been established,
maintained, funded and administered in all material respects
in accordance with its governing documents, and any applicable
provisions of ERISA, the Code, other applicable law, and all
regulations promulgated thereunder;
(B) none of the Company Plans nor any Fiduciary has
engaged in a "Prohibited Transaction" as defined in ERISA
Section 406 or Code Section 4975 (for which no individual or
class exemption exist under ERISA Section 408 or Code Section
4975, respectively);
(C) all filings and reports as to each of the Company
Plans required to have been made on or before the Closing Date
to the Internal Revenue Service, or to the United States
Department of Labor or to the Pension Benefit Guaranty
Corporation, have been or will be duly made by that date;
(D) each of the Company Plans which is intended to
qualify as a tax-qualified retirement plan under Code Section
401(a) has received a favorable determination letter(s) from
the Internal Revenue Service as to qualification of such
Company Plan for the period from its adoption through the
Closing Date; nothing has occurred, whether by action or
failure to act, which has resulted in or would cause the loss
of such qualification; and each trust thereunder is exempt
from tax pursuant to Code Section 501(a);
(E) each of the Company Plans which is required to
satisfy Code Sections 401(k)(3) or 401(m)(2) has been tested
for compliance with, and has satisfied the requirements of,
Code Sections 401(k)(3) and 401(m)(2) for each plan year
ending prior to the Closing Date;
(F) no event has occurred and no condition exists
relating to any of the Company Plans that would subject the
Company and its Subsidiary to any Tax or Liability under IRS
Sections 4971, 4972 or 4979, or to any Liability under ERISA
Sections 502 or 4071; and
(G) to the extent applicable, each of the Company Plans
has been funded in accordance with its governing documents,
ERISA and the Code or other applicable law, has not
experienced any accumulated funding deficiency (whether or not
waived) and has not exceeded its full funding limitation
(within the meaning of Code Section 412) at any time.
(x) With respect to the Company Plans which provide group
health benefits to employees of the Company and its Subsidiary and
are subject to the requirements of Code Section 4980B and Part 6,
Subtitle B of Title I of ERISA ("COBRA"), such group health plan has
been administered in every material respect in accordance with its
governing documents and COBRA and with the
31
group health plan requirements of Subtitle K, Chapter 100 of the
Code and ERISA Sections 701 et seq.
(xi) With respect to employee benefit matters generally:
(A) neither the Company, its Subsidiary, nor any person,
firm or corporation which is or has been under common control
of the Company and its Subsidiary within the meaning of
Section 4001(b) of ERISA, maintains or contributes to or has
ever maintained or contributed to any Employee Benefit Plan
subject to Title IV of ERISA;
(B) the consummation of the transactions contemplated
hereby will not accelerate or increase any Liability under any
of the Company Plans because of an acceleration or increase of
any of the rights or benefits to which Company Plan
participants or beneficiaries may be entitled thereunder;
(C) the Company does not have any obligation to any
retired or former employee or any current employee of the
Company and its Subsidiary upon retirement or termination of
employment under any Company Plans, other than such
obligations imposed by COBRA; and
(D) any of the Company Plans which is an "employee
welfare benefit plan," within the meaning of ERISA Section
3(1), may be terminated prospectively without Liability to the
Company, Parent, Buyer, or Surviving Corporation, including,
without limitation, Liability for unreported (e.g., run-off)
benefit claims, premium adjustments or termination charges of
any kind.
(xii) If any Employee Benefit Plan subject to Title IV of
ERISA were terminated by the Company or any Subsidiary, the fair
market value of the assets of such plan as of the plan termination
date would equal or exceed the plan's "benefit liabilities," as such
term is defined in Section 4001(a)(16) of ERISA, assuming such
funding status is determined using actuarial factors and applying
such other principles that are legally required to be given effect
in the context of the termination of a plan subject to Title IV of
ERISA.
(xiii) Notwithstanding any other provision of this Section
3.B(t), the Buyer and Parent are aware of the funding that would be
required to terminate the Zetec, Inc. Pension Plan, and the parties
have adjusted the Aggregate Consideration on an agreed amount to
affect that liability and the potential costs of terminating that
Plan.
(u) Guaranties.
Neither the Company nor its Subsidiary are a guarantor or otherwise
liable for any Liability or obligation (including Indebtedness) of any other
Person.
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(v) Environment, Health, and Safety.
(i) The Company and its Subsidiary have complied with all
Environmental, Health, and Safety Laws, the failure to comply with
which could reasonably be expected to result in Adverse Consequences
in excess of Two Hundred Thousand Dollars ($200,000). To the
Knowledge of the Company, no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against the Company or its Subsidiary alleging
such failure.
(ii) The Company does not have any Liability for Adverse
Consequences in excess of $200,000 (and neither the Company nor its
Subsidiary have handled, used, stored, treated, recycled or disposed
of any Hazardous Substance, arranged for the disposal of any
Hazardous Substance, exposed any employee or other individual to any
Hazardous Substance or condition, or owned or operated any property
or facility in any manner that could form the legitimate basis for
any present or future action, suit, proceeding, hearing,
investigations, charge, complaint, claim or demand) for penalties,
investigations of or damage to any site, location, body of water
(surface or subsurface), or other natural resources, for any illness
of or personal injury to any employee or other individual, or for
any reason under any Environmental, Health, and Safety Laws.
(iii) To the Knowledge of the Company, all properties and
equipment used in the Business are and in the past have been free of
any amounts of asbestos, PCB's, methylene chloride,
trichlorethylene, 1,2-trans-dichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances, the presence of
which could result in Adverse Consequences.
(w) Certain Business Relationships with the Company and its
Subsidiary.
No Related Person of the Company or its Subsidiary has or has had,
any interest in any property (whether real, personal, or mixed and whether
tangible or intangible) used in or pertaining to the Company, the Subsidiary, or
the Business. No Related Person of the Company or its Subsidiary owns or has
owned (of record or as a beneficial owner) an equity interest or any other
financial or profit interest in, a Person that has had business dealings or a
material financial interest in any transaction with the Company, its Subsidiary,
or the Business.
(x) Brokers.
Except for those fees and expenses of Windswept Capital LLC, which
fees and expenses will be paid by the Stockholders, neither the Company, its
Subsidiary, nor the Stockholders have incurred any Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(y) Disclosure.
The representations and warranties contained in this Section 3
(including the Company Disclosure Schedule and any Updated Disclosure) do not,
and as of the Closing Date
33
will not, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statement and information contained
in this Section 3 not misleading.
(z) Knowledge Group
Section 3.B(z) of the Company Disclosure Schedule contains the list
of Stockholders required in the definition of "Knowledge of the Company" as
contained in this Agreement.
C. Updated Disclosure. In the event that between the date of execution of
this Agreement and the Closing, the Stockholder Representatives first become
aware of events, facts or circumstances which would make any of the
representations and warranties of this Section 3 untrue, the Stockholder
Representatives may provide written notice of that event, fact or circumstance
to the Buyer and Parent, clearly labeled as "Updated Disclosure". Within five
(5) days of receipt of an Updated Disclosure, the Buyer and Parent may, in their
discretion, either (i) accept the Updated Disclosure, in which case, the event,
fact or circumstance so disclosed, shall be deemed to be added to the Company
Disclosure Schedule and shall not be deemed a breach of the representations and
warranties of this Section 3; or (ii) elect to terminate this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE BUYER.
Parent and Buyer, jointly and severally, represent and warrant to the
Stockholders that the statements contained in this Section 4 are true, correct
and complete as of the date hereof, and will be true, correct and complete as of
the Closing Date.
(a) Organization of the Parent and the Buyer.
Each of Parent and Buyer is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation and is duly qualified as a foreign corporation to do business in
every jurisdiction where such qualification is required.
(b) Authorization of Transaction.
Each of Parent and Buyer has full corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of Parent
and Buyer, enforceable in accordance with its terms and conditions. Parent and
Buyer need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agencies
in order for the Parties to consummate the transactions contemplated by this
Agreement.
(c) Noncontravention.
Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby will violate any
constitution, state, regulation, rule,
34
injunction, judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Parent or Buyer is subject,
or any provision of its certificate of incorporation or bylaws.
(d) Broker's Fees.
Neither Parent nor Buyer has incurred any Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Stockholders could
become liable or obligated.
(e) Disclosure.
The representations and warranties contained in this Section 4 do
not, and as of the Closing Date will not, contain any untrue statements of a
material fact or omit to state any material fact necessary in order to make the
statements contained in this Section 4 not misleading.
(f) Financial Capability.
The Parent and Buyer will at Closing have the funds necessary to
complete the merger and make the payments described in Section 2.
(g) Reliance.
The Parent and the Buyer are not relying on any representations or
warranties made by or on behalf of the Company, the Subsidiary or any of the
Stockholders, except those expressly contained Section 3 of in this Agreement.
5. CONDITIONS TO OBLIGATION TO CLOSE.
(a) Conditions to Obligation of Parent and Buyer.
The obligation of Parent and Buyer to consummate the transactions to
be performed by it in connection with the Closing is subject to satisfaction of
the following conditions:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) the Company and the Stockholders shall have performed and
complied with all of its covenants hereunder in all material
respects through the Closing;
(iii) the Company shall have procured all of the third party
consents specified on Exhibit B hereto, and the consent, termination
and release agreement, shall have been executed by the Company and
Clyde Denton, in the form set forth on Exhibit C hereto;
35
(iv) the Company shall have provided notice of this
transaction to the United States Department of Defense and the
Department of Energy, and obtained any other governmental consents
for the Surviving Corporation to conduct the Business following the
Closing;
(v) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or
before any arbitrator wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement, (B) cause
any of the transactions contemplated by this Agreement to be
rescinded following consummation, or (C) affect adversely the right
of the Buyer to own the assets of the Company and its Subsidiary or
to operate the Business (and no such injunction, judgment, order,
decree, ruling, or charge shall be in effect);
(vi) the Company and the Stockholder Representatives shall
have delivered to the Parent and the Buyer a certificate, executed
by the Company and the Stockholder Representatives, to the effect
that the conditions specified above in Section 5(a)(i) to 5(a)(v)
have been satisfied in all respects;
(vii) each of the Stockholders shall have entered into a
Noncompetition and Assignment of Inventions Agreement, with a term
equal to two (2) years, in form and substance as set forth in
Exhibit D attached hereto, and the same shall be in full force and
effect;
(viii) each of the Stockholders, the respective spouses of the
Stockholders, the Parent, the Buyer, the Company, and the Escrow
Agent shall have entered into the Escrow Agreement;
(ix) the Company shall have delivered to the Parent and the
Buyer the payoff letter indicating the amount of the Denton Payoff;
(x) The R&W Insurance Policy shall have been issued and
delivered to the Parent and the Buyer, in the form attached to the
Company Disclosure Schedule;
(xi) The Shareholders Agreement shall have been terminated;
(xii) each of the Buyer and the Company shall have received
the consent and estoppel of Rowley Enterprises, Inc., Kevin Tolkin
and Laurie Young Tolkin, and Clyde Denton in form and substance
satisfactory to the Parent and the Buyer, with respect to the Leased
Real Property;
(xiii) the Parent and the Buyer shall have received from
Riddell Williams P.S., counsel to the Company, opinions with respect
to the Company and its Subsidiary and the transactions contemplated
hereby in form and substance as set forth in Exhibit E attached
hereto, addressed to the Parent and the Buyer, and dated as of the
Closing Date;
36
(xiv) the Company shall have satisfied all of its Liabilities
owed to the Founders, and to Richard E. Marlow pursuant to the
Marlow Agreement;
(xv) the certificates of merger with respect to the Merger
shall have been filed in accordance with the Delaware Act and the
Washington Act;
(xvi) the Company shall have delivered to Parent and Buyer a
certificate of the Secretary of the Company as to the incumbency of
its officers, a copy of a certificate evidencing the incorporation
and good standing of the Company, a copy of the articles and bylaws
of the Company, and a copy of the resolutions adopted by the board
of directors and the stockholders of the Company with respect to the
transactions contemplated by this Agreement;
(xvii) all actions to be taken by the Company and its
Subsidiary in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments, and
other documents required to effect the transactions contemplated
hereby will be reasonably satisfactory in form and substance to the
Parent and the Buyer;
(xviii) The Parent shall have received the approval of its
Board of Directors to execute this Agreement.
(xix) The Board of Directors of the Company shall have adopted
resolutions that: (a) terminate the Zetec, Inc. Profit
Sharing/401(k) Plan, effective not earlier than the date all
conditions to Closing are satisfied or waived and not later than
immediately before Closing; and (b) freeze the Zetec, Inc. Pension
Plan, effective on the date specified in the notice delivered to
affected employees in accordance with and intended to satisfy the
requirements of Section 204(h) of the Employee Retirement Income
Security Act of 1974 and Section 4980F of the Internal Revenue Code,
said notice to be delivered to affected employees as soon as
practicable following the public announcement of the Merger.
Either the Parent or the Buyer may waive any condition specified in this Section
5(a) if it executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Company.
