<PAGE>
As filed with the Securities and Exchange Commission on December 2, 1999
File No. 000-27579
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- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
CoorsTek, Inc.
(Exact name of registrant as specified in its charter)
Delaware 84-0178380
(I.R.S. Employer Identification No.)
(State or other jurisdiction of
incorporation or organization)
16000 Table Mountain Parkway 80403
Golden, Colorado (Zip Code)
(Address of principal executive
offices)
Copies of any communications should be sent to:
Katherine A. Resler
General Counsel and Secretary
CoorsTek, Inc.
16000 Table Mountain Parkway
Golden, Colorado 80403
(303) 277-4000
and
Linda K. Wackwitz Whitney Holmes
Holme Roberts & Owen LLP Hogan & Hartson L.L.P.
1700 Lincoln Street, Suite 4100 1200 Seventeenth Street, Suite 150
Denver, Colorado 80203
(303) 861-7000
(303) 899-7300
Registrant's telephone number, including area code: (303) 277-4000
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act: $.01 par
value Common Stock and associated Preferred Stock Purchase Rights
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
Item 1. Business
The information required by this item is contained under "Summary,"
"Business," "Relationship between ACX and CoorsTek," "Special Considerations"
and "Available Information" of the Information Statement (the "Information
Statement") attached hereto as Annex I. Those sections are incorporated herein
by reference.
Item 2. Financial Information
The information required by this item is contained under "Summary,"
"Capitalization," "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" of
the Information Statement. Those sections are incorporated herein by reference.
Item 3. Properties
The information required by this item is contained under "Business--
Properties" of the Information Statement. That section is incorporated herein
by reference.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is contained under "Security
Ownership of 5% Beneficial Owners, Directors and Executive Officers of
CoorsTek" of the Information Statement. That section is incorporated herein by
reference.
Item 5. Directors and Executive Officers
The information required by this item is contained under "Management" of
the Information Statement. That section is incorporated herein by reference.
Item 6. Executive Compensation
The information required by this item is contained under "Executive
Compensation" and "Management" of the Information Statement. That section is
incorporated herein by reference.
Item 7. Certain Relationships and Related Transactions
The information required by this item is contained under "The Spin-off"
and "Relationship Between ACX and CoorsTek" of the Information Statement. Those
sections are incorporated herein by reference.
Item 8. Legal Proceedings
The information required by this item is contained under "Business--
Environmental Matters" and "Business--Legal Proceedings" of the Information
Statement. Those sections are incorporated herein by reference.
Item 9. Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters
The information required by this item is contained under "The Spin-off-
Results of Spin-off," "The Spin-off--Other Consequences," "The Spin-off--
Listing and Trading of CoorsTek Common Stock," "Dividend Policy," and
"Description of Capital Stock" of the Information Statement. Those sections are
incorporated herein by reference.
I-2
<PAGE>
Item 10. Recent Sales of Unregistered Securities
None.
Item 11. Description of Registrant's Securities to Be Registered
The information required by this item is contained under "Description of
Capital Stock" and "Anti-takeover Effects of CoorsTek's Articles and Bylaws" of
the Information Statement. Those sections are incorporated herein by reference.
Item 12. Indemnification of Directors and Officers
The information required by this item is contained under "Liability and
Indemnification of Officers and Directors" of the Information Statement. That
section is incorporated herein by reference.
Item 13. Financial Statements and Supplementary Data
The information required by this item is contained in "Consolidated
Financial Information" and "Pro Forma Consolidated Financial Information" of
the Information Statement. Those sections are incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements
Index to Consolidated Financial Statements on page F-1 of the
Information Statement
(b) Exhibits
See Index to Exhibits
I-3
<PAGE>
[ACX Technologies, Inc. Letterhead]
, 1999
Dear ACX Shareholder:
ACX has made a lot of changes since we were spun off from Adolph Coors
Company in December 1992. At that time, we inherited many developmental and new
technologies. Our commitment to profitable growth required that many tough
decisions be made regarding the future of those technologies. 1999 saw the last
of these developmental businesses being sold or closing their doors, allowing
us to focus our full time and attention on our two core businesses, Graphic
Packaging Corporation and CoorsTek, Inc. ("CoorsTek"), which was formerly named
Coors Porcelain Company.
In addition, we have made several significant acquisitions of folding
carton packaging businesses--Gravure Packaging of Richmond, Virginia in 1996,
Universal Packaging in 1998 and, most recently, the folding carton business of
Fort James Corporation in August 1999. As a result, Graphic Packaging is now
estimated to be the largest folding carton operation in North America. In the
meantime, in September 1999, we sold our flexible packaging business to focus
on our folding carton operations.
In addition to these actions, ACX Technologies, Inc. has announced a plan
to establish CoorsTek as a fully independent public company doing business
under the name CoorsTek. In order to implement this plan and distribute its
CoorsTek shares, the Board of Directors of ACX has approved a spin-off on
December 31, 1999 to our shareholders of all the outstanding shares of common
stock of CoorsTek to holders of record of ACX's common stock. In the spin-off,
you will receive one share of CoorsTek common stock for every four shares of
ACX common stock that you hold at the close of business on December , 1999.
Your current shares of ACX common stock will be unchanged and will continue to
represent your ownership position in ACX Technologies, Inc. After the spin-off,
the principal business of ACX will be Graphic Packaging Corporation.
Your Board of Directors has concluded that the spin-off is in the best
interests of ACX, ACX's shareholders and the CoorsTek business because it
believes that:
. having two separate public companies will enable financial markets to
evaluate each company more effectively, thereby enhancing shareholder
value over the long term for both companies and making the stock of each
more attractive as currency for future acquisitions;
. separating CoorsTek from the packaging business of ACX will increase the
borrowing capacity of CoorsTek by providing more efficient access to the
debt markets;
. having separate management and ownership structures for CoorsTek will
link equity based compensation more closely to the business in which its
employees work; and
. the spin-off will provide CoorsTek's management with increased strategic
flexibility and decision-making power to realize significant growth
opportunities.
Shares of CoorsTek's common stock are expected to trade on the Nasdaq
National Market under the symbol "CRTK".
The enclosed information statement explains the proposed spin-off in
detail and provides important information regarding CoorsTek. We urge you to
read it carefully. Please note that a shareholder vote is not required in
connection with this matter, and holders of ACX common stock are not required
to take any action to participate in the spin-off. Thus, we are not asking you
for a proxy.
Very truly yours,
William K. Coors
Chairman of the Board
ACX Technologies, Inc.
<PAGE>
[CoorsTek, Inc. Letterhead]
Dear Stockholder:
We are delighted to welcome you as an initial stockholder of CoorsTek,
Inc. We will conduct the CoorsTek business as a company separate from ACX
Technologies, Inc., and our common stock will be publicly traded for the first
time on January 4, 2000, following a "when issued" period in December 1999. You
will receive a tax free stock dividend of one (1) share of CoorsTek, Inc.
common stock for each four (4) shares of ACX Technologies that you own on the
close of business on December , 1999. Shares of our stock will trade on the
Nasdaq National Market under the symbol CRTK.
Established in 1911 as Coors Porcelain Company, CoorsTek is a
manufacturer of advanced technical ceramics. We have in recent years broadened
our materials base to include fluoropolymers and precision machined metals. Our
goal is to become a leading supplier of components and systems made from high
performance materials by partnering with customers to provide manufacturing and
engineering solutions.
We are excited about the opportunities that our spin-off from ACX
Technologies provides, and are enthusiastic about what the future holds. We
believe that CoorsTek has great potential to grow and are excited about you
growing with us as a CoorsTek, Inc. stockholder.
Congratulations on becoming one of the "founding" stockholders of
CoorsTek, Inc.!
Very truly yours,
Joseph Coors, Jr.
Chairman and Chief Executive Officer
CoorsTek, Inc.
<PAGE>
CoorsTek, Inc.
Common Stock
(par value $.01 per share)
At this time, CoorsTek is wholly owned by ACX Technologies, Inc. In this
spin-off, ACX will distribute 100% of the shares of CoorsTek common stock to
ACX shareholders. Each of you, as a holder of ACX's common stock, will receive
one share of our common stock for every four shares of the common stock of ACX
that you hold at the close of business on December , 1999, the record date for
the spin-off.
We are sending you this information statement to describe the spin-off.
We expect the spin-off to occur on December 31, 1999. ACX will mail you
certificates representing your proportionate number of shares of CoorsTek
common stock on or as soon after December 31, 1999 as practicable. Immediately
after the spin-off is completed, ACX will not own any shares of CoorsTek common
stock, and we will be a public company independent of ACX. We refer to
ourselves in this information statement as "We," or "CoorsTek."
No shareholder action is necessary to receive your shares of CoorsTek
common stock. This means that:
. you do not need to pay anything to ACX or to CoorsTek; and
. you do not need to surrender any shares of ACX's common stock to
receive your shares of CoorsTek common stock.
In addition, a shareholder vote is not required for the spin-off to
occur. ACX is not asking you for a proxy, and ACX requests that you do not send
a proxy.
There has been no trading market for CoorsTek common stock. However, we
expect that a limited market for shares of our common stock will develop on or
shortly before the record date for the spin-off, commonly known as a "when
issued" trading market. We have applied to have our common stock traded in the
Nasdaq National Market under the symbol "CRTK."
As you review this information statement, you should carefully consider
the matters described in "Special Considerations" beginning on page 8.
----------------
These securities have not been approved or disapproved by the Securities
and Exchange Commission or any state securities commission nor has the
Securities and Exchange Commission or any state securities commission passed
upon the accuracy or adequacy of this Information Statement.
----------------
This Information Statement does not constitute an offer to sell or the
solicitation of an offer to buy any securities. Changes may occur after the
date of this Information Statement and neither CoorsTek nor ACX will update the
information contained herein except in the normal course of their respective
public disclosures.
----------------
Shareholders of ACX with inquiries related to the spin-off should contact
Investor Relations at (303) 271-7005, or ACX's stock transfer agent and
registrar, Norwest Bank Minnesota, NA, Shareowner Services, Post Office Box
64854, St. Paul, Minnesota 55164-0854. Norwest Bank Minnesota, NA is also
acting as distribution agent for the spin-off.