The obligation of the Company to consummate the transactions to be
performed by it in connection with the Closing is subject to satisfaction of the
following conditions:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as
of the Closing Date;
(ii) Parent and Buyer shall have performed and complied with
all of their covenants hereunder in all material respects through
the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or
37
foreign jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(iv) the Parent and the Buyer shall have delivered to the
Company and the Stockholder Representatives a certificate to the
effect that the conditions specified above in Sections 5(b)(i) to
5(b)(iv) have been satisfied in all respects;
(v) the Stockholders shall have received from Powell,
Goldstein, Frazer & Murphy LLP, counsel to the Parent and the Buyer
an opinion in form and substance as set forth in Exhibit F attached
hereto, addressed to the Stockholders, and dated as of the Closing
Date;
(vi) each of the Parent and the Buyer shall have delivered to
the Company and the Stockholder Representatives a certificate of the
Secretary of each of the Parent and the Buyer as to the incumbency
of each of their officers, a copy of certificates evidencing the
incorporation and good standing of the Parent and the Buyer, a copy
of the articles and bylaws of the Parent and the Buyer, and a copy
of the resolutions adopted by the board of directors of the Parent
and the Buyer with respect to the transactions contemplated by this
Agreement; and
(vii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Company.
Either the Company or the Stockholder Representatives may waive any condition
specified in this Section 5(b) if it or he executes a writing so stating at or
prior to the Closing.
6. PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period prior to the
Closing:
(a) Access and Investigation.
Between the date hereof and the Closing Date, the Company and the
Stockholders will, and will cause their representatives to:
(i) afford the Parent, the Buyer, their attorneys,
accountants, and other representatives (collectively, "Buyer's
Advisors") reasonable access to the Company and its Subsidiary, and
their personnel, properties (including for purposes of environmental
testing), contracts, books and records, financial
38
statements, and other documents and data so as to not unreasonably
interfere with the conduct of the Business;
(ii) furnish the Buyer with copies of all such contracts,
books and records, and other existing documents and data as the
Buyer may reasonably request;
(iii) furnish the Buyer and Buyer's Advisors with such
additional financial, operating and other data and information as
the Buyer may reasonably request; and
(b) Operation of the Businesses of the Company and its Subsidiary.
Between the date hereof and the Closing Date, the Company, its
Subsidiary, and the Stockholders will, and the Company and its Subsidiary will
cause their representatives to:
(i) conduct the Business only in the Ordinary Course of
Business, or otherwise with the written consent of the Buyer, except
that the Board of directors shall take the action described in
Section 5(a)(xix) above;
(ii) use their best efforts to preserve intact the current
business organization of the Company and its Subsidiary, keep
available the services of the current officers, employees, and
agents of the Company and its Subsidiary, maintain the relations and
good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with the
Company and its Subsidiary, and maintain such amount of working
capital necessary for the Company and its Subsidiary to conduct the
Business in the Ordinary Course of Business; and
(iii) confer with the Buyer concerning operational matters of
a material nature and the status of business operations and
finances.
(c) Negative Covenant.
Except as otherwise expressly permitted by this Agreement, between
the date of this Agreement and the Closing Date, the Company, its Subsidiary,
and the Stockholders will not, without the prior consent of the Buyer, take any
affirmative action, or fail to take any reasonable action within their or its
control, which would cause or result in an inaccuracy or breach of any of the
representations, warranties or covenants of the Company and the Stockholders set
forth in this Agreement, including, without limitation, any action specified in
Section 3.B(b) of this Agreement. Without limiting the generality of the
foregoing, the Company agrees that it shall not, and shall cause its Subsidiary
not to, take any of the following actions without the prior written consent of
the Buyer or the Parent:
(i) amend the Articles of Incorporation or Bylaws of the
Company and its Subsidiary; make any change in its authorized,
issued or outstanding capital stock or any other equity security;
issue, sell, pledge, assign or otherwise encumber or dispose of, or
purchase, redeem or otherwise acquire, any of the
39
shares of capital stock or other equity securities of the Company or
its Subsidiary or enter into any agreement, call or commitment of
any character so to do; grant or issue any stock option or warrant
relating to, right to acquire, or security convertible into, shares
of capital stock or other equity security of the Company and its
Subsidiary; purchase, redeem, retire or otherwise acquire any shares
of, or any security convertible into, capital stock or other equity
security of the Company and its Subsidiary, or agree to do any of
the foregoing set forth in this Section 6(c)(i);
(ii) acquire, directly or indirectly, substantially all of the
assets of, or a controlling equity interest in, any corporation or
other entity, or enter into any commitment to do the same;
(iii) propose, declare, set aside or pay any dividend or other
distribution in respect of any of its capital stock (including,
without limitation, any stock dividend or distribution);
(iv) incur any Indebtedness;
(v) make any distribution outside of the Ordinary Course of
Business, except upon prior written notice to and written consent of
the Buyer;
(vi) enter into any agreement, commitment or similar
transaction with the Stockholders;
(vii) enter into any employment contract or collective
bargaining agreement, written or oral, or modify the terms of any
existing such contract or agreement;
(viii) grant any increase in the base compensation of any of
its directors, officers, and employees;
(ix) adopt, amend, modify, or terminate any bonus,
profit-sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other
Company Plan);
(x) knowingly breach, violate, or contravene any provisions of
any agreement or commitment to which the Company is a party,
including but not limited to the Denton Agreements;
(xi) make any other change in employment terms for any of its
directors, officers, and employees outside the Ordinary Course of
Business, except as listed on the Company Disclosure Schedule; and
(xii) make any capital expenditures in excess of $10,000
without the prior written consent of the Parent.
40
(d) No Merger or Solicitation.
(i) Neither the Company nor its Subsidiary shall, or authorize
or permit any of their officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative or agent retained by them, to, directly or
indirectly, solicit, initiate, or encourage (including by way of
furnishing nonpublic information), or take any other action to
facilitate, any inquiries or the making of any proposal which
constitutes, or may reasonably be expected to lead to, any Takeover
Proposal, or agree to or endorse any Takeover Proposal, or
participate in any discussions or negotiations, or provide third
parties with any nonpublic information, relating to any such inquiry
or proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the preceding
sentence by the Stockholders, any director or executive officer of
the Company and its Subsidiary, or any investment banker, attorney
or other advisor or representative of the Company and its
Subsidiary, whether or not such Person is purporting to act on
behalf of the Company, its Subsidiary, or otherwise, shall be deemed
to be a breach of this Section 6(d) by the Company.
(ii) Neither the Board of Directors of the Company nor any
committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to the Buyer, the approval
or recommendation by such Board of Directors or any such committee
of this Agreement or the transactions contemplated hereby, (ii)
approve or recommend, or propose to approve or recommend, any
Takeover Proposal, or (iii) enter into any agreement with respect to
any Takeover Proposal.
(iii) In addition to the obligation of the Company set forth
in paragraph (ii) above, the Company promptly shall advise the
Parent and the Buyer orally and in writing of any request for
information or of any Takeover Proposal, or any inquiry with respect
to or which could lead to any Takeover Proposal, the material terms
and conditions of such request, Takeover Proposal or inquiry and the
identity of the Person making any such request, Takeover Proposal or
inquiry.
(e) Accounting and Securities Matters.
The Company will, in good faith, endeavor to cause Moss Adams LLP,
independent auditors for the Company and its Subsidiary, and each other firm
acting as independent auditors to the Company (a) to deliver to the Parent
financial statements audited and prepared in accordance with GAAP, (b) to
deliver an auditor's report and consents with respect to financial statements of
the Company, and other information required to be filed by the Parent pursuant
to the rules of the Securities and Exchange Commission, or pursuant to the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, and (c) to cooperate with the Parent and its auditors to provide
"comfort" letters with respect to financial information about the Company
required to be included in the Parent's filings with the Securities and Exchange
Commission, provided that neither the Company nor its shareholders shall be
required to incur any expense in such effort.
41
(f) Pre-Closing Funding of Pension Plan.
Prior to the Closing Date, the Company shall pay and contribute to
the Zetec, Inc. Pension Plan an amount equal to Seven Hundred Forty Nine
Thousand Six Hundred Ninety One Dollars ($749,691.00) in cash.
7. POST-CLOSING COVENANTS.
The Parties agree as follows with respect to the period following the
Closing:
(a) General.
(i) In case at any time after the Closing any further action
is necessary to carry out the purposes of this Agreement, the
Stockholders and the Surviving Corporation will take such further
action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may
request, at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor
hereunder). The Stockholders acknowledge and agree that from and
after the Closing the Surviving Corporation will have the right to
possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company
and its Subsidiary in this Agreement; provided, however, that the
Stockholders shall have the right to obtain access to such
documents, books, records (including Tax records), agreements, and
financial data to the extent related to the period prior to the
Closing and make photocopies thereof for a proper purpose, such as
in connection with the preparation of their Tax Returns.
(b) Litigation Support.
In the event and for so long as any Party actively is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand in connection with (i) any transaction contemplated
under this Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction on or prior to the Closing Date involving the
Surviving Corporation or the Stockholders, each of the other Parties will
reasonably cooperate with the contesting or defending Party and his or its
counsel in the contest or defense, make available his or its personnel, and
provide such testimony and access to his or its books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under Section 8 below).
(c) Transition.
The Stockholders will use their best efforts not to take any action
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Company, its
Subsidiary, or the Surviving Corporation from
42
maintaining the same business relationships with the Parent and the Surviving
Corporation after the Closing as it maintained with the Company and its
Subsidiary prior to the Closing.
(d) Tax Matters.
(i) Subject to the last sentence of this Section 7(d)(i), any
income Tax refunds that are received by the Surviving Corporation
during the one (1) year period following the Closing Date, and any
amounts credited against income Tax to which the Surviving
Corporation becomes entitled pursuant to written notice received by
the Surviving Corporation during the one (1) year period following
the Closing Date, that relate to income Tax periods or portions
thereof ending on or before the Closing Date shall be for the
account of the Stockholders, and the Surviving Corporation shall pay
over to the Stockholders any such refund or the amount of any such
credit within fifteen (15) days after receipt or entitlement
thereto. In addition, subject to the last sentence of this Section
7(d)(i), to the extent that a claim for refund or a proceeding
results, during the one (1) year period following the Closing Date,
in a payment or credit against income Tax by a taxing authority to
the Surviving Corporation of any amount accrued on the Closing Date
Balance Sheet, the Surviving Corporation shall pay such amount to
the Stockholders within fifteen (15) days after receipt or
entitlement thereto. The Stockholders, however, shall not be
entitled to any portion of any refund or credit received by the
Surviving Corporation, or to which the Surviving Corporation is
entitled to receive, unless and until the Surviving Corporation
shall have received, or be entitled to receive, such refunds and
credits which in the aggregate exceed Three Hundred Fifty Thousand
Dollars ($350,000), and then only to the extent such refunds and
credits exceed Three Hundred Fifty Thousand Dollars ($350,000).
(ii) The Surviving Corporation will be responsible for all
Taxes, subject to the right to make a claim against the Escrow Fund
for any breach of the representations and warranties contained in
Section 3.B(e) With respect to the transactions contemplated by this
Agreement, Parent, Surviving Corporation, and the Stockholders will
provide each other with such cooperation and information as either
of them may reasonably require of the other in connection with the
filing of any Tax Return, including Tax Returns relating to the
application of the successor employer rules for payroll Tax purposes
contained in Code Sections 3121(a)(1) and 3306(b)(1), the
determination of a liability for Taxes or a right to a refund for
Taxes, or the preparation for litigation or investigation of any
claim for Taxes or a right to a refund for Taxes, and the
cooperation and information shall include all relevant Tax Returns,
and other documents and records, or portions thereof relating to or
necessary in connection with the preparation of records, or portions
thereof relating to or necessary in connection with the preparation
of such Tax Returns or other determination of Tax Liability. Each
Party shall retain all Tax Returns, schedules, workpapers, and all
other related materials, records or documents until the expiration
of the statute of limitations for the taxable years to which such
Tax Returns and other related documents relate. After expiration of
the statute of limitations, a Party shall notify each other Party in
writing that it
43
desires to dispose of or destroy the Tax Returns and other documents
and shall provide such other Parties with the right for thirty (30)
days after the tendering of such notice to copy or take possession
of such Tax Returns and other related documents. Any information
obtained under this provision shall be kept confidential by the
Parties, except as may be necessary in connection with the filing of
such Tax Returns.
(e) Company Charter Provisions.
The Surviving Corporation will not take any action to modify or
terminate the rights of present or former officers or directors of the Company
to exculpation and indemnification under the terms of the Company's Articles of
Incorporation and Bylaws.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) Survival of Representations and Warranties.
All of the representations and warranties of the Stockholders
contained in Section 3.A of this Agreement and of the Parent and the Buyer
contained in Section 4 of this Agreement shall survive the Closing and continue
in full force and effect for a period of six (6) years following the Effective
Date. All of the representations and warranties of the Company contained in
Section 3.B and all covenants shall survive the Closing and continue in full
force and effect for a period of one (1) year following the Effective Date. No
action, claim, or proceeding may be brought by any Party hereto against any
other Party resulting from, arising out of, or caused by a breach of a
representation or warranty or covenant contained herein, after the time such
representation or warranty ceases to survive pursuant to the preceding sentence,
unless written notice of such claim setting forth with specificity the basis for
such claim is delivered to the applicable Party prior to the expiration of such
time.
(b) Indemnification Provisions Relating to Section 3.A
Representations for Benefit of the Parent and the Surviving Corporation.