The date of this Information Statement is , 1999.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.................................................... ii
Summary.................................................................. 1
Special Considerations................................................... 8
The Spin-Off............................................................. 12
Relationship Between ACX and CoorsTek.................................... 16
Capitalization........................................................... 18
Dividend Policy.......................................................... 18
Pro Forma Consolidated Financial Information............................. 19
Selected Consolidated Financial Data..................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 30
Management............................................................... 37
Executive Compensation................................................... 40
Security Ownership of 5% Beneficial Owners, Directors and Executive
Officers of CoorsTek.................................................... 45
Description of Indebtedness.............................................. 46
Description of Capital Stock............................................. 47
Anti-Takeover Effects of the Certain Provisions.......................... 48
Liability and Indemnification of Officers and Directors.................. 55
Independent Accountants.................................................. 57
Index to the Consolidated Financial Statements of CoorsTek, Inc.......... F-1
</TABLE>
i
<PAGE>
Available Information
CoorsTek has filed a registration statement on Form 10 with the
Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), with respect to its
common stock. This Information Statement, which forms a part of the
registration statement, does not contain all of the information set forth in
the registration statement. This information statement contains summaries of
the material terms and provisions of documents filed as exhibits to the
registration statement. For further information, you should refer to the
registration statement and the exhibits. Each such statement is qualified in
its entirety by such reference. Copies of these documents may be inspected
without charge at the Commission's Public Reference Room located at 450 Fifth
Street, N.W., Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the Commission at (800) SEC-
0330. Copies of this material also should be available through the Internet by
using the SEC EDGAR Archive, the address of which is http://www.sec.gov.
Following the spin-off, CoorsTek will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. CoorsTek also will be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
annual reports containing audited financial statements to its stockholders in
connection with its annual meetings of stockholders. After the spin-off, such
reports, proxy statements and other information will be available to be
inspected and copied at the public reference facilities of the Commission or
obtained by mail or over the Internet from the Commission, as described above.
No person is authorized by ACX or CoorsTek to give any information or to
make any representations other than those contained in this Information
Statement. If given or made, such information or representations must not be
relied upon as having been authorized.
ii
<PAGE>
SUMMARY
Because this is a summary, it does not contain all the information that
may be important to you. You should read the entire Information Statement,
including our historical and pro forma consolidated financial statements and
the notes to those financial statements included in this information statement.
Unless otherwise indicated, references in this document to "we," "us," "our,"
or "CoorsTek" mean CoorsTek, Inc., formerly named Coors Porcelain Company doing
business as Coors Ceramics Company, and its subsidiaries.
CoorsTek
CoorsTek is a wholly-owned subsidiary of ACX Technologies, Inc. ACX was
spun off from Adolph Coors Company in December 1992. At that time, ACX
inherited many developmental and new technologies. In 1999, the last of these
technologies was sold or closed its doors, allowing ACX to concentrate on its
two core businesses, Graphic Packaging Corporation and CoorsTek. The Board of
Directors of ACX has determined that these two core businesses can be operated
and developed more effectively and in the best interests of ACX's shareholders
if CoorsTek becomes a separate, independent, publicly traded Company.
CoorsTek has been in business since 1911 when it was incorporated in
Colorado as Coors Porcelain Company and is a manufacturer of advanced technical
ceramics. In addition, CoorsTek manufactures a wide variety of products from
other engineered materials and is involved in the precision machining of
metals. For some customers, CoorsTek integrates manufactured and purchased
components into assemblies and systems. After the spin-off, CoorsTek will be an
independent, publicly traded company that will continue to develop, manufacture
and sell advanced technical ceramic and other engineered materials across a
wide range of product lines for a variety of applications.
CoorsTek sells its products primarily to industrial manufacturers for
incorporation into their products and processes, providing components to
substantially all of the commonly recognized industrial markets. Since
approximately 90% of CoorsTek's products are manufactured to customer
specifications, we consider our reputation for expert custom product design,
product quality and customer service one of our most valuable assets.
For the nine months ended September 30, 1999 and for its fiscal year
ended December 31, 1998, the revenues of ACX attributable to CoorsTek were $267
million and $297 million respectively.
CoorsTek's principal office is located at 16000 Table Mountain Parkway,
Golden, Colorado 80403, and its telephone number is (303) 277-4000.
1
<PAGE>
The Spin-Off
The following is a brief set of questions and answers about the spin-off.
Why is ACX spinning off . To increase the borrowing capacity of CoorsTek.
CoorsTek?
. To allow financial markets to evaluate ACX and
CoorsTek separately.
. To give CoorsTek's management more flexibility
to take advantage of growth opportunities,
including using CoorsTek stock as currency for
acquisitions.
. To more closely link the value of equity-based
compensation given to CoorsTek's employees to
CoorsTek's business results.
What do I have to do to Nothing; no shareholder vote or other action is
participate in the spin- required. You do not need to surrender any shares
off? of ACX stock to receive shares of CoorsTek common
stock in the spin-off.
What will I receive in the ACX will distribute one share of CoorsTek common
spin-off? stock for every four shares of ACX common stock
owned as of the record date. You will continue to
own your ACX stock.
How will ACX distribute If you own ACX stock on the record date, Norwest
CoorsTek's common stock to Bank Minnesota, NA will mail you a certificate
me? representing your CoorsTek common stock shortly
after December 31, 1999. Following the spin-off
you may retain shares of CoorsTek, sell them or
transfer them to a brokerage or other account.
You will not receive new ACX stock certificates.
When is the record date? The record date is December , 1999.
What if I hold my shares of If you hold your shares of ACX stock through your
ACX stock through my stockbroker, bank or other nominee, you are
stockbroker, bank or other probably not a shareholder of record and your
nominee? receipt of CoorsTek common stock depends on your
arrangements with the nominee that holds your
shares of ACX stock for you. We anticipate that
stockbrokers and banks generally will credit
their customers' accounts with CoorsTek common
stock on or about January 3, 2000, but you should
check with your stockbroker, bank or other
nominee. Following the spin-off you may instruct
your stockbroker, bank or other nominee to
transfer your shares of CoorsTek common stock
into your own name.
What if I hold fractional If you own fractional shares, you will receive
shares of CoorsTek's common cash instead of your fractional share of CoorsTek
stock after the spin-off? common stock. Fractional shares to be cashed out
will be aggregated and sold through a
2
<PAGE>
broker-dealer in the open market by the
distribution agent which will distribute to you
your portion of the cash proceeds promptly after
the spin-off. No interest will be paid on any
cash distributed in lieu of fractional shares.
What is CoorsTek's dividend CoorsTek currently anticipates that no cash
policy? dividends will be paid on its common stock in the
foreseeable future in order to conserve cash for
the repayment of debt, future acquisitions and
capital expenditures. We expect that CoorsTek's
Board will periodically reevaluate this dividend
policy, taking into account CoorsTek's operating
results, capital needs, debt restrictions and
other factors.
How will CoorsTek's common We have applied to have CoorsTek common stock
stock trade? traded in the Nasdaq National Market under the
symbol "CRTK" and expect that regular trading
will begin on January 4, 2000. A temporary form
of interim trading called "when-issued trading"
may occur for CoorsTek common stock on or before
December , 1999 and continue through December
31, 1999. A when-issued listing can be identified
by the letter "v" next to the CoorsTek common
stock symbol in the Nasdaq National Market. If
when-issued trading develops, you may buy and
sell CoorsTek common stock in advance of the
spin-off on a when-issued basis. When-issued
trading occurs in order to develop an orderly
market and trading price for CoorsTek common
stock after the spin-off. See page 13.
ACX stock will continue to trade on a regular
basis and as a result will trade on an ex-
dividend basis, reflecting an assumed post-spin-
off value for ACX stock. ACX stock ex-dividend
trading, if available, could last from on or
before December , 1999 through December 31,
1999. If this occurs, an additional listing for
ACX stock, followed by the "ex" letters, will
appear on the New York Stock Exchange.
Is the spin-off taxable for
U.S. tax purposes? No; the Internal Revenue Service has ruled that
the spin-off will be tax-free for U.S. tax
purposes, except for taxes on any cash received
instead of a fractional share. To review tax
consequences in detail, see pages 8 and 14.
What are the risks involved The separation of CoorsTek from ACX presents
in owning CoorsTek common certain risks. For example, CoorsTek has no prior
stock? history of operating as an independent company.
Certain other risks are associated with owning
CoorsTek common stock due to the nature of its
business and the markets in which it competes.
You are encouraged to carefully consider these
risks, which are described in greater detail on
pages 8 through 11.
Will ACX and CoorsTek be ACX will not own any CoorsTek common stock after
related in any way after the spin-off, and CoorsTek will operate as an
the spin-off? independent, publicly
3
<PAGE>
held company. None of the directors or officers
of CoorsTek will remain directors or officers of
ACX, although Joseph Coors, Director Emeritus of
ACX, and William K. Coors, director of ACX, will
serve as Directors Emeriti of CoorsTek. As
Directors Emeriti Messrs. Coors will provide
advice and consulting services to the Board but
shall not constitute "directors" and shall not
have voting rights. ACX will enter into
agreements with CoorsTek to allocate
responsibility for liabilities (including tax,
environmental and other contingent liabilities
associated with their respective businesses or
otherwise to be assumed by CoorsTek or ACX), to
separate their businesses, and to provide for the
sharing of certain services on a transitional
basis. These agreements are described in greater
detail on pages 16 and 17.
What We Have Already Accomplished to Prepare for the Spin-Off
Board Appointments ACX has elected five directors to CoorsTek's
Board. See page 34.
Senior Management The CoorsTek Board has voted to retain Joseph
Appointments Coors, Jr. as CoorsTek's Chairman and Chief
Executive Officer, John K. Coors as President,
and Derek C. Johnson, who was newly elected to
the office of Executive Vice President. They will
be joined by newly elected officers Joseph G.
Warren, Jr., Chief Financial Officer, Katherine
A. Resler, General Counsel and Secretary, and
Larry D. Murphy, Executive Vice President. See
pages 37 to 40.
New Debt Financing In contemplation of the spin-off, CoorsTek has
negotiated $270 million in debt financing.