(i) In the event that any of the Section 3.A Representations
of the Stockholders are untrue (or in the event any third party
alleges facts that, if true, would mean any of the Section 3.A
Representations are untrue), then, provided that either the Parent
or the Surviving Corporation makes a written claim for
indemnification setting forth the basis for such claim against the
Stockholders pursuant to Section 8(g) below within six (6) years
following the Effective Date, then the Stockholders shall, Severally
indemnify the Parent and the Surviving Corporation, subject to the
limitations set forth herein, from and against the entirety of any
Adverse Consequences the Parent or the Surviving Corporation may
suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Parent or the Surviving
Corporation may suffer after the end of any applicable survival
period) resulting from, arising out of, or caused by the breach (or
the alleged breach); provided, however, that:
44
(A) No Stockholder shall have any obligation to
indemnify the Parent or the Surviving Corporation from and
against any Adverse Consequences resulting from, arising out
of, or caused by the breach (or alleged breach) of any Section
3.A Representations which exceed the portion of the Merger
Consideration received by such Stockholder; and
(B) No Stockholder shall have any obligation to
indemnify the Parent or the Surviving Corporation from and
against any Adverse Consequences resulting from, arising out
of, or caused by the breach (or alleged breach) of any Section
3.A Representations until and unless and only to the extent
that: (1) the R&W Insurance Policy fails or refuses to provide
such indemnification to the Parent and the Surviving
Corporation; and (2) funds are not available from the Section
3.A Funds (as that term is defined in the Escrow Agreement) in
the Escrow Fund. Funds in the Escrow Fund in excess of the
Section 3.A Funds may only be used to pay a claim (in
accordance with Section 5(b) of the Escrow Agreement) arising
from a Section 3.A Representation if the Parent in its sole
discretion approves such use of the funds.
(ii) In the event that any claim, action suit or proceeding is
commenced against the Parent, the Company, the Buyer, or the
Surviving Corporation, or any of their current or former officers,
directors, or shareholders, based on or arising from the issuance,
sale, transfer, or redemption of any shares of capital stock of the
Company (including but not limited to the Redemptions), whether such
action, suit or proceeding arises at law or at equity, by contract,
by the terms of the governing documents of the Company, or
otherwise, that claim shall be deemed to constitute a breach of the
Section 3.A Representations for which the Stockholders are obligated
to provide indemnification in accordance with Section 8(a).
(c) Indemnification Provisions Relating to Section 3.B
Representations and Covenants for Benefit of the Parent and the Surviving
Corporation.
In the event that any of the Section 3.B Representations of the Company are
untrue (or in the event any third party alleges facts that, if true, would mean
any of the Section 3.B Representations are untrue), or any of the covenants for
the benefit of the Parent are breached, then, provided that either the Parent or
the Surviving Corporation makes a written claim for indemnification setting
forth the basis for such claim within one (1) year following the Effective Date,
then the Company and the Surviving Corporation shall be entitled, subject to the
limitations set forth herein, to indemnification from and against the entirety
of any Adverse Consequences the Parent or the Surviving Corporation may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Parent or the Surviving Corporation may suffer after
the end of any applicable survival period) resulting from, arising out of, or
caused by the breach (or the alleged breach); provided, however, that:
(i) The sole source of funds for such indemnification shall be
the funds in the Escrow Fund, which shall be released in accordance
with the terms of
45
the Escrow, Release and Indemnification Agreement. No claim may be
asserted directly against any Stockholder for any breach or alleged
breach of the Section 3.B Representations.
(ii) No claim may be made against the Escrow Funds with
respect to such breaches (or alleged breaches) contained in Section
3.B until the Parent or the Surviving Corporation has suffered
Adverse Consequences by reason thereof in excess of Three Hundred
Fifty Thousand Dollars ($350,000.00) and only to the extent that
such Adverse Consequences exceed that amount.
(d) Escrow.
In order to provide the Parent and the Surviving Corporation with a
nonexclusive source of funds for the indemnity obligations of the Stockholders
for the Section 3.A. Representations and an exclusive source of funds for
breaches of the Company's Section 3.B Representations and the covenants of the
Company and the Stockholders, the Parties and the Stockholders shall have
executed the Escrow Agreement prior to the Closing Date, which shall be funded
with Five Million Eight Hundred Thousand Dollars ($5,800,000.00) of the
Aggregate Consideration otherwise payable to the Stockholders, which will be
held pursuant to the Escrow Agreement for a period of one (1) year. Amounts held
under the Escrow Agreement shall be an exclusive source of indemnification with
respect to the Section 3.B Representations and the covenants of the Company and
the Stockholders (except for the covenants contained in the Minimum Net Working
Capital Adjustment set forth in Section 2(j) of this Agreement, and except for
any covenants that are contained in the Escrow Agreement or the Noncompetition
and Assignment of Inventions Agreements), and a nonexclusive source of
indemnification with respect to the Section 3.A Representations. Under no
circumstance shall the Parent or the Surviving Corporation be required to
satisfy amounts payable by the Stockholders pursuant to the Minimum Net Working
Capital Adjustment set forth in Section 2(j) of this Agreement from amounts held
pursuant to the Escrow Agreement.
(e) Indemnification Provisions for Benefit of the Stockholders.
In the event Parent or Buyer breaches (or in the event any third
party alleges facts that, if true, would mean Parent or Buyer has breached) any
of their representations, warranties, and covenants contained in this Agreement,
then, provided that the Stockholder Representatives make a written claim for
indemnification setting forth the basis for such claim against Parent or the
Surviving Corporation pursuant to Section 8(g) below within six (6) years
following the Effective Date, then Parent and the Surviving Corporation, jointly
and severally, agree to defend, indemnify and hold harmless the Stockholders
from and against the entirety of any Adverse Consequences (up to but not in
excess of the Merger Consideration) the Stockholders may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences the Stockholders may suffer after the end of any applicable
survival period) resulting from, arising out of, or caused by the breach (or the
alleged breach).
46
(f) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party
Claim") which may give rise to a claim for indemnification against
any other Party (the "Indemnifying Party") under this Section 8,
then the Indemnified Party shall promptly notify each Indemnifying
Party thereof in writing; provided, however, that no delay on the
part of the Indemnified Party in notifying any Indemnifying Party
shall relieve the Indemnifying Party from any obligation hereunder
unless (and then solely to the extent) the Indemnifying Party
thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within
fifteen (15) days after the Indemnified Party has given notice of
the Third Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the
Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the
financial resources to defend against the Third Party Claim and
fulfill its indemnification obligations hereunder, (C) the Third
Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an
adverse judgment with respect to, the Third Party Claim is not, in
the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to
the continuing business interest of the Indemnified Party, and (E)
the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 8(f)(ii)
above, (A) the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the defense of the
Third Party Claim, (B) the Indemnified Party will not consent to the
entry of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the
Indemnifying Party (which consent shall not be unreasonably
withheld).
(iv) In the event any of the conditions in 8(f)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter
into any settlement with respect to, the Third Party Claim in any
manner it may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable
attorneys' fees and expenses), and (C) the Indemnifying Party will
remain responsible for any Adverse Consequences the
47
Indemnified Party may suffer resulting, arising out of, relating to,
in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section 8.
(g) Determination of Adverse Consequences.
Adverse Consequences shall be determined net of insurance proceeds
actually received, and the Parties shall take into account the time cost of
money (using the Applicable Rate as the discount rate) in determining Adverse
Consequences for purposes of this Section 8. Available insurance coverage with
respect to policies purchased prior to the Closing Date shall be made available
by the Surviving Company as a source of funds to satisfy claims against the
Escrow and the Stockholder under Section 8. All indemnification payments under
this Section 8 shall be deemed adjustments to the Merger Consideration.
(h) Post-Closing.
Following the Closing, the remedy of the Stockholders, on the one
hand, and Parent and the Surviving Corporation on the other hand, with respect
to any breach or threatened breach of a representation, warranty or covenant
contained in this Agreement or with respect to any event, circumstance or
condition occurring on or before the Closing shall be limited to the enforcement
of the indemnification obligations set forth in Section 8; provided, however,
that nothing provided in this Section 8(g) shall limit the right of any Party to
seek any equitable remedy available to enforce his or its rights hereunder .
9. TERMINATION.
(a) Termination Events.
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(i) By either (i) Buyer and the Parent on the one hand, or
(ii) the Company on the other hand, if a material breach of any
provision of this Agreement has been willfully committed by the
other Party and such material breach has not been waived or cured
within fifteen (15) days of Notice to the other Party of such
material breach, and the terminating Party is not in breach of any
provision of this Agreement;
(ii) By either (i) Buyer and the Parent on the one hand, or
(ii) the Company on the other hand, if the Closing has not occurred
(other than through the failure of the Party seeking to terminate
this Agreement to comply fully with its obligations under this
Agreement) on or before August 31, 2002, or such later date as the
Parties may agree upon;
(iii) By the Parent or the Buyer, pursuant to the provisions
of Section 3.C of this Agreement; or
(iv) By mutual consent of the Parties.
48
(b) Effect of Termination.
If this Agreement is terminated pursuant to Section 9(a) above, all
further obligations of the Parties under this Agreement will terminate, except
the obligations in Section 10 (Miscellaneous); provided, however, that if this
Agreement is terminated by a Party as a result of the other Party's fraud, or
willful or intentional breach of its representations, warranties or obligations
hereunder, the terminating Party shall have the right to pursue all remedies
available to it at law or in equity.
10. MISCELLANEOUS.
(a) Press Releases and Public Announcements.
Neither the Company, its Subsidiary, nor the Stockholders shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of the Parent.
Parent, upon prior notice to the Company, may make any public disclosure it
believes in good faith is required or permitted by applicable law or any listing
or trading agreement concerning its publicly-traded securities.
(b) No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon any
Person other than the Parties and their respective successors and permitted
assigns.
(c) Entire Agreement.
This Agreement (including the documents and instruments to be
delivered at closing pursuant to Section 5(a) and Section 5(b) of this
Agreement) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(d) Succession and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of each other Party;
provided, however, that either the Parent or the Buyer may (i) assign any or all
of its rights and interests hereunder to one or more of its affiliates and (ii)
designate one or more of its affiliates to perform its obligations hereunder (in
any or all of which cases the assigning Party nonetheless shall remain
responsible for the performance of all of its obligations hereunder).
(e) Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
49
(f) Headings.
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
(g) Notices.
All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Buyer or the Surviving Corporation:
C. Thomas O'Grady Copy to:
RPR Acquisition Subsidiary, Inc. Thomas R. McNeill
c/o Roper Industries, Inc. Powell, Goldstein, Frazer & Murphy LLP
160 Ben Burton Road 191 Peachtree Street, NE, 16th Floor
Bogart, Georgia 30622 Atlanta, GA 30303
Facsimile: (706) 353-6496 Facsimile: (404) 572-6999
If to the Stockholders: Copy to:
Howard E. Houserman Bruce T. Bjerke
24619 S.E. Second Place Riddell Williams P.S.
Sammamish, WA 98074 1001 Fourth Avenue Plaza, Suite 4500
Seattle, Washington 98154-1065
Facsimile: (206) 389-1708
Daniel Dahl
21534 S.E. 37th Street
Sammamish, WA 98075
Robert Vollmer
26636 S.E. 31st Street
Sammamish, WA 98075
If to the Parent:
C. Thomas O'Grady Copy to:
Roper Industries, Inc. Shanler D. Cronk, Esq.
160 Ben Burton Road Roper Industries, Inc.
Bogart, Georgia 30622 160 Ben Burton Road
Facsimile: (706) 353-6496 Bogart, Georgia 30622
Facsimile: (706) 353-6496
50
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) Governing Law.
This Agreement shall be governed by and construed in accordance with
the domestic laws of the State of Washington without giving effect to any choice
or conflict of law provision or rule (whether of the State of Washington or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Washington.
(i) Amendments and Waivers.
No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by each of the Parties. No waiver
by any Party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
(j) Severability.
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
(k) Expenses.
Parent and Buyer will bear their own costs and expenses (including
but not limited to financial, advisory, accounting, legal, and environmental
fees and expenses) incurred in connection with this Agreement and the
transactions contemplated hereby. The Stockholders shall bear the costs and
expenses (including but not limited to financial, advisory, accounting, legal,
and environmental fees and expenses) of the Company and its Subsidiary, incurred
in connection with this Agreement and the transactions contemplated hereby which
are approved by the Company's Board of Directors. The satisfaction and payment
by the Company prior to Closing of such costs and expenses, and the payments
from the Aggregate Consideration contemplated by Section 2(e)(ii) of this
Agreement, shall constitute compliance by the Stockholders with this Section
10(k). If any Stockholder incurs any additional cost or expenses, that
Stockholder shall be responsible for discharging the obligation.
51
(l) Construction.
Any reference to any federal, state, local, or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. Items set forth in the Company Disclosure
Schedule shall be deemed an exception only to the representations and warranties
for which they are identified and any other representations or warranties to
which the Company Disclosure Schedule with respect to representations and
warranties contain an appropriate cross-reference.
(m) Incorporation of Exhibits and Schedules.
The Exhibits and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
(n) Specific Performance.
Each of the Parties acknowledges and agrees that the other Party
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the Parties agrees that the other Party shall
be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the
terms and provisions hereof in any action instituted in any court of the United
States or any state thereof having, in accordance with the terms of this
Agreement, jurisdiction over the Parties and the matter, in addition to any
other remedy to which it may be entitled, at law or in equity.
(o) Submission to Jurisdiction.
Each of the Parties submits to the jurisdiction of any state or
federal court sitting in Seattle, Washington in any action or proceeding arising
out of or relating to this Agreement and agrees that all claims in respect of
the action or proceeding may be heard and determined in any such court. Each
Party also agrees not to bring any action or proceeding arising out of or
relating to this Agreement in any other court. Each of the Parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be required of
any other Party with respect thereto. Parent and Buyer appoint The Prentice-Hall
Corporation System, Inc. as their agent to receive on its behalf service of
copies of the summons and complaint and any other process that might be served
in the action or proceeding. The Stockholders appoint the Stockholder
Representatives designated in the Escrow Agreement as his, her, or its agent to
receive on his, her, or its behalf service of copies of the summons and
complaint and any other process that might be served in the action or proceeding
(the Prentice-Hall Corporation System, Inc. and the Stockholder Representatives
are referred to together in this Section 10(o) as the "Process Agent"). Any
Party (or the Stockholder Representatives in the case of the Stockholders) may
make service on any other Party by sending or delivering a copy of the process
(i) to the Party to be served at the address and in the manner provided for the
giving of notices in Section 10(g) above or (ii) to the Party to be served in
care of the Process Agent at the address and in the manner provided for the
giving of notices in Section 10(g) above. Each Party agrees that a final
judgment in any action
52
or proceeding so brought shall be conclusive and may be enforced by suit on the
judgment or in any other manner provided by law or in equity.
(p) Arbitration.
Except as otherwise set forth in this Agreement, all disputes
arising out of or under this Agreement shall be settled by arbitration in a
location in Seattle, Washington mutually acceptable to the Parties before a
single arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. Arbitration may be commenced at any time by any of the
Parties by giving written notice to each other than such dispute has been
referred to arbitration under this Section 10(p). The arbitrator shall be
selected by the joint agreement of the Parties, but if they do not so agree
within twenty (20) days after the date of receipt of the notice referred to
above, the selection shall be made pursuant to the rules from the panels of
arbitrators maintained by the American Arbitration Association. Any award
rendered by the arbitrator shall be conclusive and binding upon the Parties
hereto; provided, however, that any such award shall be accompanied by a written
opinion of the arbitrator giving the reason for the award. This provision for
arbitration shall be specifically enforceable by the Parties and the decision of
the arbitrator in accordance herewith shall be final and binding and there shall
be no right of appeal therefrom. The arbitrator shall assess, as part of his
award to the prevailing Party, all or such part as the arbitrator deems proper
of the arbitration expenses of the prevailing Party (including reasonable
attorneys' fees) and of the arbitrator against the Party that is unsuccessful in
such claim, defense or objection.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
53
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
BUYER:
RPR Acquisition Subsidiary, Inc.
By: ____________________________________
Name: __________________________________
Title: _________________________________
PARENT:
Roper Industries, Inc.
By: ____________________________________
Name: __________________________________
Title: _________________________________
COMPANY:
Zetec, Inc.
By: ____________________________________
Name: __________________________________
Title: _________________________________
STOCKHOLDER JOINDER:
Pursuant to the provisions of the Escrow Agreement, each of the
Stockholders and their respective spouses have agreed to be bound to this
Agreement as if they were Parties hereto.
54
EXHIBIT 10.02
ROPER INDUSTRIES, INC.
1993 STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
1. PURPOSE
The purpose of the Roper Industries, Inc. 1993 Stock Option Plan for Nonemployee
Directors (the "Plan") is to promote the interests of Roper Industries, Inc.
(the "Company") and its shareholders by strengthening the Company's ability to
attract and retain the services of experienced and knowledgeable nonemployee
directors and by encouraging such directors to acquire an increased proprietary
interest in the Company.
2. SHARES SUBJECT TO THE PLAN
The shares of common stock (the "Common Stock") of the Company for which
options under the Plan may be granted (the "Shares") shall be shares currently
authorized but unissued or currently held or subsequently acquired by the
Company as treasury shares, including shares purchased in the open market or in
private transactions. If any option granted under the Plan expires or terminates
for any reason without having been exercised in full, the Shares subject to, but
not delivered under, such option may become available for the grant of other
options under the Plan. No shares delivered to the Company in full or partial
payment of an option price payable pursuant to Paragraph 6.3 shall become
available for the grant of other options under the Plan.
3. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Compensation Committee of the
Company's Board of Directors (the "Committee"). Subject to the terms of the
Plan, the Committee shall have the power to construe the provisions of the Plan,
to determine all questions arising thereunder, and to adopt and amend such rules
and regulations for administering the Plan as the Committee deems desirable.
4. PARTICIPATION IN THE PLAN
Each member of the Company's Board of Directors (a "Director") who is not
otherwise an employee of the Company or any subsidiary of the Company (an
"Eligible Director") shall be eligible to participate in the Plan.
5. NONSTATUTORY STOCK OPTIONS
All options granted under the Plan shall be nonstatutory options not
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended.
6. OPTION TERMS
Each option granted to an Eligible Director under the Plan and the
issuance of Shares thereunder shall be subject to the following terms:
6.1 Option Agreements
Each option granted under the Plan shall be evidenced by an option
agreement (an "Agreement") duly executed on behalf of the Company and by the
Eligible Director to whom such option is granted and dated as of the applicable
date of grant. Each Agreement shall be signed on behalf of the Company by an
officer or officers delegated such authority by the Committee using either
manual or facsimile signature. Each Agreement shall comply with and be subject
to the terms and conditions of the Plan. Any Agreement may contain such other
terms, provisions and conditions not inconsistent with the Plan as may be
determined by the Committee.
6.2 Option Share Authority, Grant Size and Grant Dates
Options for a total number of Shares (as adjusted pursuant to Article 7)
approved for listing on the New York Stock Exchange prior to January 1, 2001
(460,000) may be granted under the Plan. Following his or her initial
appointment or election as a Director, each Eligible Director shall receive
annually a grant (a "Grant") of options to purchase 4,000 Shares (subject to
adjustment pursuant to Article 7). A Grant for any year shall be made following
the Annual Meeting of Shareholders (as described in the Company's By-Laws) held
in that year, provided that such Eligible Director is serving as a Director at
the time of such Annual Meeting of Shareholders. Such Grants to an Eligible
Director first elected at an Annual Meeting of Shareholders will commence
therewith.
6.3 Option Exercise Price
The option exercise price per share for an Initial or Annual Grant shall
be the average of the Fair Market Values (as hereinafter defined) for the fifth
through the ninth business days (days on which the NASDAQ National Market
System, or such other exchange on which the Shares shall be traded, is open for
trading) following the date of grant. For purposes of the Plan, "Fair Market
Value" equals the mean of the high and low per share trading prices for the
Common Stock as reported in THE WALL STREET JOURNAL.
6.4 Vesting; Exercise
An option shall vest and become nonforfeitable on the day of the Annual
Meeting of Shareholders following the fiscal year in which the option was
granted, if the optionee has continued to serve as a Director until that
meeting. An option shall thereafter become exercisable, subject to Section 6.7,
according to the following schedule.
Portion of Option Grant Day on Which
that Becomes Exercisable Portion Becomes Exercisable
- ------------------------ ---------------------------
20% Date of the first Annual Meeting after the option grant
additional 20% Date of the second Annual Meeting after the option grant
additional 20% Date of the third Annual Meeting after the option grant
additional 20% Date of the fourth Annual Meeting after the option grant
final 20% Date of the fifth Annual Meeting after the option grant
6.5 Time and Manner of Option Exercise
Any vested and exercisable option is exercisable in whole or in part at
any time or from time to time during the option period by giving written notice,
signed by the person exercising the option, to the Company stating the number of
Shares with respect to which the option is being exercised and accompanied by
payment in full of the option exercise price for the number of Shares to be
purchased. The date both such notice and payment are received by the office of
the Secretary of the Company shall be the date of exercise of the stock option
as to such number of Shares. No option may at any time be exercised with respect
to a fractional share.
6.6 Payment of Exercise Price
Payment of the option exercise price may be in cash or by bank-certified,
cashier's, or personal check or, to the extent permitted by the Committee,
payment may be in whole or part by:
a. transfer to the Company of shares of Common Stock having a Fair
Market Value equal to the option exercise price at the time of such
exercise, or
b. delivery of instructions to the Company to withhold from the
Shares that would otherwise be issued on the exercise that number of
Shares having a Fair Market Value equal to the option exercise price at
the time of such exercise.
If the Fair Market Value of the number of whole shares of Common Stock
transferred or the number of whole option Shares surrendered is less than the
total exercise price of the option, the shortfall must be made up in cash.
6.7 Term of Options
Each option shall expire ten years from its date of grant, but shall be subject
to earlier termination as follows:
a. In the event of the termination of an optionee's service as a
Director, other than by reason of retirement, total and permanent
disability or death, the then-outstanding options of such optionee shall
automatically expire on the effective date of such termination. For
purposes of the Plan, the term "by reason of retirement" means (i)
mandatory retirement pursuant to Board policy or (ii) termination of
service voluntarily at a time when the optionee would be entitled to a
retirement benefit under the Company's "Retirement Savings Plan", as then
in effect, if the Eligible Director were an employee of the Company.
b. In the event of the termination of an optionee's service as a
Director by reason of retirement or total and permanent disability, the
then-outstanding options of such optionee that have vested pursuant to
Section 6.4 shall become exercisable, to the full extent of the number of
Shares remaining covered by such options, regardless of whether such
options were previously exercisable, and each such option shall expire
four years after the date of such termination or on the stated grant
expiration date, whichever is earlier.
c. In the event of the death of an optionee while the optionee is a
Director, the then outstanding options of such optionee that have vested
pursuant to Section 6.4 shall become exercisable, to the full extent of
the number of Shares remaining covered by such options, regardless of
whether such options were previously exercisable, and each such option
shall expire four years after the date of death of such optionee or on the
stated expiration date, whichever is earlier.
Exercise of a deceased optionees' options that are still exercisable shall
be by the estate of such optionee or by a person or persons whom the optionee
has designated in writing filed with the Company, or. if no such designation has
been made, by the person or persons to whom the optionee's rights have passed by
will or the laws of descent and distribution.
6.8 Transferability
The right of an optionee to exercise an option granted under the Plan
shall, during the lifetime of such optionee, be exercisable only by such
optionee or pursuant to a qualified domestic relations order as defined by the
Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement
Income Security Act, or the rules thereunder (a "QDRO"), and shall not be
assignable or transferable by such optionee other than by will or the laws of
descent and distribution or a QDRO.
6.9. Limitation of Rights
6.9.1 Limitation as to Shares. Neither the recipient of an option under
the Plan nor an optionee's successor or successors in interest shall have any
rights as a shareholder of the Company with respect to any Shares subject to an
option granted to such person until the date of issuance of a stock certificate
for such Shares.
6.9.2 Limitation as to Directorship. Neither the Plan, nor the granting of
an option, nor any other action taken pursuant to the Plan shall constitute or
be evidence of any agreement or understanding, express or implied, that an
Eligible Director has a right to continue as a Director for any period of time
or at any particular rate of compensation.
6.10 Regulatory Approval and Compliance
The Company shall not be required to issue any certificate or certificates for
Shares upon the exercise of an option granted under the Plan or to record as a
holder of record of Shares the name of the individual exercising an option under
the Plan, without obtaining to the complete satisfaction of the Committee, the
approval of all regulatory bodies deemed necessary by the Committee and without
complying, to the Committee's complete satisfaction, with all rules and
regulations under federal, state, or local law deemed applicable by the
Committee.
7. CAPITAL ADJUSTMENTS
The number and class of Shares with respect to which an option may be
granted to an Eligible Director under the Plan as provided in Article 6, the
number and class of Shares subject to each outstanding option, and the exercise
price per Share specified in each such option shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a split-up or consolidation of shares or any like capital
adjustment, or the payment of any stock dividend, or other increase or decrease
in the number of such shares effected without receipt of consideration by the
Company.
8. EXPENSES OF THE PLAN
All costs and expenses of the adoption and administration of the Plan shall be
dome by the Company, and none of such expenses shall be charged to any optionee.
9. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall be effective immediately following approval by the
Company's shareholders. The Plan shall continue in effect until it is terminated
by action of the Board of Directors or the Company's shareholders, but such
termination shall not affect the terms of any then-outstanding options.
10. TERMINATION AND AMENDMENT OF THE PLAN
The Board may amend, terminate or suspend the Plan at any time, in its
sole and absolute discretion; provided, however, that, if required to qualify
the Plan under Rule 16b-3 promulgated under Section 16 of the Securities
Exchange Act of 1934, as amended, no amendment shall be made more than once
every six months that would change the amount, price or timing of the Initial
and Annual Grants, other than to comport with changes in the Internal Revenue
Code of 1986, as amended, or the rules and regulations promulgated thereunder;
and provided, further, that if required to qualify the Plan under Rule 16b-3, no
amendment that would:
a. materially increase the number of Shares that may be issued under
the Plan,
b. materially modify the requirements as to eligibility for
participation in the Plan, or,
c. otherwise materially increase the benefits accruing to participants
under the Plan shall be made without the approval of the Company's
shareholders.
EXHIBIT 10.06
ROPER INDUSTRIES, INC.
NON-QUALIFIED RETIREMENT PLAN
THIS INDENTURE is amended and restated effective this 1st day of March,
2002, by Roper Industries, Inc., a corporation duly organized and existing under
the laws of the State of Delaware (hereinafter called the "Primary Sponsor").
W I T N E S S E T H:
WHEREAS, the Primary Sponsor and certain of its affiliates maintain the
Roper Industries, Inc. Employees' Retirement Savings 003 Plan (the "003 Plan")
and/or the Roper Industries, Inc. Employees' Retirement Savings 004 Plan (the
"004 Plan"), both of which are defined contribution plans under which
participating employees may contribute on a pre-tax basis pursuant to a
qualified cash or deferred arrangement within the meaning of Section 401(k) of
the Internal Revenue Code of 1986.