CoorsTek will pay $200 million of the net
proceeds to ACX to repay intercompany obligations
and as a special dividend.
4
<PAGE>
Information Regarding the Spin-off and CoorsTek
Before the spin-off, you should direct inquiries relating to the spin-off
to:
Norwest Bank Minnesota, NA ACX Technologies, Inc.
Shareowner Services Investor Relations
Post Office Box 64854 16000 Table Mountain Parkway
St. Paul, Minnesota 55164-0854 Golden, Colorado 80403
(651) 450-4064 (303) 271-7005
(800) 468-9716
After the spin-off, you should direct inquiries relating to an investment
in CoorsTek common stock to:
CoorsTek, Inc.
Investor Relations
16000 Table Mountain Parkway
Golden, Colorado 80403
(303) 277-4000
After the spin-off, the transfer agent and registrar for CoorsTek's
common stock will be:
Norwest Bank Minnesota, NA
Shareowner Services
Post Office Box 64854
St. Paul, Minnesota 55164-0854
(651) 450-4064
(800) 468-9716
5
<PAGE>
Summary Financial And Operating Data
The following tables present: 1) summary historical operating data for
each of the last five fiscal years ended December 31, 1998 and for the nine-
month periods ended September 30, 1999 and 1998, 2) summary balance sheet data
as of December 31 for the last five fiscal years and as of September 30, 1999
and 1998 and 3) pro forma selected financial data for the nine months ended
September 30, 1999, and the year ended December 31, 1998, as well as pro forma
balance sheet data as of September 30, 1999. The information as of and for the
nine months ended September 30, 1999 and 1998 and as of and for the years ended
December 31, 1994 and 1995 is derived from our unaudited consolidated financial
statements.
Before the spin-off, we operated as a wholly owned subsidiary of ACX.
Because the data reflect periods during which we did not operate as an
independent company, the historical data may not reflect the results of
operations or the financial condition that would have resulted if we had
operated as a separate, independent company during the periods shown. We have
presented unaudited pro forma financial information as of and for the nine
months ended September 30, 1999 and the year ended December 31, 1998 to give a
better picture of what this information might have looked like if CoorsTek had
been operated independently during this period. The data may not necessarily be
indicative of our future results of operations or financial condition.
The data presented in the table below are derived from our historical and
pro forma consolidated financial statements and the notes to those financial
statements included in this Information Statement. You should read these
sections for a further explanation of the data summarized here.
Unaudited pro forma and historical earnings per share data are presented
on pages 19, 21 and F-3, respectively.
Historical Selected Financial Data:
<TABLE>
<CAPTION>
Nine Months
Ended September
30, Year Ended December 31,
------------------ -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income
Statement Data:
Net sales.............. $266,936 $230,930 $296,614 $304,824 $276,352 $270,877 $231,288
Gross profit........... 66,481 57,099 73,708 85,003 76,132 80,166 63,570
Selling, general and
administrative
expenses.............. 35,957 28,528 37,758 41,754 35,928 36,613 34,541
Asset impairment
charges............... -- 11,814 11,814 -- -- 438 --
Operating income....... 30,524 16,757 24,136 43,249 40,204 43,115 29,029
Interest and other
income (expense)-net.. (3,631) (2,894) (3,524) (68) (6) 393 (354)
Income tax expense..... 10,101 5,117 7,682 16,192 14,996 14,545 11,304
Net income............. 16,792 8,746 12,930 26,989 25,202 28,963 17,371
<CAPTION>
September 30, December 31,
------------------ -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Total Assets........... $320,609 $279,231 $278,359 $262,687 $216,635 $189,191 $165,804
Working capital........ 73,607 81,666 89,295 71,649 62,480 47,567 42,337
Long-term debt payable
to Parent............. 50,000 50,000 50,000 -- -- -- --
Total shareholder's
equity................ 184,087 161,263 165,825 203,155 163,463 130,381 115,886
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, December 31,
1999 1998
Pro Forma Selected Financial Data: ------------- ------------
(In thousands)
<S> <C> <C>
Consolidated Income Statement Data:
Net sales........................................... $266,936 $296,614
Gross profit........................................ 66,481 73,708
Selling, general and administrative expenses........ 35,957 37,758
Asset impairment charges............................ -- 11,814
Operating income.................................... 30,524 24,136
Interest and other income (expense)-net............. (14,223) (15,674)
Income tax expense.................................. 6,129 3,150
Net income.......................................... 10,172 5,312
<CAPTION>
September 30,
1999
-------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Total assets........................................ $325,609
Working capital..................................... 83,043
Long term debt...................................... 205,000
Total shareholders' equity.......................... 43,523
</TABLE>
7
<PAGE>
Special Considerations
We will in our increased expenses have no operating history as an independent
company, which could impair our profitability
We do not have an operating history as an independent company. Our
business has historically relied on ACX for various financial, managerial and
administrative services and has been able to benefit from the earnings, assets
and cash flows of ACX's other businesses. ACX will not be obligated to provide
assistance or services to CoorsTek after the spin-off, except as described in
the Distribution Agreement, the Transition Services Agreement and the other
agreements entered into by the companies in connection with the spin-off. See
"Relationship Between ACX and CoorsTek."
Following the spin-off, we will incur the costs and expenses associated
with the management of a public company and will incur interest expense
significantly in excess of that incurred historically. While we have been
profitable as part of ACX, there can be no assurance that, as a stand-alone
company, our future profits will be comparable to historical combined results
before the spin-off. The spin-off may result in some temporary disruption to
the business operation, as well as to the organization and personnel structure,
of CoorsTek which may have an adverse effect on our profitability.
ACX and you would have federal income tax liabilities if the tax ruling were
revoked
The IRS has issued a Tax Ruling to the effect that, among other things,
the spin-off will be tax free to ACX and ACX shareholders under Section 355 of
the Code except to the extent that cash is received in lieu of fractional
shares. The Tax Ruling, while generally binding upon the IRS, is based upon
factual representations and assumptions and commitments on behalf of CoorsTek
with respect to future operations made in the ruling request. If those factual
representations and assumptions were materially incomplete or untrue, or the
facts upon which the Tax Ruling is based are materially different from the
facts at the time of the spin-off, or if CoorsTek does not meet certain
commitments made, the IRS could modify or revoke the Tax Ruling retroactively.
If the spin-off failed to qualify under Section 355 of the Code,
corporate tax would be payable by the consolidated group of which ACX is the
common parent based upon the difference between the aggregate fair market value
of the CoorsTek business and the adjusted tax bases of such business to ACX
prior to the spin-off. The corporate level tax would be payable by ACX. We have
agreed to indemnify ACX for this and other tax liabilities if they result from
certain actions taken by CoorsTek, or from the spin-off. See "Relationship
between ACX and CoorsTek--Tax Sharing Agreement." In addition, under the Code's
consolidated return regulations, each member of ACX's consolidated group
(including CoorsTek) is severally liable for these tax liabilities. If CoorsTek
is required to indemnify ACX for these liabilities or otherwise is found liable
to the IRS for these liabilities, the resulting obligation could exceed $50
million and could materially adversely affect our financial condition.
Additionally, if the spin-off were not to qualify under Section 355 of
the Code, then each owner of ACX common stock who receives shares of CoorsTek
common stock in the spin-off would be treated as if such stockholder received a
taxable distribution in an amount equal to the fair market value of CoorsTek
common stock received on the date it is received.
Our cash flow requirements are significantly higher than our historical needs
because we have increased our leverage and have replaced the financing ACX has
historically provided
In connection with the spin-off, we have borrowed funds to settle
intercompany obligations and to pay ACX a dividend to reimburse ACX for certain
funds previously provided for acquisitions. Following the spin-off we will no
longer be under ACX's cash management policies. We believe that our cash flow
from operations, together with availability under the credit facility referred
to below in
8
<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Resources and Liquidity" and "Description of Certain
Indebtedness," will be sufficient to satisfy our working capital, capital
expenditure and debt service requirements and funding needed for acquisitions
in the foreseeable future. However, we cannot assure you that we will have
sufficient cash flow to satisfy these obligations and insufficient cash flow
could materially adversely impair our financial condition.
CoorsTek's increased debt will mean that we will need to generate a
minimum level of cash flow from operations in order to meet required repayments
of interest and principal. In addition, the credit agreements impose certain
restrictions on the conduct of our business following the spin-off.
We have agreed to restrictions and adopted policies that could have possible
anti-takeover effects
We have agreed to certain restrictions on our future actions to assure
that the spin-off will be tax-free, including restrictions with respect to an
acquisition of shares of CoorsTek common stock. If we fail to abide by these
restrictions, and as a result the spin-off fails to qualify as a tax-free
reorganization, CoorsTek will be obligated to indemnify ACX for any resulting
tax liability. The potential tax liability that could arise from an acquisition
of shares of CoorsTek common stock, together with our related indemnification
obligations, could have the effect of delaying, deferring or preventing a
change of control of CoorsTek. See "Relationship between ACX and CoorsTek--Tax
Sharing Agreement."
Several provisions of CoorsTek's Certificate of Incorporation and Bylaws
could deter or delay unsolicited changes in control of CoorsTek. These include
provisions creating a classified Board of Directors and limiting the
stockholders' powers to remove directors or take action by written consent
instead of at a stockholders' meeting. Our Board of Directors has the
authority, without further action by the stockholders, to fix the rights and
preferences of and issue preferred stock. CoorsTek has also adopted a
stockholders rights plan that could make an unsolicited takeover offer
uneconomical without prior Board approval. These provisions and others that
could be adopted in the future could deter unsolicited takeovers or delay or
prevent changes in control or management of CoorsTek, including transactions in
which stockholders might otherwise receive a premium for their shares over then
current market prices. These provisions may limit the ability of stockholders
to approve transactions that they may deem to be in their best interests. See
"Anti-Takeover Effects of CoorsTek's Certificate and Bylaws" and "Description
of Capital Stock."
If we are unable to compete successfully our revenues may be adversely affected
Competition in the advanced ceramics industry is vigorous and comes
primarily from overseas. Principal competitive factors in the worldwide market
include price, quality and delivery schedules. Our products also face
competition from metals and other materials based primarily on price and weight
of metals and other materials. We believe we will be able to compete
successfully in this environment although we cannot guarantee this.