WHEREAS, the limitations of Sections 401(a)(17), 401(k)(3), 401(m), 402(g)
and 415 of the Internal Revenue Code of 1986 as amended from time to time, may,
separately or in combination, limit the amount of pre-tax employee contributions
and employer matching contributions that otherwise could be made under the 003
Plan and the 004 Plan on behalf of certain participants.
WHEREAS, effective January 1, 1995, the Primary Sponsor established the
Roper Industries, Inc. Non-Qualified Retirement Plan (the "Plan") for the
benefit of those 003 Plan participants whose benefits under those plans may be
limited by one or more of those Internal Revenue Code limitations described
above for the purpose of providing, to the extent possible on a non-qualified
and unfunded basis, an opportunity for such participants to continue to
accumulate retirement savings as if such persons had been able to continue to
participate in the 003 Plan without regard to such limitations in addition to an
opportunity to accumulate retirement savings separate and apart from
participation in the 003 Plan.
WHEREAS, effective November 1, 1997, the Primary Sponsor amended and
restated the Plan, among other reasons, to clarify that its provisions extend to
eligible participants under the 004 Plan.
WHEREAS, the Primary Sponsor further amended the Plan, effective November
1, 1997, to clarify its provisions with regard to the percentage of Annual
Compensation that might be deferred under the Plan and to the contributions of
the Plan Sponsor on behalf of a Member who is a Disabled Employee.
WHEREAS, effective March 1, 2002, the Primary Sponsor desires to again
amend and restate the Plan, among other reasons, to include provisions
applicable to in-service distributions to Part-Time Members and to set out the
methods by which Plan benefits can be distributed upon the retirement or death
of a Member.
NOW, THEREFORE, the Primary Sponsor does hereby amend and restate the Plan
in its entirety, effective as of the date first above written, to read as
follows:
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ROPER INDUSTRIES, INC.
NON-QUALIFIED RETIREMENT PLAN
TABLE OF CONTENTS
PAGE
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SECTION 1 DEFINITIONS.......................................................1
SECTION 2 ELIGIBILITY.......................................................3
SECTION 3 CONTRIBUTIONS.....................................................4
SECTION 4 CREDITING ACCOUNTS................................................5
SECTION 5 EMERGENCY WITHDRAWALS.............................................6
SECTION 6 IN-SERVICE DISTRIBUTIONS TO PART-TIME MEMBERS.....................6
SECTION 7 DEATH BENEFITS....................................................7
SECTION 8 PAYMENT OF BENEFITS ON RETIREMENT, EARLY
RETIREMENT OR DEATH...............................................8
SECTION 9 PAYMENT OF BENEFITS ON OTHER TERMINATIONS OF EMPLOYMENT...........9
SECTION 10 ADMINISTRATION OF THE PLAN........................................9
SECTION 11 CLAIM REVIEW PROCEDURES..........................................11
SECTION 12 LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTE AND UNCLAIMED PAYMENTS....................12
SECTION 13 LIMITATION OF RIGHTS.............................................13
SECTION 14 AMENDMENT TO OR TERMINATION OF THE PLAN..........................13
SECTION 15 ADOPTION OF PLAN BY AFFILIATES...................................13
SECTION 16 MISCELLANEOUS....................................................14
SECTION 1
DEFINITIONS
Whenever used herein, the masculine pronoun shall be deemed to include the
feminine, and the singular to include the plural, unless the context clearly
indicates otherwise, and the following words and phrases shall, when used
herein, have the meanings set forth below:
1.1 "Account" means the bookkeeping accounts established and maintained by
the Plan Administrator to reflect the interest of a Member under the Plan and
shall include the following:
(a) "Employee Deferral Account" which shall reflect credits to a
Member's Account made on his or her behalf pursuant to Section 3.1, as
adjusted to reflect other credits or charges.
(b) "Employer Base Account" which shall reflect credits to a
Member's Account made on his or her behalf pursuant to Section 3.2 and, if
applicable Section 3.5, as adjusted to reflect other credits or charges.
(c) "Employer Matching Account" which shall reflect credits to a
Member's Account made on his or her behalf pursuant to Section 3.3 and, if
applicable, Section 3.5, as adjusted to reflect other credits or charges.
(d) "Profit Sharing Account" which shall reflect credits to a
Member's Account made on his or her behalf pursuant to Section 3.4, as
adjusted to reflect other credits or charges.
1.2 "Accrued Benefit" means the balance of a Member's Account.
1.3 "Affiliate" means (a) any corporation which is a member of the same
controlled group of corporations (within the meaning of Code Section 414(b)) as
is a Plan Sponsor and (b) any other trade or business (whether or not
incorporated) under common control (within the meaning of Code Section 414(c))
with a Plan Sponsor.
1.4 "Annual Compensation" means "Compensation," as that term is defined
under the 003 Plan or 004 Plan, as applicable, for purposes of making
contributions pursuant to a salary deferral election, as the same may be amended
from time to time, but without regard to the limit on compensation that may be
recognized under Code Section 401(a)(17), plus any Deferral Amounts credited to
a Member during the Plan Year.
1.5 "Beneficiary" means the person or persons designated by the Member
(and in the absence of any such designation, the Member's estate) to receive the
Member's Account in the event of the Member's death.
1.6 "Board of Directors" means the Board of Directors of the Primary
Sponsor.
1.7 "Code" means the Internal Revenue Code of 1986, as amended.
1.8 "Deferral Amounts" means amounts credited to the Employee Deferral
Account of a Member at the election of a Member pursuant to Section 3.1.
1.9 "Disability" means a condition determined to exist pursuant to the
definition of the term "Disability" under the 003 Plan or 004 Plan, as
applicable.
1.10 "Disabled Employee" means each former Eligible Employee who
terminates active employment as a result of a Disability.
1.11 "Early Retirement Date" means the date on which a Member terminates
employment on or after attaining age 55, but prior to his Retirement Date or
death, with the approval of the Plan Administrator designating such date as the
Member's Early Retirement Date.
1.12 "Eligible Employee" means a member of a select group of management or
highly compensated employees of a Plan Sponsor who is designated as being
eligible to participate in the Plan pursuant to Section 2. Notwithstanding the
preceding, upon becoming a Part-Time Member, such employee shall immediately
cease to be an Eligible Employee.
1.13 "Employee" means any person who is classified by a Plan Sponsor or an
Affiliate as a common law employee.
1.14 "Member" means any Eligible Employee or former Eligible Employee who
has become a participant in the Plan, for so long as his or her benefits
hereunder have not been paid out.
1.15 "Part-Time Member" means a Member who (a) has attained age 55, and
(b) has entered into an employment agreement with the Plan Sponsor by which he
agrees to continue to be employed by the Plan Sponsor on a part-time basis.
1.16 "Plan Administrator" means the organization or person designated by
the Primary Sponsor to administer the Plan or, in the absence of any such
designation, the Primary Sponsor.
1.17 "Plan Sponsor" means individually the Primary Sponsor and any other
Affiliate or other entity which has adopted the Plan pursuant to Section 14.
1.18 "Plan Year" means each calendar year.
1.19 "Retirement Date" means the date on which the Member retires on or
after (a) attaining age 65, or (b) becoming subject to a Disability.
1.20 "Valuation Date" means each business day or any other day which the
Plan Administrator declares to be a Valuation Date.
-2-
1.21 "Withdrawal Circumstance" means a circumstance permitting a hardship
withdrawal under the 003 Plan or 004 Plan, as applicable. The Plan Administrator
retains the sole discretion to approve or deny any request for an in-service
withdrawal based upon a Withdrawal Circumstance. In no event, however, will a
request be approved to the extent a Withdrawal Circumstance is or may be
relieved (a) through reimbursement or compensation by insurance or otherwise,
(b) by liquidation of the Member's assets, to the extent the liquidation of such
assets would not itself cause severe financial hardship; or (c) by cessation of
active participation in the Plan.
SECTION 2
ELIGIBILITY
2.1 Eligibility. An Eligible Employee shall become a Member after (a)
being designated for membership in the Plan by appropriate action of the
Director of Human Resources of the Primary Sponsor; and (b) completing an
enrollment form prescribed by the Plan Administrator in which the Eligible
Employee elects to participate in the Plan. A Member's election to participate
shall be effective until the Member notifies the Plan Administrator, in such
manner and form as the Plan Administrator shall from time to time prescribe,
that the Member wishes to suspend active participation. A Member who suspends
active participation under the Plan may resume active participation in the Plan
by delivering a new enrollment form to the Plan Administrator. A Member may
modify his or her election or, if applicable, resume active participation in the
Plan effective as of the beginning of the payroll period immediately following
the date such enrollment is processed and made effective pursuant to the Plan
Administrator's normal administrative procedures then in effect.
2.2 Effective Date of Participation. Eligible Employees shall be eligible
to participate in the Plan as of the date the Eligible Employee is designated
for participation in the Plan pursuant to Section 2.1.
2.3 Cessation of Participation. A Member who ceases to be an Eligible
Employee will no longer be eligible to make further deferrals under the Plan
pursuant to Section 3, but shall continue to be subject to all other terms of
the Plan so long as he or she remains a Member of the Plan.
2.4 Coordination with 401(k) Arrangements. In the event the Member
participates in a plan of a Plan Sponsor or Affiliate intended to qualify under
Code Section 401(a) and containing a tax-qualified cash or deferred arrangement
qualified under Code Section 401(k), the Member shall be suspended from
continued participation under this Plan to the extent required by such other
plan as a result of a hardship withdrawal made by such Member under such other
plan.
-3-
SECTION 3
CONTRIBUTIONS
3.1 Deferral Amounts.
(a) Each Plan Year a Member who is an Eligible Employee for all or
any portion of the Plan Year and who has an effective enrollment form on
file with the Plan Administrator shall be deemed to have elected to defer
under the Plan that portion of the Annual Compensation otherwise payable
to him or her for the Plan Year which the Member has elected to defer
under the 003 Plan or 004 Plan, as applicable, but which can not be
deferred under that plan because of one or more of the following
limitations: (i) the provisions relating to the annual limit on salary
deferrals set forth in Code Section 402(g); (ii) the provisions relating
to the limit on includable compensation as set forth in Code Section
401(a)(17); (iii) the provisions relating to the non-discrimination
testing limitations under Code Sections 401(k)(3) or 401(m); or (iv) the
provisions relating to the limit on "annual additions," within the meaning
of Code Section 415.
(b) Each Plan Year a Member (i) who is an Eligible Employee for all
or any portion of the Plan Year; (ii) who has an effective enrollment form
on file with the Plan Administrator; and (iii) (A) who has in effect an
election to make the maximum elective deferrals under the 003 Plan or 004
Plan, as applicable, for which matching contributions may be made under
that plan or (B) who has not met the eligibility requirements to
participate in the 003 Plan or 004 Plan, as applicable, may also elect to
defer under the Plan a separate percentage of Annual Compensation
otherwise payable to him or her for the Plan Year; provided, however, any
such election may not apply above a specified percentage of the Member's
Annual Compensation, as such limitation may be determined from time to
time by the Plan Administrator in its sole discretion.
3.2 Base Contributions. Each Plan Sponsor which also sponsors the 003 Plan
proposes to credit on behalf of each Member employed by that Plan Sponsor (other
than Members to whose Employer Base Accounts amounts are not to be credited) for
the Plan Year an amount equal to three percent (3%) of the Member's Annual
Compensation in excess of the dollar limitation then in effect pursuant to Code
Section 401(a)(17).
3.3 Matching Contributions. Each Plan Sponsor proposes to credit on behalf
of each Member employed by that Plan Sponsor (other than Members to whose
Employer Matching Accounts amounts are not to be credited) for allocation to
that Member's Employer Matching Account an amount equal to (X) reduced by (Y)
where:
(a) (X) is an amount determined by applying the matching
contribution provisions of the 003 Plan or 004 Plan, as adopted by the
Plan Sponsor, (including that part of each of those provisions expressing,
as a percentage of compensation, a cap on elective deferrals against which
matching contributions are to be made, but without regard to any direct or
indirect limitation described under Section 3.1(a)) to the aggregate
elective deferrals made on behalf of the Member under the 003 Plan or 004
Plan, as applicable,
-4-
and the Deferral Amounts made on behalf of the Member under the Plan for
the applicable period; and
(b) (Y) is the matching contribution actually credited to the Member
for the same period under the 003 Plan or 004 Plan, as applicable.
3.4 Profit Sharing Contributions. Each Plan Sponsor which also sponsors
the 003 Plan and makes a discretionary profit sharing contribution under that
plan for the Plan Year proposes to credit on behalf of each Member employed by
that Plan Sponsor (other than Members to whose Profit Sharing Accounts amounts
are not to be credited) for allocation to that Member's Profit Sharing Account
an amount equal to (X) reduced by (Y) where:
(a) (X) is the amount which would have been credited to the Member
under the 003 Plan determined by applying the discretionary profit sharing
contribution provisions of the 003 Plan (but without regard to any
applicable limitation described under Section 3.1(a)) for the period; and
(b) (Y) is the discretionary profit sharing contribution actually
credited to the Member for the same period under the 003 Plan.
3.5 Contributions on Behalf of Disabled Employees. In lieu of any
contributions pursuant to Section 3.2 and 3.3 for a Plan Year, each Plan Sponsor
which also sponsors the 003 Plan proposes to credit on behalf of each Member who
is a Disabled Employee of that Plan Sponsor (other than Disabled Employees who
are Normal Retirement Age or older or who recover and are no longer a Disabled
Employee) contributions equal to the amounts (but without regard to any direct
or indirect limitation described under Section 3.1(a)) described under Sections
4.1 and 4.3 of the 003 Plan for allocation to that Member's appropriate
subaccounts, reduced by the amounts, if any, allocated to such Member under
Sections 4.1 and 4.3 of the 003 Plan for the same period.
3.6 Contributions on Behalf of Part-Time Members. Notwithstanding anything
to the contrary in the Plan, a Member who becomes a Part-Time Member will no
longer be eligible to make further deferrals under the Plan pursuant to Section
3.1 or to receive further contributions under the Plan pursuant to Sections 3.2,
3.3 or 3.4.
SECTION 4
CREDITING ACCOUNTS
4.1 As soon as reasonably practicable following the date of withholding by
the Plan Sponsor, Deferral Amounts previously elected by a Member shall be
credited to the Member's Employee Deferral Account.
4.2 No later than as of the last day of each Plan Year or at such earlier
times as the Plan Administrator shall determine, the amounts to be credited for
the applicable period pursuant to Sections 3.2, and 3.3 (and, to the extent
applicable, Sections 3.4 and 3.5) on behalf of a Member
-5-
shall be credited to the Member's Employer Base Account; Employer Matching
Account or Profit Sharing Account, as applicable.
4.3 As of each Valuation Date, each Member's Account (other than any
Member who has received a distribution of his or her Accrued Benefit prior to
that Valuation Date) shall be credited with rate(s) of return in a manner
prescribed by the Plan Administrator.
SECTION 5
EMERGENCY WITHDRAWALS
5.1 The Plan Administrator may pay all or a portion of a Member's Account
prior to the time such amounts otherwise become payable in accordance with the
provisions of the Plan; provided, however, that the Member demonstrates that he
or she has a Withdrawal Circumstance.
5.2 Distributions in the event of a Withdrawal Circumstance shall be made
to a Member only in accordance with such rules, policies, procedures,
restrictions, and conditions as the Plan Administrator may from time to time
adopt. Any determination of the amount to be distributed on account of a
Withdrawal Circumstance shall be made by the Plan Administrator in accordance
with rules applied in a uniform and nondiscriminatory manner. A payment under
this Section shall be made in a lump sum in cash to the Member and shall be
charged against the Member's Account as of the Valuation Date coinciding with or
immediately preceding the date of the payment.
5.3 Notwithstanding the foregoing, a Member who receives a payment of all
or any portion of his or her Account pursuant to this Section 5 shall be
suspended from making deferrals under Section 3 for a period of six (6) months
immediately following the date the Member receives a payment under this Section
5.
SECTION 6
IN-SERVICE DISTRIBUTIONS TO PART-TIME MEMBERS
6.1 A Member who is eligible to become a Part-Time Member may make a
one-time irrevocable election to receive a distribution of all or a portion of
his Account, provided that such election is made prior to becoming a Part-Time
Member. Such election must be in the manner and form required by the Plan
Administrator, must be approved by the Plan Administrator, and must be made
during a period determined by the Plan Administrator but not later than one
month prior to the date on which the Member enters into the employment agreement
with the Plan Sponsor by which he becomes a Part-Time Member.
6.2 Payment under this Section 6 shall normally be made to the Part-Time
Member in a lump sum in cash and shall be charged against the Part-Time Member's
Account as of the Valuation Date coinciding with or immediately preceding the
date of the payment. Payment in a lump sum shall begin as soon as practicable
following the date on which the Member becomes a Part-Time Member.
-6-
In lieu of the normal form of payment (lump sum), a Part-Time Member may also
select, on the election form described in Section 6.1, from one of the following
optional forms of payment:
(a) payment in three (3) annual installments; or
(b) payment in seven (7) annual installments.
If an installment form of payment is selected, the Part-Time Employee's benefit
shall be paid in either three (3) or seven (7) annual installments, as the
Member has selected, with the first installment payable on the first day of the
third month following the date on which the Member becomes a Part-Time Member,
and subsequent annual installments shall be paid on the next succeeding two (2),
or six (6), anniversaries of such initial payment date ("annual payment date").
Each annual payment shall equal the Part-Time Member's Account adjusted as of
the Valuation Date coinciding with or preceding the next annual payment date
divided by the number of remaining annual installments. If the Part-Time
Member's Account is paid in installments, the Member's Account will continue to
be credited with a rate or rates of return in accordance with Section 4.3 until
the Account is fully distributed.
6.3 Notwithstanding the other provisions of this Section 6, the Plan
Administrator, in the exercise of its sole and absolute discretion, may
accelerate payment of a Part-Time Member's Account, or any portion thereof,
including, without limitation, the optional form of payment selected by a
Part-Time Member, if any, under Section 6.2 above.
SECTION 7
DEATH BENEFITS
7.1 Except as otherwise provided in this Section 7, any benefit payable
under this Section 7 shall be paid in accordance with and subject to the
provisions of Section 8 after receipt by the Plan Administrator of notice of the
death of the Member.
7.2 Upon the death of a Member prior to the commencement of payments of
his or her Account, the Member's Beneficiary shall be entitled to the full value
of the Member's Account. Payment to the Beneficiary shall be made according to
the Member's prior election under Section 6 or Section 8, if any. If the Member
has not made an election prior to death, the Member's Beneficiary may make an
election regarding the method of payment of the Member's Account.
7.3 Upon the death of a Member after payments of his or her Account have
commenced according to the Member's prior election under Section 6 or Section 8,
but prior to the complete payment of such Account, the Member's Beneficiary
shall continue to receive the unpaid balance of the Member's Account in the form
of payment previously elected by the Member.
7.4 Upon the death of a Member who terminated employment with the Plan
Sponsor for reasons other than those specified in Sections 7 or 8, the Member's
Beneficiary shall receive the entire unpaid balance of the Member's Account in a
lump sum in cash.
-7-
7.5 If, subsequent to the death of a Member, the Member's Beneficiary dies
while entitled to receive benefits under the Plan, the successor Beneficiary, if
any, or, if none, the Member's estate shall generally be entitled to receive
benefits under the Plan.
SECTION 8
PAYMENT OF BENEFITS ON RETIREMENT, EARLY RETIREMENT, OR DEATH
8.1 Upon the retirement (including early retirement) or death of a Member,
the Accrued Benefit of the Member shall be determined as of the Valuation Date
coinciding with or immediately preceding the Member's Retirement Date, Early
Retirement Date, or death increased by Deferral Amounts and matching
contributions credited pursuant to Section 3.3 (or Section 3.5, as applicable)
and adjusted for earnings or losses credited pursuant to Section 4.3 through the
Valuation Date immediately preceding the date the Accrued Benefit is paid.
8.2 The Plan Administrator shall have the sole and absolute discretion to
allow, from time to time, the payment of a Member's Accrued Benefit upon the
Member's Early Retirement Date. A Member's Accrued Benefit upon his Early
Retirement Date shall be determined and paid as otherwise described in this
Section 8.
8.3 The method of payment of the Accrued Benefit of a Member pursuant to
this Section 8 shall normally be in a lump sum in cash. Payment of the Member's
Accrued Benefit in a lump sum shall commence as soon as practicable after the
Retirement Date, Early Retirement Date, or death of the Member.
In lieu of the normal form of payment (lump sum), the Member may elect prior to
his or her Retirement Date, Early Retirement Date, or death, in the manner and
form required by the Plan Administrator, to receive one of the following
optional forms of payment.
(a) payment in three (3) annual installments; or
(b) payment in seven (7) annual installments.
Such election must be approved by the Plan Administrator and shall be made
during a period determined by the Plan Administrator but not later than three
months prior to the Member's Retirement Date, Early Retirement Date, or death.
If an installment form of payment is selected, the Member's Accrued Benefit
shall be paid in either three (3) or seven (7) annual installments, as the
Member selects, with the first installment payable on the first day of the third
month following the month of the Member's retirement or death, and subsequent
annual installments shall be paid on the next succeeding two (2), or six (6),
anniversaries of such initial payment date ("annual payment date"). Each annual
payment shall equal the Member's Account adjusted as of the Valuation Date
coinciding with or preceding the next annual payment date divided by the number
of remaining annual installments. If the Member's Account is paid in
installments, the Member's Account will continue to be credited with a rate or
rates of return in accordance with Section 4.3 until the Account is fully
distributed.
-8-
8.4 Notwithstanding the other provisions of this Section 8, the Plan
Administrator, in the exercise of its sole and absolute discretion, may
accelerate payment of the Member's Account, or any portion thereof, including,
without limitation, the optional form of payment selected by the Member or
Beneficiary, if any, elected under Section 8.3 above.
SECTION 9
PAYMENT OF BENEFITS ON OTHER TERMINATIONS OF EMPLOYMENT
9.1 A Member shall be considered to have terminated employment with the
Plan Sponsor or any Affiliate on the date determined by the Plan Administrator.
Transfer of a Member from one Plan Sponsor to another Plan Sponsor shall not be
deemed for any purpose under the Plan to be a termination of employment by the
Member.
9.2 In the event of the termination of employment of a Member for reasons
other than those specified in Sections 7 and 8 above, the Accrued Benefit of the
Member shall be determined as of the Valuation Date coinciding with or
immediately preceding the date of the termination of employment and shall be
increased by any Deferral Amounts credited to the Employee Deferral Account of
the Member since that Valuation Date. While no further amounts credited pursuant
to any other provision of Section 3 shall be made to the Member's Account after
that Valuation Date, the Member's Account shall be adjusted for a rate or rates
of return credited pursuant to Section 4.3 through the Valuation Date
immediately preceding the date the Accrued Benefit is paid.
9.3 A Member shall be entitled to payment of his or her Accrued Benefit in
cash in a lump sum. Payment shall be made as soon as practicable following the
Member's termination of employment.
SECTION 10
ADMINISTRATION OF THE PLAN
10.1 Operation of the Plan Administrator. The Primary Sponsor shall be the
Plan Administrator, unless it appoints another Plan Administrator. If an
organization is appointed to serve as the Plan Administrator, then the Plan
Administrator may designate in writing a person who may act on behalf of the
Plan Administrator. The Primary Sponsor shall have the right to remove the Plan
Administrator at any time by notice in writing. The Plan Administrator may
resign at any time by written notice or resignation to the Primary Sponsor. Upon
removal or resignation, or in the event of the dissolution of the Plan
Administrator, the Primary Sponsor shall appoint a successor.
-9-
10.2 Duties of the Plan Administrator.
(a) The Plan Administrator shall perform any act which the Plan
authorizes or requires of the Plan Administrator by action taken in
compliance with the Plan and may designate in writing other persons to
carry out its duties under the Plan. The Plan Administrator may employ
persons to render advice with regard to any of the Plan Administrator's
duties.
(b) The Plan Administrator shall from time to time establish rules,
not contrary to the provisions of the Plan, for the administration of the
Plan and the transaction of its business. All elections and designations
under the Plan by a Member or Beneficiary shall be made on forms
prescribed by the Plan Administrator. The Plan Administrator shall have
discretionary authority to construe the terms of the Plan and shall
determine all questions arising in the administration, interpretation and
application of the Plan, including, but not limited to, those concerning
eligibility for benefits and it shall not act so as to discriminate in
favor of any person. All determinations of the Plan Administrator shall be
conclusive and binding on all persons, subject to the provisions of the
Plan and subject to applicable law.
(c) The Plan Administrator shall furnish Members and Beneficiaries
with all disclosures now or hereafter required by the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). The Plan Administrator
shall file, as required, the various reports and disclosures concerning
the Plan and its operations as required by ERISA and by the Code, and
shall be solely responsible for establishing and maintaining all records
of the Plan.
(d) The statement of specific duties for a Plan Administrator in
this Section is not in derogation of any other duties which a Plan
Administrator has under the provisions of the Plan or under applicable
law.
(e) Each Plan Sponsor shall indemnify and hold harmless each person
constituting the Plan Administrator from and against any and all claims
and expenses (including, without limitation, attorney's fees and related
costs) arising in connection with the performance by the person of his or
her duties in that capacity, other than any of the foregoing arising in
connection with the willful neglect or willful misconduct of the person
acting.
10.3 Action by the Primary Sponsor or a Plan Sponsor. Any action to be
taken by the Primary Sponsor or a Plan Sponsor shall be taken by resolution or
written direction duly adopted by its board of directors or appropriate
governing body, as the case may be; provided, however, that by such resolution
or written direction, the board of directors or appropriate governing body, as
the case may be, may delegate to any officer or other appropriate person of a
Plan Sponsor the authority to take any such actions as may be specified in such
resolution or written direction, other than the power to amend, modify or
terminate the Plan or to determine the basis of any payment obligations of any
Plan Sponsor.
-10-
SECTION 11
CLAIM REVIEW PROCEDURE
11.1 In the event that a Member or Beneficiary is denied a claim for
benefits under a Plan, the Plan Administrator shall provide to such claimant
written notice of the denial which shall set forth:
(a) the specific reasons for the denial;
(b) specific references to the pertinent provisions of the Plan on
which the denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(d) an explanation of the Plan's claim review procedure.
11.2 After receiving written notice of the denial of a claim, a claimant
may:
(a) request a full and fair review of such denial by written
application to the Plan Administrator;
(b) review pertinent documents; and
(c) submit issues and comments in writing to the Plan Administrator.
11.3 If the claimant wishes such a review of the decision denying his or
her claim to benefits under the Plan, he or she must submit such written
applications to the Plan Administrator within sixty (60) days after receiving
written notice of the denial.