We also face competition in our precision metal machining business and in
the fluoropolymer material business from a multitude of relatively small
domestic companies. We believe there is an opportunity for us, as a larger
company, to compete successfully in this market but we cannot guarantee our
success. Our inability to compete successfully would materially adversely
affect our revenues and financial condition.
Our international sales and transactions in local currencies expose us to
currency fluctuation risks
CoorsTek is subject to risks associated with selling products in foreign
countries, primarily risks of fluctuating currency exchange rates.
International sales, primarily in Western European and Far East markets,
constituted approximately 25% of our sales in 1998. To limit our risk of
currency fluctuations,
9
<PAGE>
we selectively hedge the U.S. dollar against foreign currencies used in these
markets to mitigate the effects of adverse currency fluctuations when sales are
made in the foreign currency. The strength of the U.S. dollar relative to the
currency of our customers or competitors also may have an impact on our profit
margins or sales to international customers. We cannot assure you that we will
be able to manage these risks successfully or that they will not have a
material adverse effect on our business, financial condition or results of
operations.
Our profitability is sensitive to economic conditions affecting end users of
our products
Since we sell our products primarily to industrial manufacturers for
incorporation into their products or processes, our business is sensitive to
changes in economic conditions that affect the various industries in which the
end users of our products operate such as the semiconductor, automotive, oil
and gas and pulp and paper industries. Sales fluctuations in an industry that
incorporates CoorsTek's products into its products could directly and
negatively affect our sales to that market. We cannot assure you that these
risks will not have a material adverse effect on our business, financial
condition or results of operations.
Our profitability and growth are subject to risks related to a significant
customer
We anticipate that approximately 35% of our revenues in 1999 will come
from one customer, Applied Materials, Inc., a semiconductor equipment
manufacturer. Our dependence on this customer may increase as we further
develop our strategic supplier relationship. Any disruption in this
relationship, including a downturn in Applied Materials' business in the
industry(ies) in which it operates, would have a material adverse effect on our
sales.
Our need to comply with extensive governmental regulation could increase our
costs
We are subject to numerous federal, state and local environmental laws
and regulations of the U.S. and other countries in which we have operations.
Our operations are also governed by laws and regulations relating to worker
health and workplace safety. Based on ACX's experience to date, we believe that
liability for environmental conditions and the future cost of compliance with
existing environmental or occupational health and safety laws and regulations
will not have a material adverse effect on our businesses or financial
condition. However, the impact of any future changes in laws and regulations
cannot be predicted and could increase our operating costs and adversely affect
our productivity. See "Business--Environmental Matters."
We are parties to litigation that if adversely determined could impair our
financial condition
In the ordinary course of business, we are subject to claims, lawsuits
and contingent liabilities including claims by current and former employees.
Although CoorsTek is defending against these cases, we cannot assure you that
the ultimate outcome of any or all of these cases will not have a material
adverse effect on our business, financial condition or results of operations.
See "Business--Legal Proceedings."
Factors that may affect future results
Certain statements in this document constitute "forward-looking
statements." These forward-looking statements involve known or unknown risks,
uncertainties and other factors that may cause the actual results, performance,
or achievements of CoorsTek to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. Specifically, 1) capturing new customers, successfully increasing
sales to existing unaffiliated customers and the success of CoorsTek's future
years' revenue growth is dependent upon numerous factors, including the
continued strength of the U.S. and key foreign economies, the relative position
of the U.S.
10
<PAGE>
dollar vis-a-vis key European and Asian currencies, the actions of competitors
and customers, CoorsTek's ability to execute its marketing plans and the
ability of CoorsTek to maintain or increase sales to existing customers and
capture new business; 2) CoorsTek's overall financial results and financial
condition is dependent upon its customers' and suppliers' ability to execute
their Year 2000 readiness plans; and 3) CoorsTek's ability to increase revenues
and operating income is dependent upon its ability to continue its track record
for new product innovation, general economic conditions such as the position of
the U.S. dollar vis-a-vis other currencies, the availability and pricing of
substitute materials such as metals and plastics, the performance of key
industry segments such as semiconductor, automotive, and electronics and other
factors.
11
<PAGE>
THE SPIN-OFF
Reasons for the Spin-Off
The ACX Board of Directors has determined that the distribution of 100%
of the outstanding common stock of CoorsTek to owners of the common stock of
ACX will enable the management of each of Graphic Packaging and CoorsTek to
operate and develop these two core businesses more effectively. The ACX Board
of Directors has concluded that the spin-off is in the best interests of ACX,
CoorsTek and ACX's shareholders because it believes that:
. separating CoorsTek from the packaging business of ACX will increase
the borrowing capacity of CoorsTek by providing it with more
efficient access to the debt markets;
. having two separate public companies will enable financial markets to
evaluate each company more effectively, thereby enhancing shareholder
value over the long term for both companies and making the stock of
each more attractive as currency for future acquisitions;
. the spin-off will provide CoorsTek's management with increased
strategic flexibility and decision-making power to realize
significant growth opportunities; and
. having a separate management and ownership structure for CoorsTek
will provide equity based compensation that is more closely related
to the business in which its employees work.
Manner of Effecting the Spin-Off
ACX will effect the spin-off as of the close of business on December 31,
1999 by distributing all issued and outstanding shares of CoorsTek common stock
to holders of record of ACX common stock. The spin-off will be made on the
basis of one share of CoorsTek common stock for every four shares of ACX common
stock (the "Distribution Ratio") held as of the close of business on
December , 1999. If you receive fractional shares as a result of the
Distribution Ratio, you will receive cash instead of fractional shares of
CoorsTek common stock. The distribution agent will aggregate all of the
fractional shares, sell them through a broker-dealer on the open market and
distribute to you your portion of the cash proceeds shortly after the spin-off.
No interest will be paid on any cash distributed in lieu of fractional shares.
Norwest Bank Minnesota, NA, as distribution agent, will mail certificates
representing the number of shares of CoorsTek common stock received by that
stockholder in the spin-off. Following the spin-off, stockholders may transfer
the shares to a brokerage account or may retain, transfer or sell the shares.
No owner of ACX common stock will be required to pay any cash or other
consideration for shares of CoorsTek received in the spin-off or to surrender
or exchange any shares of ACX common stock to receive shares of CoorsTek. The
actual total number of shares of CoorsTek common stock to be distributed will
depend on the number of shares of ACX common stock outstanding on December ,
1999. The shares of CoorsTek common stock distributed in the spin-off will be
fully paid and nonassessable and will not be entitled to preemptive rights. See
"Description of Capital Stock."
Distribution Agreement
The spin-off will be made pursuant to the Distribution Agreement between
ACX and CoorsTek. It establishes the procedures to effect the spin-off and
provides for the distribution of the CoorsTek common stock to the shareholders
of ACX, the allocation to CoorsTek of certain assets and liabilities of ACX and
the transfer to and assumption by CoorsTek of those assets and liabilities.
The Distribution Agreement also contains agreements related to debt and
financing arrangements. CoorsTek has agreed that, concurrently with the spin-
off, it will repay all outstanding
12
<PAGE>
intercompany debt owed by CoorsTek to ACX as of the Distribution Date. CoorsTek
will repay intercompany debt from the net proceeds of the new credit
arrangements and also pay a special dividend to ACX. The total amount of the
repayment and the special dividend together will be $200 million. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Financial Resources and Liquidity."
The Distribution Agreement provides for the continuation of existing
insurance coverage under ACX insurance policies for CoorsTek until such
coverage expires by its terms in March 2000 (for property insurance) and May
2000 (for casualty insurance) and for the allocation between ACX and CoorsTek
of costs and liabilities associated with the insurance. Under the Distribution
Agreement, ACX and CoorsTek have each agreed to retain, and to make available
to the other, books and records and related assistance for audit, accounting,
claims defense, legal, insurance, tax, disclosure, benefit administration and
other business purposes. Each has also agreed to pay its own costs related to
the spin-off and CoorsTek has agreed to indemnify ACX if the spin-off is
taxable or if ACX incurs certain liabilities. Under the Distribution Agreement,
the companies will agree to enter into one or more joint defense agreements as
necessary to provide for the management of litigation in which both ACX or its
subsidiaries and CoorsTek or its subsidiaries are parties and the allocation of
related costs, liabilities and recoveries and an environmental responsibility
agreement allocating responsibility for environmental liabilities. Also, the
Distribution Agreement provides that the ACX Board of Directors may determine
not to proceed with the spin-off at any time prior to the Distribution Date,
although such action is not anticipated.
The Distribution Agreement provides for execution and delivery of the
Agreements described in "Relationship between ACX and CoorsTek."
Results of Spin-Off
After the spin-off, CoorsTek will be a separate public company. The
number and identity of stockholders of CoorsTek immediately after the spin-off
will be approximately the same as the number and identity of shareholders of
ACX on December , 1999. Immediately after the spin-off, CoorsTek expects to
have approximately 2,493 holders of record of CoorsTek common stock and
approximately 7,134,880 shares of CoorsTek common stock outstanding, based on
the number of record shareholders and issued and outstanding shares of ACX
common stock as of the close of business on November 26, 1999 and the
Distribution Ratio. The actual number of shares of CoorsTek common stock to be
distributed will be determined as of December , 1999 and could be affected by,
among other things, the exercise of vested ACX stock options and exercisable
warrants, which as of September 30, 1999 could have been exercised for
approximately one million shares of ACX common stock. The spin-off will not
affect the number of outstanding shares of ACX common stock or the rights of
ACX stockholders.
Other Consequences
As of September 30, 1999, there were outstanding vested and unvested
options and exercisable and non-exercisable warrants to purchase approximately
two million shares of ACX common stock held by persons who will be employed by
CoorsTek after the spin-off. CoorsTek will grant substitute options or warrants
for these outstanding ACX options. The exercise price for each substituted
option granted by CoorsTek will be based on the respective relative fair market
values of the ACX common stock and the CoorsTek common stock prices pre and
post spin. The number of shares will be determined by dividing the original
exercise price of the ACX option by the exercise price of the substitute
option, as determined above, and then multiplying the result by the original
number of option shares. Substitute options will have the same vesting status
and remaining exercise period as the correspondent ACX option.
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<PAGE>
Similarly, the number of shares and the exercise price of the outstanding
ACX options held by option holders who continue to be employed by ACX or one of
its remaining subsidiaries after the spin-off will be adjusted based on the
relative fair market values of the ACX common stock before and after the spin-
off.
Tax Consequences of the Spin-Off
The following is a description of the material U.S. tax consequences
associated with the spin-off and is not intended to address every individual
stockholder's individual tax consequences. In particular, this summary
description does not cover state, local, municipal, provincial or non-U.S. tax
consequences. Stockholders are strongly encouraged to consult their own tax
advisors concerning the tax consequences of the spin-off applicable to them. In
addition, stockholders residing outside of the U.S. are encouraged to seek tax
advice regarding tax implications of the spin-off.
ACX has received a ruling (the "Tax Ruling") from the Internal Revenue
Service (the "IRS"). The Tax Ruling was issued based upon the accuracy of
factual representations and assumptions and commitments as to CoorsTek's future
operations made by ACX and CoorsTek in the ruling request and states, among
other things, that the spin-off will qualify as a tax-free spin-off under
Section 355 of the U.S. Internal Revenue Code of 1986, as amended, for federal
income tax purposes. No gain or loss will be recognized by ACX shareholders as
a result of their receipt of CoorsTek common stock in the spin-off, except for
any cash received in lieu of fractional shares. See "Manner of Effecting the
Spin-Off." However, if the factual basis or assumptions upon which the ruling
was granted prove to be incorrect, or if CoorsTek does not meet certain
commitments made in the tax ruling request, there could be tax consequences.
See "Special Considerations--You could have federal income tax liabilities."
In connection with the spin-off, a shareholder's tax basis in ACX common
stock will be apportioned between ACX common stock and CoorsTek common stock
received in the spin-off according to the relative fair market values of the
shares at the time of the spin-off. In January 2000, ACX will send a letter to
shareholders that will explain the way to allocate tax basis between ACX common
stock and CoorsTek common stock distributed in the spin-off. The holding period
of the CoorsTek common stock received in the spin-off will include the holding
period of the ACX common stock with respect to which the CoorsTek common stock
will be distributed, provided the ACX common stock is held as a capital asset
on December 31, 1999.
Listing and Trading of CoorsTek Common Stock
There currently is no public market for CoorsTek's common stock. We have
applied to include the CoorsTek common stock in the Nasdaq National Market, and
we expect that a when-issued trading market for CoorsTek common stock will
develop on or before December , 1999.
The term "when-issued" means that shares can be traded prior to the time
certificates are actually available or issued. Prices at which the CoorsTek
common stock may trade on a when-issued basis cannot be predicted. Until the
CoorsTek common stock is fully distributed and an orderly market develops, the
prices at which trading in the stock occurs may fluctuate significantly and may
be lower or higher than the price that would be expected for a fully-
distributed issue.
The prices at which the CoorsTek common stock will trade following the
spin-off will be determined by the marketplace and may be influenced by many
factors, including the depth and liquidity of the market for CoorsTek common
stock, investor perceptions of CoorsTek, its business and prospects, results of
operations, and general economic and market conditions.
Prior to the spin-off, ACX common stock will continue to trade on a
regular basis and as a result will trade on an ex-dividend basis, reflecting an
assumed post-spin-off value for ACX common stock. ACX common stock ex-dividend
trading, if available, could last from December , 1999 through December 31,
1999. If ACX common stock ex-dividend trading is not available, the New York
Stock
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Exchange will require that shares of ACX common stock that are sold or
purchased during the period beginning December , 1999 and ending on December
31, 1999 be accompanied by due bills representing the CoorsTek common stock
distributable with respect to those shares and that during such period neither
the ACX common stock nor the due bills may be purchased or sold separately.
The Transfer Agent and Registrar for the CoorsTek common stock will be
Norwest Bank Minnesota, NA, Shareowner Services, Post Office Box 64854, St.
Paul, Minnesota 55164-0854. As of November 26, 1999, there were approximately
2,493 record holders of ACX common stock, which approximates the number of
prospective record holders of CoorsTek common stock immediately after the spin-
off.
CoorsTek common stock distributed in the spin-off generally will be
freely transferable under the Securities Act of 1933, as amended (the
"Securities Act"), except for securities received by persons who may be deemed
to be affiliates of CoorsTek pursuant to Rule 405 under the Securities Act.
Persons who may be deemed to be affiliates of CoorsTek after the spin-off
generally include individuals or entities that control, are controlled by, or
are under common control with CoorsTek, including directors of CoorsTek.
Persons who are affiliates of CoorsTek will be permitted to sell their shares
of CoorsTek common stock received in the spin-off pursuant to Rule 144 under
the Securities Act, subject to the conditions set forth in Rule 144, other than
its holding period requirements.
Conditions; Termination
It is expected that the spin-off will occur on December 31, 1999,
provided that certain conditions set forth in the Distribution Agreement shall
have been satisfied or waived by the ACX Board of Directors. These include,
among other customary conditions, the following:
. The Tax Ruling shall continue to be in effect.
. All material regulatory approvals necessary to consummate the spin-
off shall have been received and be in full force and effect.
. Financing in the amount of at least $205 million shall have been
obtained.
. The CoorsTek common stock shall have been accepted for inclusion in
the Nasdaq National Market, subject to official notice of inclusion.
. The CoorsTek Board of Directors, as named under "Management--
Directors," shall have been elected, and the CoorsTek Certificate of
Incorporation and Bylaws shall be in effect.
Satisfaction of these conditions will not create any obligation on the part of
ACX, CoorsTek or any other person to effect or seek to effect the spin-off or
alter the consequences of any termination of the Distribution Agreement from
those set forth in the Distribution Agreement. See "Arrangements Between ACX
and CoorsTek Relating to the Spin-Off--Distribution Agreement."
Reasons for Furnishing this Document
This document is being furnished by ACX solely to provide information to
ACX shareholders who will receive CoorsTek common stock in the spin-off. It is
not, and is not to be construed as, an inducement or encouragement to buy or
sell any securities of ACX or CoorsTek. We believe that the information
contained in this document is accurate as of the date on the cover. Changes may
occur after that date, and neither ACX nor CoorsTek will update the information
except as is required in the normal course of their public disclosure
practices.
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Relationship Between ACX and CoorsTek
Prior to the spin-off, CoorsTek will continue to be a wholly-owned
subsidiary of ACX. In the past, ACX and CoorsTek have engaged in various
transactions with each other. These relationships, which include financial
support by ACX of CoorsTek, will cease in their current forms at the time of
the spin-off. After the spin-off, ACX will have no ownership interest in
CoorsTek and will no longer provide managerial or financial support to it. ACX
and CoorsTek have entered or will enter into contracts that will govern certain
relationships between them following the Distribution, including the
Distribution Agreement and the agreements described below. CoorsTek and ACX
believe that these agreements are at fair market value and are on terms
comparable to those that would have been reached in arm's-length negotiations
had the parties been unaffiliated at the time of the negotiations.
The Distribution Agreement and the other agreements described below are
included as exhibits to CoorsTek's registration statement on Form 10 of which
this Information Statement is a part. The Agreements will be effective on or
before the Distribution Date. See "The Spin-Off--Distribution Agreement."
Tax Sharing Agreement
ACX, CoorsTek and their respective subsidiaries are parties to a Tax
Sharing Agreement that defines the parties' rights and obligations with respect
to deficiencies and refunds of federal, state and other taxes relating to the
CoorsTek business for tax years prior to the spin-off and with respect to
certain tax attributes of CoorsTek after the spin-off. In general, ACX is
responsible for filing consolidated federal and combined or consolidated state
tax returns and paying the associated taxes for periods through the
Distribution Date. CoorsTek will reimburse ACX for the portion of such taxes
relating to the CoorsTek business. CoorsTek is responsible for filing returns
and paying taxes related to the CoorsTek business for periods beginning on or
after the Distribution Date. ACX and CoorsTek have agreed to cooperate with
each other and to share information in preparing such tax returns and in
dealing with other tax matters. ACX and CoorsTek will be responsible for their
own taxes other than those described above.
The Tax Sharing Agreement is designed to preserve the status of the spin-
off as a tax-free distribution. CoorsTek has agreed that it will refrain from
engaging in certain transactions during the two-year period following the spin-
off unless it first provides ACX with a ruling from the Internal Revenue
Service or an opinion of tax counsel acceptable to ACX that the transaction
will not adversely affect the tax-free nature of the spin-off. The transactions
subject to these restrictions, which are not expected to materially affect
CoorsTek's operating flexibility, consist of liquidations, mergers or
consolidations of CoorsTek, redemptions by CoorsTek of certain amounts of its
stock, sales of assets out of the ordinary course of business, discontinuance
of certain businesses and certain issuances of CoorsTek's common stock. In
addition, CoorsTek has agreed to indemnify ACX against any tax liability or
other expense it may incur if the spin-off is determined to be taxable as a
result of CoorsTek's breach of any covenant or representation contained in the
Tax Sharing Agreement or CoorsTek's action in effecting such transactions. By
its terms, the Tax Sharing Agreement terminates when the statutes of
limitations under applicable tax laws expire.
Transitional Services and Other Agreements
In the past, ACX and CoorsTek have provided services for each other such
as insurance administration, joint purchasing and telecommunications services.
To facilitate an orderly and mutually beneficial transition to the status of
two separate public companies, certain of these services will continue to be
provided by contract on a transitional basis for up to one year following the
Distribution
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Date. ACX and CoorsTek and subsidiaries of ACX and CoorsTek, as applicable,
will enter into one or more transitional services agreements to provide
services deemed necessary or desirable by the parties. The agreements referred
to above, individually or collectively, are not material to the business of
CoorsTek.