11.4 Upon receiving such written application for review, the Plan
Administrator may schedule a hearing for purposes of reviewing the claimant's
claim, which hearing shall take place not more than thirty (30) days from the
date on which the Plan Administrator received such written application for
review.
11.5 At least ten (10) days prior to the scheduled hearing, the claimant
shall receive written notice of the date, time, and place of such scheduled
hearing. The claimant may request that the hearing be rescheduled, for his or
her convenience, on another reasonable date or at another reasonable time or
place.
11.6 No later than sixty (60) days following the receipt of the written
application for review, the Plan Administrator shall submit its decision on the
review in writing to the claimant involved; provided, however, a decision on the
written application for review may be extended, in
-11-
the event special circumstances such as the need to hold a hearing require an
extension of time, to a day no later than one hundred twenty (120) days after
the date of receipt of the written application for review. The decision shall
include specific reasons for the decision and specific references to the
pertinent provisions of the Plan on which the decision is based.
SECTION 12
LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS
12.1 No benefit which shall be payable under the Plan to any person shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; and no such benefit shall in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements or torts of any person, nor shall it
be subject to attachment or legal process for, or against, such person, and the
same shall not be recognized under the Plan, except to such extent as may be
required by law.
12.2 If any person who shall be entitled to any benefit under the Plan
shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge such benefit under the Plan, then the payment
of any such benefit in the event a Member or Beneficiary is entitled to payment
shall, in the discretion of the Plan Administrator, cease and terminate and in
that event the Plan Administrator shall apply the same for the benefit of such
person, his or her spouse, children, other dependents or any of them in such
manner and in such proportion as the Plan Administrator shall determine.
12.3 Whenever any benefit which shall be payable under the Plan is to be
paid to or for the benefit of any person who is then a minor or determined to be
incompetent by qualified medical advice, the Plan Administrator need not require
the appointment of a guardian or custodian, but shall be authorized to cause the
same to be paid over to the person having custody of such minor or incompetent,
or to cause the same to be paid to such minor or incompetent without the
intervention of a guardian or custodian, or to cause the same to be paid to a
legal guardian or custodian of such minor or incompetent if one has been
appointed or to cause the same to be used for the benefit of such minor or
incompetent.
12.4 Whenever the Plan Administrator cannot, within a reasonable time
after payments are to commence, locate any person to or for the benefit of whom
such payments are to be made, after making a reasonable effort to locate such
person, the Plan Administrator may direct that the payment and any remaining
payments otherwise due to the Member be cancelled on the records of the Plan,
except that in the event the Member later notifies the Plan Administrator of his
or her whereabouts and requests the payments due to him or her under the Plan,
the Plan Sponsor shall re-credit the Member's account and provide for payment of
the re-credited amount to the Member as soon as administratively feasible.
-12-
SECTION 13
LIMITATION OF RIGHTS
Membership in the Plan shall not give any Employee any right or claim
except to the extent that such right is specifically fixed under the terms of
the Plan. The adoption of the Plan by any Plan Sponsor shall not be construed to
give any Employee a right to be continued in the employ of a Plan Sponsor or as
interfering with the right of a Plan Sponsor to terminate the employment of any
Employee at any time.
SECTION 14
AMENDMENT TO OR TERMINATION OF THE PLAN
14.1 The Primary Sponsor reserves the right at any time to modify or amend
or terminate the Plan. No such modifications or amendments shall have the effect
of retroactively changing or depriving Members or Beneficiaries of benefits
already accrued under the Plan. No Plan Sponsor other than the Primary Sponsor
shall have the right to so modify, amend or terminate the Plan. Notwithstanding
the foregoing, each Plan Sponsor may terminate its own participation in the
Plan.
14.2 Each Plan Sponsor other than the Primary Sponsor shall have the right
to terminate its participation in the Plan by resolution of its board of
directors or other appropriate governing body and notice in writing to the
Primary Sponsor. Any termination by a Plan Sponsor shall not be a termination as
to any other Plan Sponsor.
14.3 If the Plan is terminated by the Primary Sponsor, it shall terminate
as to all Plan Sponsors.
SECTION 15
ADOPTION OF PLAN BY AFFILIATES
Any corporation or other business entity related to the Primary Sponsor by
function or operation and any Affiliate, if the corporation, business entity or
Affiliate is authorized to do so by written direction adopted by the Board of
Directors, may adopt the Plan by action of the board of directors or other
appropriate governing body of such corporation, business entity or Affiliate.
Any adoption shall be evidenced by certified copies of the resolutions of the
foregoing board of directors or governing body indicating the adoption by the
adopting corporation, or business entity or Affiliate.
-13-
SECTION 16
MISCELLANEOUS
16.1 All payments provided under the Plan shall be paid from the general
assets of the applicable Plan Sponsor and no separate fund shall be established
to secure payment. Notwithstanding the foregoing, the Primary Sponsor may
establish a grantor trust to assist it and other Plan Sponsors in funding Plan
obligations, and any payments made to a Member or Beneficiary from such trust
shall relieve the Plan Sponsor from any further obligations under the Plan only
to the extent of such payment. Nothing herein shall constitute the creation of a
trust or other fiduciary relationship between a Plan Sponsor and any other
person.
16.2 Each Plan Sponsor shall withhold from any benefits payable under the
Plan all federal, state and local income taxes or other taxes required to be
withheld pursuant to applicable law.
16.3 To the extent not preempted by applicable federal law, the Plan shall
be governed by and construed in accordance with the laws of the State of
Georgia.
IN WITNESS WHEREOF, the Primary Sponsor has caused this indenture to be
executed as of the date first above written.
ROPER INDUSTRIES, INC.
By:
-------------------------------
Title:
----------------------------
ATTEST:
- ----------------------------------------
Title:
---------------------------------
[CORPORATE SEAL]
-14-
EXHIBIT 10.09
May 20, 2002
Mr. Timothy Winfrey
19935 River Falls Drive
Davidson, NC 28036
Dear Tim:
I am very pleased to offer you the opportunity to join Roper Industries, Inc. as
a Corporate Vice President.
Salary and Benefits
The following statements summarize the proposed financial terms of your
employment:
1. Your commencing annual salary will be $240,000 to be reviewed
January 1, 2003 and thereafter on an annual basis.
2. You will be included in the Roper Industries Discretionary Annual
Bonus Program. Bonuses in this program are paid in the first week of
January for results achieved in the preceding fiscal year. If goals
are fully met, you will be entitled to a bonus that represents 100%
of your salary. For the fiscal 2002 year, you will be guaranteed a
minimum bonus of $60,000. If, however, the actual bonus amount
earned is greater than the guaranteed amount, the greater amount
will be paid.
3. You will receive one year's salary and bonus as a severance payment
if Roper terminates you other than for gross misconduct. This
includes any change in control in which you were replaced or your
position was eliminated. Gross misconduct will be defined as a civil
or criminal act or ethical misconduct committed against Roper
Industries, Inc., it's employees, customers or suppliers.
4. You will be eligible to participate in Roper's Stock Option Program.
On commencing employment, you will be granted 20,000 Roper Stock
Options at the prevailing stock price and normal vesting period.
Additional options could be made available on an annual basis as
Roper continues to grow and your success contributes to Roper's
performance.
5. A company car will be provided similar to a Buick Park Avenue with
all expenses for business and private use covered, subject to IRS
rules.
6. You will be included in the corporation's benefits package, a
summary of which is provided as a supplement to this letter. You
will be eligible to participate in all benefits as of your start
date with the exception of the 401(k) plan and the Employee Stock
Purchase Plan as their eligibility rules do not allow for immediate
participation and mandate the six-month waiting periods.
7. You will be eligible to participate from your start date in the
Roper Industries, Inc. NonQualified Plan which allows unlimited
compensation deferral on a pre-tax basis.
8. You will also be eligible for inclusion in our Executive
Reimbursement Insurance Plan in which any out-of-pocket health,
dental or vision expenses not covered by our normal plans are
reimbursed.
9. Relocation reimbursement will be provided under our normal policy
which includes all reasonable moving expenses through the mover with
whom Roper has contracted to handle moves and relocations and
including such out-of-pocket costs as utility deposits, closing
costs, etc. We will also cover the costs of temporary living
expenses for up to six months. These reimbursable expenses will also
include the following:
a) selling costs, selling commission and brokerage fees
associated with the buying of new residence and selling
of current residence;
b) all escrow fees, miscellaneous transaction costs and
other fees associated with the buying of new residence
and selling of old residence;
c) house hunting trips as necessary;
d) movement and storage, if necessary, of household goods;
and e) income tax gross up for total value of
relocation.
10. You will be eligible for initiation fees, monthly dues and business
expenses for an appropriate Country Club, as approved in advance by
the CEO.
11. You will be entitled to $25,000 for out-of-pocket incidental
expenses to cover your relocation separate from the actual move
itself.
12. You will be eligible for four weeks of vacation per year.
Starting Date
Tim, I hope that the employment package extended in this letter is satisfactory
and you will commence employment on June 1, 2002. If you have any questions
regarding your employment package, please do not hesitate to call me or Marilyn
Messer, our Director of Human Resources at (706) 369-7170
Kind Regards,
Brian D. Jellison Accepted
President, CEO
-------------------
Tim Winfrey
Exhibit 21
JURISDICTION OF
NAME OF SUBSIDIARY INCORPORATION/ORGANIZATION
- ------------------ --------------------------
Abel Equipos, S.A Spain
Abel Pumps, L.P. Delaware
Abel Pumpen GmbH Germany
Abel GmbH & Co KG Germany
Acton Research Corporation Delaware
Ai Cambridge Ltd. United Kingdom
Ai Qualitek Ltd. United Kingdom
Amot Controls Corporation Delaware
Amot Controls Ltd. United Kingdom
Amot Controls, S.A Switzerland
Amot/Metrix Investment Company Delaware
Amot Controls GmbH Germany
Antek Instruments, L.P. Delaware
Antek GmbH Germany
Compressor Controls B.V Netherlands
Compressor Controls Corporation S.r.l Italy
Compressor Controls Corporation (an Iowa Corp) Iowa
Compressor Controls Corporation (a Delaware
Corporation) d/b/a in Iowa as Compressor
Controls - CIS/EE) Delaware
Cornell Pump Company Delaware
Cornell Pump Manufacturing Corporation Delaware
Cybor Corporation California
Fluid Metering, Inc. Delaware
FTI Flow Technology, Inc. Delaware
Gatan International, Inc. Pennsylvania
Gatan, Inc. Pennsylvania
Gatan Service Corporation Pennsylvania
Gatan Limited United Kingdom
Gatan GmbH Germany
Hansen Technologies Corporation Illinois
Hansen Technologies Ltd. United Kingdom
Integrated Designs L.P. Delaware
ISL Holdings, S.A France
ISL Investissement SARL France
ISL Scientifique de Laboratoire - ISL, S.A France
ITI Qualitek, Inc. Delaware
K/S Roper Finance Denmark
Logitech Limited United Kingdom
Marumoto Struers KK Japan
Media Cybernetics Inc. Delaware
Meltron Qualitek Messtechnik GmbH Germany
Metrix Instrument Co., L.P. Delaware
Nippon Roper K.K Japan
PAC Denmark ApS Denmark
PAC GmbH Germany
Petrotech, Inc. Delaware
Petrotech International, Inc. Louisiana
Petroleum Analyzer Company LP Delaware
Princeton Instruments Limited United Kingdom
Qualitek Leaktest Ltd. United Kingdom
Quantitative Imaging Corp. Canada
Roper Scientific SARL France
Roper Canada, Inc. Canada
Roper Capital Deutschland GmbH Germany
Roper Fundings KG Germany
Roper Industries Deutschland GmbH Germany
Roper Holdings, Inc. Delaware
Roper Holdings, Limited United Kingdom
Roper Industrial Products Investment Company Iowa
Roper Industries B.V Netherlands
Roper Industries Denmark ApS Denmark
Roper Industries (Europe) Limited United Kingdom
Roper Industries Limited United Kingdom
Roper Industries Southeast Asia Company Delaware
Roper International, Inc. Delaware
Roper International Products, LTD Virgin Islands
Roper Pump Company Delaware
Roper Scientific B.V Netherlands
Redlake MASD, Inc. Delaware
Roper Scientific, Inc. Delaware
Roper Scientific GmbH Germany
Struers A/S Denmark
Struers GmbH Germany
Struers Inc. Delaware
Struers Limited United Kingdom
Struers S.A.S France
Turbocontroles de Venezuela Venezuela
Uson L.P. Delaware
Walter Herzog GmbH Germany
Zetec Foreign Sales Corporation Barbados
Zetec, Inc. Washington
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-71094, 33-77770, 33-78026, 333-36897, 333-73139,
333-35672, 333-35666, 333-35648, 333-59130) of Roper Industries, Inc. of our
report dated December 11, 2002 relating to the financial statements and
financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Atlanta, Georgia
January 15, 2003
EXHIBIT 23.2
NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP
Section 11(a) of the Securities Act of 1933, as amended (the "Securities
Act"), provides that if any part of a registration statement at the time such
part becomes effective contains an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, any person acquiring a security
pursuant to such registration statement (unless it is proved that at the time of
such acquisition such person knew of such untruth or omission) may sue, among
others, every accountant who has consented to be named as having prepared or
certified any part of the registration statement, or as having prepared or
certified any report or valuation which is used in connection with the
registration statement, with respect to the statement in such registration
statement, report or valuation which purports to have been prepared or certified
by the accountant.