ACX and CoorsTek have agreed to enter or cause their respective
subsidiaries to enter into a joint defense agreement with respect to any
litigation or matters in which both ACX (or one or more of its subsidiaries)
and CoorsTek (or one or more of its subsidiaries) are involved and have entered
into an Environmental Responsibility Agreement allocating responsibility for
environmental liabilities. ACX, CoorsTek and their respective subsidiaries have
agreed to give notice and to cooperate with respect to any such environmental
matter and have agreed to indemnify one another for their respective
environmental practices under the environmental responsibility agreement. Any
joint defense agreement would provide for management of the proceeding and
allocation of related costs, liabilities and recoveries. The stated terms of
any joint defense agreement that may be entered into would typically be tied to
the duration of the litigation that is the subject matter of the agreement.
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CAPITALIZATION
The following table sets forth the capitalization of CoorsTek as of
September 30, 1999 (actual) and after giving pro forma effect to the spin-off
and related transactions. On January 4, 2000, CoorsTek will receive
approximately $200 million in net proceeds from the incurrence of $270 million
in debt. CoorsTek will use the net proceeds to retire the notes and advances
payable to ACX and to pay ACX a special dividend. As of September 30, 1999,
CoorsTek had notes and advances payable to ACX of approximately $59 million,
principally as a result of acquisitions and internal allocation of debt. This
amount could increase or decrease before repayment based upon normal interim
operating cash receipts and payments and acquisition funding requirements.
<TABLE>
<CAPTION>
As of
September 30, 1999
-----------------------
Actual Pro forma (1)
-------- -------------
(In Thousands)
(Unaudited)
<S> <C> <C>
Long-term debt(2)...................................... $ -- $205,000
Notes and advances payable to ACX(3)................... 59,436 --
Shareholder's equity:
Common stock, 200,000 shares authorized, $50 par
value per share (actual), 100,000,000 shares
authorized, $.01 par value per share (pro forma);
200,000 shares issued and outstanding (actual),
7,120,614 shares issued and outstanding (pro forma)
(4)(5).............................................. 10,000 71
Paid-in capital(3)(4).................................. 75,060 42,145
Paid-in capital-warrants............................... 1,600 1,600
Retained earnings(3)................................... 97,720 --
Accumulated other comprehensive income................. (293) (293)
-------- --------
Total shareholder's equity......................... 184,087 43,523
-------- --------
Total Capitalization................................... $243,523 $248,523
======== ========
</TABLE>
- --------
(1) See the Pro Forma Consolidated Financial Information and notes thereto
included elsewhere herein.
(2) See Note 2(a) to the Pro Forma Consolidated Financial Information.
(3) See Note 2(c) to the Pro Forma Consolidated Financial Information.
(4) See Note 2(e) to the Pro Forma Consolidated Financial Information.
(5) The number of shares outstanding after giving effect to the spin-off was
determined based upon the number of shares of ACX common stock outstanding
at September 30,1999 and reflects the assumed distribution of one share of
CoorsTek common stock for four shares of ACX common stock. The actual
number of shares distributed will depend on the number of shares of ACX
common stock outstanding on December , 1999.
DIVIDEND POLICY
CoorsTek currently anticipates that no cash dividends, other than the
special dividend to ACX referenced above in "Capitalization," will be paid on
its common stock in the foreseeable future in order to conserve cash for the
repayment of debt, future acquisitions and capital expenditures. The decision
as to whether to declare any future dividend and the amount thereof, if any,
will be in the sole discretion of CoorsTek's Board of Directors. Any additional
future payment of dividends will depend upon the financial condition, capital
requirements, debt covenants and restrictions, and earnings of CoorsTek, and
such other factors that the CoorsTek Board of Directors may deem relevant.
18
<PAGE>
Pro Forma Consolidated Financial Information
(Unaudited)
The following unaudited Pro Forma Consolidated Statements of Income for
the nine months ended September 30, 1999 and the year ended December 31, 1998
present the results of operations and consolidated financial position of
CoorsTek assuming that the transactions contemplated by the spin-off had been
completed as of the beginning of the year presented. The unaudited Pro Forma
Consolidated Balance sheet as of September 30, 1999 assumes the transactions
contemplated by the proposed spin-off occurred on that date. In the opinion of
management, they include all material adjustments necessary to reflect, on a
pro forma basis, the impact of transactions contemplated by the spin-off on
CoorsTek's historical financial information. The adjustments are described in
the Notes to the Pro Forma Consolidated Financial Information (Unaudited) and
are set forth in the "Pro Forma Adjustments" columns.
The unaudited Pro Forma Consolidated Financial Information of CoorsTek
should be read in conjunction with the historical financial statements of
CoorsTek beginning on page F-1. We have presented unaudited pro forma financial
information as of and for the nine months ended September 30, 1999 and for the
year ended December 31, 1998 to give you a better picture of what our financial
statements might have looked like if CoorsTek had been operated independently
during this period. Actual results may have differed from pro forma results if
we were operated independently. You should not rely on the pro forma financial
information as being indicative of the financial position that would have
resulted, the results of operation that would have been attained or future
results after the spin-off.
COORSTEK, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended September 30, 1999
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C> <C> <C>
Sales.................................... $266,936 $266,936
Cost of goods sold....................... 200,455 200,455
-------- -------- --------
Gross profit............................. 66,481 66,481
Selling, general and administrative...... 35,957 35,957
-------- -------- --------
Operating income......................... 30,524 -- 30,524
Other income (expense):
Interest expense
Interest expense on debt............. (3,088) (10,592)(2a) (13,680)
Other interest expense............... (605) (605)
-------- -------- --------
Total interest expense................. (3,693) (10,592) (14,285)
Interest income........................ 62 62
-------- -------- --------
Income before income taxes............... 26,893 (10,592) 16,301
Income tax expense....................... 10,101 (3,972)(2b) 6,129
-------- -------- --------
Net income............................... $ 16,792 $ (6,620) $ 10,172
======== ======== ========
Net income per share of basic common
stock................................... $ 2.36 $ (0.93) $ 1.43
======== ======== ========
Weighted average shares outstanding-basic
(2f).................................... 7,111 7,111 7,111
======== ======== ========
Net income per share of diluted common
stock................................... $ 2.34 $ (0.92) $ 1.42
======== ======== ========
Weighted average shares outstanding-
diluted (2f)............................ 7,185 7,185 7,185
======== ======== ========
</TABLE>
See Notes to the Pro Forma Consolidated Financial Statements (Unaudited).
19
<PAGE>
COORSTEK, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
September 30, 1999
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- --------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................ $ -- $205,000(2a) $ --
(200,000)(2c)
(5,000)(2d)
Accounts receivable, less allowance for
doubtful accounts of $2,572............. 50,868 50,868
Inventories.............................. 67,861 67,861
Other assets............................. 12,893 12,893
-------- -------- --------
Total current assets................... 131,622 -- 131,622
-------- -------- --------
Properties, net............................ 138,070 138,070
Goodwill................................... 37,454 37,454
Debt issuance costs........................ -- 5,000(2d) 5,000
Other assets............................... 13,463 13,463
-------- -------- --------
Total assets........................... $320,609 $ 5,000 $325,609
======== ======== ========
Liabilities And Shareholder's Equity
Current liabilities:
Accounts payable......................... $ 14,836 $ 14,836
Accrued salaries and vacation............ 9,781 9,781
Accrued expenses and other liabilities... 23,962 23,962
Advances payable to Parent............... 9,436 (9,436)(2c) --
-------- -------- --------
Total current liabilities.............. 58,015 (9,436) 48,579
-------- -------- --------
Long-term debt............................. 50,000 205,000(2a) 205,000
(50,000)(2c)
Accrued post-retirement benefits........... 15,327 15,327
Other long-term liabilities................ 13,180 13,180
-------- -------- --------
Total liabilities...................... 136,522 145,564 282,086
-------- -------- --------
Shareholder's equity:
Common stock, 200,000 shares authorized,
$50 par value per share (actual),
100,000,000 shares authorized, $.01 par
value per share (pro forma); 200,000
shares issued and outstanding (actual),
7,120,614 shares issued and outstanding
(pro forma)............................. 10,000 (9,929)(2e) 71
Paid-in capital.......................... 75,060 (42,844)(2c) 42,145
9,929(2e)
Paid-in capital-warrants................. 1,600 1,600
Retained earnings........................ 97,720 (97,720)(2c) --
Accumulated other comprehensive income... (293) (293)
-------- -------- --------
Total shareholder's equity............. 184,087 (140,564) 43,523
-------- -------- --------
Total liabilities and shareholder's
equity................................ $320,609 $ 5,000 $325,609
======== ======== ========
</TABLE>
See Notes to the Pro Forma Consolidated Financial Statements (Unaudited).
20
<PAGE>
COORSTEK, INC.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro
Historical Adjustments Forma
---------- ----------- --------
<S> <C> <C> <C>
Sales.................................... $296,614 $296,614
Cost of goods sold....................... 222,906 222,906
-------- --------
Gross profit............................. 73,708 -- 73,708
Selling, general and administrative...... 37,758 37,758
Asset impairment charge.................. 11,814 11,814
-------- -------- --------
Operating income......................... 24,136 -- 24,136
Other income (expense):
Interest expense:
Interest expense on debt............... (4,000) $(12,150)(3a) (16,150)
Other interest expense................. (125) (125)
-------- -------- --------
Total interest expense............... (4,125) (12,150) (16,275)
Interest income.......................... 601 601
-------- -------- --------
Income before income taxes............... 20,612 (12,150) 8,462
Income tax expense....................... 7,682 (4,532)(3b) 3,150
-------- -------- --------
Net income............................... $ 12,930 $ (7,618) $ 5,312
======== ======== ========
Net income per share of basic common
stock................................... $ 1.81 $ (1.07) $ 0.74
======== ======== ========
Weighted average shares outstanding-basic
(3c).................................... 7,126 7,126 7,126
======== ======== ========
Net income per share of diluted common
stock................................... $ 1.78 $ (1.05) $ 0.73
======== ======== ========
Weighted average shares outstanding-di-
luted (3c).............................. 7,258 7,258 7,258
======== ======== ========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements (Unaudited).
21
<PAGE>
NOTES TO THE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: The accompanying unaudited Pro Forma Consolidated Financial
Information reflects all adjustments which, in the opinion of management, are
necessary to present fairly the pro forma financial position and pro forma
results of operations for CoorsTek assuming CoorsTek was a stand-alone entity.