This Form 10-K is incorporated by reference into the following previously
filed registration statements of Roper Industries, Inc. ("Roper"): Registration
Statements filed on Form S-8: Nos. 33-71094, 33-77770, 33-78026, 333-36897,
333-73139, 333-35672, 333-35666, 333-35648, and 333-59130 (collectively, the
"Registration Statements") and, for purposes of determining liability under the
Securities Act, is deemed to be a new registration statement for each
Registration Statement into which it is incorporated by reference.
On May 14, 2002, Roper terminated its relationship with Arthur Andersen
LLP ("Arthur Andersen") as Roper's independent public accountants and engaged
PricewaterhouseCoopers LLP as its independent public accountants. After
reasonable efforts, Roper was unable to obtain Arthur Andersen's written consent
to incorporate by reference into the Registration Statements Arthur Andersen's
audit report regarding Roper's financial statements as of and for the year ended
October 31, 2000. Under these circumstances, Rule 437a under the Securities Act
and Rule 2-02 of Regulation S-X promulgated by the Securities and Exchange
Commission permit Roper to file this Form 10-K without a written consent from
Arthur Andersen. As a result, however, Arthur Andersen will have no liability
under Section 11(a) of the Securities Act for any untrue statements of a
material fact contained in the financial statements audited by Arthur Andersen
or any omissions of a material fact required to be stated therein. Accordingly,
you would be unable to assert a claim against Arthur Andersen under Section
11(a) of the Securities Act for any purchases of securities under the
Registration Statements made on or after the date of the Form 10-K. However, to
the extent provided in Section 11(b)(3)(C) of the Securities Act, other persons
who are liable under Section 11(a) of the Securities Act, including Roper's
officers and directors, may still rely on Arthur Andersen's original audit
reports as being made by an expert for purposes of establishing a due diligence
defense under Section 11(b) of the Securities Act.
EXHIBIT 99.1
RISK FACTORS
Continuing business with Gazprom
Sales to RAO Gazprom, a large Russian natural gas enterprise which we
refer to in this Annual Report as Gazprom, represented approximately 9%, 8% and
7% of our net sales for fiscal 2002, 2001 and 2000, respectively. The level and
timing of future business with Gazprom will depend on our relationship with
Gazprom as well as its ability to obtain financing, increase competition and
customer delays in commissioning and start-up of installations and on general
economic conditions in the former Soviet Union. If Gazprom significantly reduces
the amount of products it purchases from us for any reason, we likely could not
replace those sales and our operating results would suffer.
Unfavorable changes in foreign exchange rates may harm our business.
Several of our operating companies have transactions and balances
denominated in currencies other than the U.S. dollar. Most of these transactions
and balances are denominated in euros, British pounds, Danish krone and Japanese
yen. Sales by our operating companies whose functional currency is not the U.S.
dollar represented approximately 28% of our total net sales for fiscal 2002
compared to 23% and 20% in fiscal 2001 and 2000, respectively. Unfavorable
changes in exchange rates between the U.S. dollar and those currencies could
reduce our reported sales and earnings.
We export a significant portion of our products. Difficulties associated with
the export of our products could harm our business.
Sales to customers outside the United States by our businesses located in
the United States account for a significant portion of our net sales. These
sales accounted for approximately 58%, 52% and 51% of our net sales in fiscal
2002, 2001 and 2000, respectively. Our ability to export our products is subject
to risks that could limit our ability to export our products or otherwise reduce
the demand for these products in our foreign markets. Such risks include,
without limitation, the following:
o unfavorable changes in U.S. export requirements;
o restrictions on the export of technology and related products;
o unfavorable changes in U.S. export policies to certain foreign
countries;
o unfavorable changes in the import policies of our foreign markets;
and
o a general economic downturn in our foreign markets.
The occurrence of any of these events could reduce the foreign demand for our
products and could limit our ability to export our products and, therefore,
could negatively affect our future sales and earnings.
Economic, political and other risks associated with our international operations
could adversely affect our business.
As of October 31, 2002, approximately 31% of our total assets were
attributable to operations outside the United States. We expect our
international operations to continue to contribute materially to our business
for the foreseeable future. Our international operations are subject to varying
degrees of risk inherent in doing business outside the United States including,
without limitation, the following:
o adverse changes in a specific country's or region's political or
economic conditions, particularly in emerging markets;
o trade protection measures and import or export requirements;
o partial or total expropriation;
o potentially negative consequences from changes in tax laws;
o difficulty in staffing and managing widespread operations;
o differing labor regulations;
o differing protection of intellectual property; and
o unexpected changes in regulatory requirements.
The occurrence of any of these events could harm our business.
Our growth strategy includes acquisitions. We may not be able to identify
suitable acquisition candidates, complete acquisitions or integrate acquisitions
successfully.
Our historical growth has depended, and our future growth is likely to
continue to depend, to a significant degree on our ability to make acquisitions
and to successfully integrate acquired businesses. We intend to continue to seek
additional acquisition opportunities both to expand into new markets and to
enhance our position in existing markets globally. We cannot assure you,
however, that we will be able to successfully identify suitable candidates,
negotiate appropriate acquisition terms, obtain necessary financing on
acceptable terms, complete proposed acquisitions, successfully integrate
acquired businesses into our existing operations or expand into new markets.
Once integrated, acquired operations may not achieve levels of revenues,
profitability or productivity comparable with those achieved by our existing
operations, or otherwise perform as expected.
Acquisitions involve numerous risks, including difficulties in the
assimilation of the operations, technologies, services and products of the
acquired companies and the diversion of management's attention from other
business concerns. Although our management will endeavor to evaluate the risks
inherent in any particular transaction, we cannot assure you that we will
properly ascertain all such risks. In addition, prior acquisitions have
resulted, and future acquisitions could result, in the incurrence of substantial
additional indebtedness and other expenses. Future acquisitions may also result
in amortization expenses related to acquired intangible assets and potentially
dilutive issuances of equity securities, any of which could harm our
profitability. We cannot assure you that our acquisition strategy will not have
a material adverse effect on our business, financial condition and results of
operations.
Product liability and insurance risks could harm our operating results.
Our business exposes us to potential product liability risks that are
inherent in the design, manufacturing and distribution of custom, highly
engineered, specialty industrial controls, fluid handling and analytical
instrumentation products. In addition, certain of our products are used in
potentially hazardous environments. We currently have product liability
insurance for our products; however, we may not be able to maintain our
insurance at a reasonable cost or in sufficient amounts to protect us against
potential losses. We believe that we have adequately accrued estimated losses,
principally related to deductible amounts under our insurance policies, with
respect to all product liability claims, based upon our past experience and
available facts. However, a successful product liability claim or series of
claims brought against us could have a material adverse effect on our business,
financial condition and results of operations.
Warranty exposure could harm our business.
We offer warranties to our customers, including our original equipment
manufacturers, or OEMs, that our products are free from defects and that they
meet certain customer designated specifications. The OEMs may in turn offer
product warranties to the purchasers of their products. If products do not
perform as expected, we could incur substantial warranty expense in the future.
Our former independent public accountant, Arthur Andersen LLP, has been found
guilty of federal obstruction of justice charges and you are unlikely to be able
to exercise effective remedies against them in any legal action.
Although we have dismissed Arthur Andersen as our independent public
accountants and engaged PricewaterhouseCoopers LLP, Arthur Andersen audited our
consolidated financial statements for the years ended October 31, 1999, 2000 and
2001.
On March 14, 2002, Arthur Andersen was indicted on federal obstruction of
justice charges arising from the government's investigation of Enron
Corporation. On June 15, 2002, a jury in Houston, Texas found Arthur Andersen
guilty of these federal obstruction of justice charges. It has been reported
that Arthur Andersen will appeal the conviction. On August 31, 2002, Arthur
Andersen ceased practicing before the SEC. Substantially all Arthur Andersen
personnel have already left the firm, including the individuals responsible for
auditing our audited consolidated financial statements for the year ended
October 31, 2001 included in this Annual Report. You are unlikely to be able to
exercise effective remedies or collect judgments against Arthur Andersen.
We face intense competition. If we do not compete effectively, our business may
suffer.
We face intense competition from numerous competitors. Our products
compete primarily on the basis of product quality, performance, innovation,
price, applications expertise and established customer service capabilities
with existing customers. We may not be able to compete effectively with all of
these competitors. To remain competitive, we must develop new products, respond
to new technologies and periodically enhance our existing products in a timely
manner. We anticipate that we may have to adjust prices of many of our products
to stay competitive. In addition, new competitors may emerge, and entire product
lines may be threatened by new technologies or market trends that reduce the
value of these product lines.
Changes in the supply of, or price for, parts and components used in our
products could affect our business.
We purchase many parts and components from suppliers. The availability and
prices of parts and components may be subject to curtailment or change due to,
among other things, suppliers' allocations to other purchasers, interruptions in
production by suppliers, changes in exchange rates and prevailing price levels.
Some high-performance components for digital imaging products may be in short
supply and/or suppliers may have occasional difficulty manufacturing these
components to meet our specifications. Any change in the supply of, or price
for, these parts and components could affect our business, financial condition
and results of operations.
Environmental compliance costs and liabilities could increase our expenses and
adversely affect our financial condition.
Our operations and properties are subject to increasingly stringent laws
and regulations relating to environmental protection, including laws and
regulations governing air emissions, water discharges, waste management and
workplace safety. These laws and regulations can result in the imposition of
substantial fines and sanctions for violations and could require the
installation of costly pollution control equipment or operational changes to
limit pollution emissions and/or decrease the likelihood of accidental hazardous
substance releases. We must conform our operations and properties to these laws,
and adapt to regulatory requirements in the countries in which we operate as
these requirements change.
We use and generate hazardous substances and wastes in our operations and,
as a result, could be subject to potentially material liabilities relating to
the investigation and clean-up of contaminated properties and to claims alleging
personal injury. We have experienced, and expect to continue to experience,
operating costs to comply with environmental laws and regulations. In connection
with our acquisitions, we may assume significant environmental liabilities, some
of which we may not be aware of at the time of acquisition. In addition, new
laws and regulations, stricter enforcement of existing laws and regulations, the
discovery of previously unknown contamination or the imposition of new clean-up
requirements could require us to incur costs or become the basis for new or
increased liabilities that could have a material adverse effect on our business,
financial condition and results of operations.
Our intangible assets are valued at an amount that is disproportionately high
relative to our total assets and a write-off of our intangible assets would
negatively affect our results of operations and total capitalization.
Our total assets reflect substantial intangible assets, primarily
goodwill. At October 31, 2002, goodwill totaled approximately $460 million
compared to approximately $ 376 million of stockholders' equity, which was over
half of our total assets of approximately $829 million. The goodwill results
from our acquisitions, representing the excess of cost over the fair value of
the net assets we have acquired. We assess at least annually whether there has
been an impairment in the value of our intangible assets. If future operating
performance at one or more of our business units were to fall significantly
below current levels, if competing or alternative technologies emerge or if
business valuations become more conservative, we could incur, under current
applicable accounting rules, a non-cash charge to operating earnings for
goodwill impairment. Any determination requiring the write-off of a significant
portion of unamortized intangible assets would negatively affect our results of
operations and total capitalization, which effect could be material.
Terrorist attacks and threats or actual war, as well as unfavorable general
economic conditions, may harm our business.
Recent terrorist attacks in the United States, as well as future events
occurring in response or in connection to them, including, without limitation,
future terrorist attacks against United States targets, rumor or threats of war,
actual conflicts involving the United States or its allies or military or trade
disruptions, may impact our operations. They also could result in a deepening of
any economic recession in the United States or abroad. A prolonged economic
slowdown or recession in the United States or in other areas of the world could
reduce the demand for our products and, therefore, negatively affect our future
sales and profits. Any of these events could have a significant impact on our
business, financial condition or results of operations and may result in the
volatility of the market price for our common stock.
Our stock price may fluctuate significantly.
The market price of our common stock could fluctuate significantly in response
to variations in quarterly operating results and other factors, such as:
o changes in our business, operations or prospects;
o developments in our relationships with our customers;
o announcements of technological innovations or new products by us or
by our competitors;
o announcement or completion of acquisitions by us or by our
competitors;
o changes in existing or adoption of additional government
regulations; and
o prevailing domestic and international market and economic
conditions.
In addition, the stock market has experienced significant price
fluctuations in recent years. Many companies experienced material fluctuations
in their stock price that were unrelated to their operating performance. Broad
market fluctuations, general economic conditions and specific conditions in the
industries in which we operate may adversely affect the market price of our
common stock.
Limited trading volume of our common stock may contribute to its price
volatility.
Our common stock is traded on the New York Stock Exchange, or NYSE. During
the twelve months ended October 31, 2002, the average daily trading volume for
our common stock as reported by the NYSE was approximately 188,000 shares. We
are uncertain whether a more active trading market in our common stock will
develop. As a result, relatively small trades may have a significant impact on
the market price of our common stock.
If we need to sell or issue additional shares of common stock to finance future
acquisitions, your stock ownership could be diluted.
Part of our business strategy is to expand into new markets and enhance
our position in existing markets globally through acquisitions. In order to
successfully complete targeted acquisitions or fund our other activities, we may
issue additional equity securities that could be dilutive to our earnings per
share and to your stock ownership. We cannot assure you as to when, and how many
of, the shares of our common stock will be sold or as to the effect those sales
may have on the market price of our common stock. Sales of substantial amounts
of our common stock or the perception that such sales could occur, may adversely
affect prevailing market prices for our common stock.