This information should be read in conjunction with CoorsTek's historical
financial statements and notes thereto beginning on page F-1 in the latter
portion of this document.
Note 2: The pro forma adjustments to the accompanying historical
financial information as of and for the nine months ended September 30, 1999
are described below:
(a) Historical interest expense relates to interest charged on
intercompany debt of $50.0 million at an 8% annual rate. This debt will be
paid off at the time of the spin-off. On a pro forma basis, debt of $205.0
million will be incurred consisting of a $95.0 million revolver at LIBOR
plus 2% (of which $30.0 million will be borrowed) and Senior Term A debt of
$85.0 million at LIBOR plus 2%, both of which have a five-year maturity. In
addition, CoorsTek will have Senior Term B debt of $90.0 million at LIBOR
plus 2.75% with a seven year maturity. The weighted average interest rate
used for the September 30, 1999 pro forma statements was 8.41%. A 1/8%
increase/decrease in the rate used would have increased/decreased the
recorded interest expense by $0.3 million. Interest expense has also been
adjusted to reflect the amortization of the debt issuance costs described
in Note 2(d).
(b) Income tax is adjusted for the pro forma adjustment in Note 2(a) at
the effective rate of 37.5%.
(c) CoorsTek will pay $200.0 million of the debt proceeds discussed at
Note 2(a) to ACX for reduction of intercompany debt, advances payable and
payment of a special dividend. Advances payable to Parent consist of funds
received from ACX primarily to fund the acquisitions of Edwards Enterprises
and Precision Technologies, net of cash generated by CoorsTek from
operations.
(d) Debt issuance costs estimated at $5.0 million will be amortized over
a five year period. The actual debt issuance costs could differ from this
estimate.
(e) Adjustment to reflect the issuance of 7,120,614 shares of Common
Stock, par value $0.01 per share as of December 31, 1999. The actual shares
outstanding could differ from reported amounts.
(f) Basic and diluted weighted average number of shares outstanding are
based on ACX's basic and diluted weighted average number of shares
outstanding as of September 30, 1999 adjusted for the conversion ratio
described in Note 2(e). All ACX common stock equivalents are included for
purposes of determining diluted weighted average number of shares
outstanding. The actual number of shares issued and the conversion ratio
used in the spin-off could differ from these estimates.
Note 3: The pro forma adjustments to the accompanying historical
financial information for the year ended December 31, 1998 are described
below:
(a) Historical interest expense relates to interest charged on
intercompany debt of $50.0 million at an 8% annual rate. See discussion of
the anticipated debt structure in Note 2(a). The interest rate used for the
December 31, 1998 pro forma statements was 7.39%. A 1/8% increase/decrease
in the rate used would have increased/decreased the recorded interest
expense by $0.3 million. Interest expense has also been adjusted to reflect
the amortization of the debt issuance costs described in Note 2(d).
(b) Income tax is adjusted for pro forma adjustment in Note 3(a) at the
effective rate of 37.3%.
22
<PAGE>
(c) Basic and diluted weighted average number of shares outstanding are
based on ACX's basic and diluted weighted average number of shares
outstanding as of December 31, 1998 adjusted for the conversion ratio
described in Note 2(e). All ACX common stock equivalents are included for
purposes of determining diluted weighted average number of shares
outstanding. The actual number of shares issued used in the spin-off could
differ from these estimates.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected financial data of
CoorsTek. The Income Statement data set forth below for each of the three years
in the three-year period ended December 31, 1998 and the Balance Sheet Data as
of the end of each year in the three-year period ended December 31, 1998 are
derived from audited financial statements of CoorsTek. The Income Statement
data set forth below for the years ended December 31, 1995 and 1994 and for
each of the nine-month periods ended September 30, 1999 and 1998 and the
Balance Sheet Data as of December 31, 1995 and 1994 and September 30, 1999 and
1998 are derived from unaudited consolidated financial statements of CoorsTek.
The historical selected financial data may not necessarily be indicative of
CoorsTek's past or future performance as an independent company. Such
historical data should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and CoorsTek's
Consolidated Financial Statements and notes thereto included elsewhere in this
document.
Unaudited proforma and historical earnings per share data is presented on
pages 19, 21 and F-3, respectively.
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
-------------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Historical Selected
Financial Data:
Consolidated Income
Statement Data:
Net sales.............. $ 266,936 $ 230,930 $296,614 $304,824 $276,352 $270,877 $231,288
Gross profit........... 66,481 57,099 73,708 85,003 76,132 80,166 63,570
Selling, general and
administrative
expenses.............. 35,957 28,528 37,758 41,754 35,928 36,613 34,541
Asset impairment
charges............... -- 11,814 11,814 -- -- 438 --
Operating income....... 30,524 16,757 24,136 43,249 40,204 43,115 29,029
Interest and other
income (expense)-net.. (3,631) (2,894) (3,524) (68) (6) 393 (354)
Income tax expense..... 10,101 5,117 7,682 16,192 14,996 14,545 11,304
Net income............. 16,792 8,746 12,930 26,989 25,202 28,963 17,371
<CAPTION>
September 30, December 31,
-------------------- -----------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Total assets........... $ 320,609 $ 279,231 $278,359 $262,687 $216,635 $189,191 $165,804
Working capital........ 73,607 81,666 89,295 71,649 62,480 47,567 42,337
Long-term debt payable
to Parent............. 50,000 50,000 50,000 -- -- -- --
Total shareholder's
equity................ 184,087 161,263 165,825 203,155 163,463 130,381 115,886
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General Overview
The following discussion and analysis is based on the separate historical
financial statements of CoorsTek, which was formerly named Coors Porcelain
Company and operated its business as Coors Ceramics Company. During the periods
presented, CoorsTek was a wholly owned subsidiary of ACX. The Board of
Directors of ACX announced a plan to spin-off CoorsTek on or about December 31,
1999. This plan is subject to certain requirements, most notably the ruling by
the Internal Revenue Service of the transaction as a tax free distribution. ACX
provides general management, legal, treasury, tax, internal audit, financial
reporting and environmental services to CoorsTek. These ACX costs have been
allocated to CoorsTek and included in the discussion herein on a basis that
management believes is reasonable. This allocation may not necessarily equal
the costs that would have been or will be incurred by CoorsTek on a stand-alone
basis.
CoorsTek develops, manufactures and sells advanced technical products
across a wide range of product lines for a variety of applications. It has been
in business since 1911 and is the largest U.S. owned, independent manufacturer
of advanced technical ceramics. CoorsTek provides components to virtually every
major industrial market.
On March 1, 1999, CoorsTek acquired all of the outstanding shares of
Edwards Enterprises for approximately $18 million in cash. The acquisition has
been accounted for under the purchase method of accounting and goodwill is
approximately $4.2 million. Edwards Enterprises, located in Newark, California,
manufactures precision-machined parts for the semiconductor industry.
On March 12, 1999, CoorsTek acquired the net assets of Precision
Technologies for approximately $22 million in cash and 300,000 warrants to
purchase shares of ACX common stock at an exercise price equal to the fair
market value at the date of closing. In connection with the spin-off, the ACX
warrants will be converted into warrants to purchase CoorsTek common stock
following the spin-off. The warrants vest only upon the achievement of certain
revenue goals within three years. The acquisition has been accounted for under
the purchase method of accounting and goodwill is approximately $21.1 million.
Precision Technologies, located in Livermore, California, manufactures
precision-machined parts for the semiconductor, medical and aircraft
industries.
Combined Results of Operations
Comparison of Nine Months Ended September 30, 1999 compared to Nine Months
Ended September 30, 1998
CoorsTek's net sales increased $36.5 million or 15.8% to $266.9 million
for the nine months ended September 30, 1999 compared to $230.4 million for the
same 1998 period. The acquisitions of Edwards Enterprises and Precision
Technologies in March 1999 accounted for an increase in net sales of $45.8
million. Excluding these acquisitions, net sales decreased $9.4 million in the
year to date period as a result of price competition and weakened demand in the
pulp and paper and electronics markets. However, the pricing and demand in
these markets strengthened in the third quarter of 1999, as sales, excluding
Edwards Enterprises and Precision Technologies, increased $3.6 million to $73.6
million compared to $70.0 million for the third quarter of 1998. CoorsTek
expects continued gradual sales improvement in these markets.
Gross profit for the first nine months of 1999 increased $9.4 million or
16.4% to $66.5 million compared to $57.1 million for the nine months ended
September 30, 1998. The increase is attributed to the acquisitions of Edwards
Enterprises and Precision Technologies which contributed $10.4 million. Gross
margin of 24.9% for the first three quarters of 1999 increased compared with
1998 gross margin
25
<PAGE>
of the same period of 24.8% due to the growth of semiconductor sales. As a
result of an increase in pricing and demand in the third quarter of 1999, gross
profit, excluding Edwards Enterprises and Precision Technologies, increased
$3.6 million to $19.0 million compared to $15.4 million for the third quarter
of 1998. CoorsTek expects the slight gross profit improvements in these
particular markets to continue.
Operating income for the first nine months of 1999 was $30.5 million, a
$13.7 million or 81.5% increase compared to the first nine months of 1998 of
$16.8 million. In the first quarter of 1998, CoorsTek recorded $6.2 million in
asset impairment charges in conjunction with the cancellation of the C-4
technology agreement with IBM. Changes in the market for C-4 applications
extended the time frame for achieving commercial sales beyond original
expectations. This lack of near term commercial sales opportunities, combined
with increasing overhead costs, prompted CoorsTek to negotiate termination of
the agreement with IBM. In the third quarter of 1998, CoorsTek recorded an
additional $5.6 million asset impairment charge related to the Chattanooga,
Tennessee operation. Management decided to offer this operation for sale when
strong offshore competition in the electronic package market at the time made
it uneconomical to have a manufacturing facility dedicated to this product
line. Consequently, the long-lived assets of Chattanooga were written down to
their estimated fair value using the asset held for use model. CoorsTek has yet
to find a buyer and continues to operate the facility. In addition, the
acquisitions of Edwards Enterprises and Precision Technologies in March 1999
contributed $8.1 million to operating income for the first nine months of 1999.
CoorsTek's operating income, excluding the impact of acquisitions and asset
impairment charges, decreased $6.1 million for the first nine months of 1999
compared to the same period in 1998 as a result of price competition primarily
in the first half of 1999.
Net interest expense for the nine months ended September 30, 1999 was
$3.6 million compared to $2.9 million in the first nine months of 1998. Three
million dollars of this expense consists of payments to ACX on intercompany
debt for both of the nine month periods ended September 30, 1999 and 1998.
The consolidated effective tax rate was 37.5% for the nine months ended
September 30, 1999 and 36.9% for the same period in 1998.
Year Ended December 31, 1998 to Year Ended December 31, 1997
Net sales for 1998 were $296.6 million, a decline of $8.2 million or
2.7%, from 1997 net sales of $304.8 million. The lower net sales in 1998
reflect downturns in sales resulting from pricing pressures in the pulp and
paper and telecommunication industries and volume declines in the semiconductor
and petrochemical industries.
Gross profit was $73.7 million in 1998, a decrease of $11.3 million or
13.3% from $85.0 million in 1997. The decrease is attributed to increased price
competition, particularly in international markets due to the strength of the
U.S. dollar compared to certain foreign currencies. Gross margins declined from
27.9% in 1997 to 24.8% in 1998 due to a decline in industries previously
mentioned and competitive pricing pressures.
Operating income for 1998 totaled $24.1 million, a decline of $19.1
million or 44.2%, from 1997 operating income of $43.2 million. Excluding the
asset impairment charges and the change to the estimated depreciable lives
discussed below, operating income totaled $34.0 million, a decline of $9.2
million or 21.3% from 1997. Other than the asset impairment charges, the lower
operating income in 1998 reflects a downturn in sales to customers in key
market segments and the effects of currency influenced price competition
resulting from a strong U.S. dollar.
Operating margins declined in 1998 to 8.1% from 14.2% in 1997. The lower
operating margins in 1998 reflect $11.8 million in asset impairment charges
offset by the $2.0 million positive impact
26
<PAGE>
from the change in estimated depreciable lives discussed below, lower sales
volumes in higher margin semiconductor and pulp and paper industry product
lines and currency influenced price competition.
During 1998, CoorsTek recorded $11.8 million in asset impairment charges,
of which $6.2 million related to the cancellation of CoorsTek's C-4 technology
agreement with IBM discussed above. CoorsTek recorded an additional $5.6
million asset impairment charge at the Chattanooga, Tennessee operation
discussed above. In early 1998, the Company changed the estimated depreciable
lives for certain long-lived assets based on the actual lives demonstrated for
similar assets. The effect of this change positively impacted operating income
by approximately $2.0 million.
The allocation of long term debt from ACX resulted in an increase in
interest expense from $110,000 in 1997 to $4.1 million in 1998.
The consolidated effective tax rate was 37.3% for 1998 compared to 37.5%
in 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.
CoorsTek's net sales for 1997 increased $28.4 million to $304.8 million
over 1996 net sales of $276.4 million. This 10.3% increase is primarily
attributable to a rebound in the telecommunications, semiconductor and data
processing industries and increased sales volumes to the petrochemical
industry. The August 1997 acquisition of Tetrafluor, a manufacturer of Teflon
(R) fluoropolymer parts, extended CoorsTek's material base and added $5.8
million in revenue for 1997. International sales as a percentage of total net
sales decreased in 1997 to 27.0% from 30.5% in 1996. The decrease in
international sales in 1997 was due to gains in domestic sales, lower sales
dollars from some international customers due to currency influenced price
competition and weaker demand from certain foreign mining industry customers.
Gross profit increased $8.9 million or 11.6% to $85.0 million in 1997
compared to $76.1 million in 1996 on the strength of increased sales and the
acquisition of Tetrafluor which contributed $1.6 million. Gross margins
increased slightly in 1997 to 27.9% from 27.5% in 1996.
Operating margins decreased slightly in 1997 to 14.1% compared to 14.5%
in 1996. The strength of the U.S. dollar compared to certain foreign currencies
resulted in increased price competition in some foreign markets.
On the strength of sales increases, CoorsTek's operating income for 1997
rose $3.0 million, or 7.5%, to $43.2 million from 1996 levels.
The consolidated effective tax rate was 37.5% for 1997 compared to 37.3%
in 1996.
Liquidity and Capital Resources
CoorsTek's liquidity is generated from both internal and external sources
and is used to fund short-term working capital needs, capital expenditures and
acquisitions. Internally generated liquidity is measured by net cash from
operations, as discussed below, and working capital. At September 30, 1999,
CoorsTek's working capital was $73.6 million with a current ratio of 2.3 to 1.
In contemplation of the spin-off, CoorsTek in negotiating a new $270
million credit facility consisting of a $95 million revolver and an $85 million
Senior Term A facility both maturing in five years and a $90 million Senior
Term B facility maturing in seven years. Borrowings under the credit facility
will bear interest at rates generally based on LIBOR plus a spread that varies
depending upon CoorsTek's performance. CoorsTek will pay $200.0 million of the
debt proceeds to ACX for reduction of intercompany obligations and payment of a
special dividend.
27
<PAGE>
In 1997 and 1996, CoorsTek contributed its excess cash to ACX. In 1998,
cash was retained by CoorsTek and was not contributed to ACX. Capital
expenditures for the three year period ended December 31, 1998 totaled $84.3
million and were used primarily for the addition of production capacity, as
well as for computerized manufacturing equipment and enhancements to existing
computer systems. CoorsTek expects capital expenditures of $12.0 in 1999 and
$25.0 million in 2000. On March 1, 1999, CoorsTek acquired all of the
outstanding shares of Edwards Enterprises for approximately $18.0 million in
cash. On March 12, 1999, CoorsTek acquired the net assets of Precision
Technologies for approximately $22.0 million in cash and 300,000 non-vested
warrants to purchase shares of ACX common stock at an exercise price equal to
the fair market value at the date of closing. In connection with the spin-off,
the warrants will be converted into warrants to purchase shares of CoorsTek
common stock after the spin-off. The warrants vest only on the attainment of
certain revenue thresholds. Acquisitions during 1998 utilized $0.9 million in
cash for the acquisition of Pulsation Equipment. Cash utilized for acquisitions
in 1997 and 1996 were $15.8 million and $6.6 million for the acquisitions of
Tetrafluor, Inc. and H.B. Company, respectively.
The impact of inflation on CoorsTek's financial position and results of
operations has been minimal and is not expected to adversely affect future
results.
Impact of the Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define a specific year. If not corrected,
a computer program that uses date-sensitive software may recognize a date "00"
as the year 1900 rather than the year 2000. This could result in system
failures or erroneous results to various activities and operations.
Management of ACX implemented a company wide program to prepare ACX's
(including CoorsTek's) financial, manufacturing and other critical systems and
applications for the year 2000. The program includes the establishment of a
task force that has the support and participation of upper management and
includes individuals from CoorsTek and ACX with expertise in information
technologies, risk management and legal. The Board of Directors of ACX monitors
the progress of the program on a quarterly basis. The task force's objective is
to ensure an uninterrupted transition to the year 2000 by assessing, testing,
and modifying all information technology (IT) and non-IT systems, and third
parties such as suppliers and customers.
The Year 2000 task force has taken an inventory of all IT and non-IT
systems of ACX, including those of CoorsTek. This inventory categorizes
potential systems date failures into three categories: "major" (critical to
production and could be business threatening with no short-term alternatives
available); "limited" (disrupting to the business operations with short-term
solutions available); and "minor" (inconsequential to the business operations).
The task force has prioritized the program to focus first on "major" systems.
It is CoorsTek's goal to have all major and limited systems Year 2000 compliant
by December 31, 1999.
IT Systems--CoorsTek is primarily using internal resources to remediate
IT systems. The majority of the IT systems have been recently purchased from
third party vendors. These systems were already Year 2000 compliant or had Year
2000 compliance upgrades. As of December 31, 1998, approximately 75% of
CoorsTek's IT systems were Year 2000 compliant. As of September 30, 1999,
approximately 99% of CoorsTek's IT systems were compliant.
Non-IT Systems--CoorsTek has approximately 18 manufacturing locations
with varying degrees of non-IT systems (such as automated kiln systems,
statistical process control systems, quality control systems, and machining
equipment). The vast majority of these facilities are located in North America.
To ensure Year 2000 compliance for non-IT systems, the Year 2000 task force has
contacted suppliers of these non-IT systems and obtained statements that the
systems are Year 2000 compliant and is in the
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process of testing Year 2000 compliance. The majority of these non-IT systems
use time intervals instead of dates and are Year 2000 compliant. Thus, CoorsTek
believes that potential disruptions of such systems due to the Year 2000 issue
should be minimal. As of December 31, 1998 and September 30, 1999,
approximately 80% and 99%, respectively, of CoorsTek's "major" and "limited"
non-IT systems are Year 2000 compliant. The "minor" non-IT systems are in
various stages of compliance.
Third Parties--The Year 2000 task force has been in contact with key
suppliers and customers to minimize potential business disruptions related to
the Year 2000 issue between CoorsTek and these third parties. The task force
has focused on suppliers and customers who if their systems were to fail, such
failures would be classified as "major". In October 1998, letters were sent to
each of these suppliers requesting information about their Year 2000 readiness.
Follow-up letters were sent again in February 1999 to those third parties who
did not respond. Finally, in May 1999, those still not responding were
contacted directly by telephone. The responses, in general, indicated that the
Year 2000 programs they had implemented were adequate and they did not foresee
any disruptions. Customer surveys were conducted on an informal basis during
sales calls, customer on-site audits of the Company's Year 2000 program and
documentation of customer programs which was sent to the Company at the time
they requested information about the status of CoorsTek's Year 2000 program.
While CoorsTek cannot guarantee compliance by third party suppliers, CoorsTek
has developed contingency plans to ensure the availability of inventory
supplies in the event a supplier is not Year 2000 compliant.
Contingency Plan--CoorsTek has finalized a contingency plan in the event
there are Year 2000 failures related to CoorsTek's IT and non-IT systems and/or
key third parties. CoorsTek's manufacturing facilities are not interdependent
in terms of non-IT systems, and its facilities utilize a diverse range of non-
IT systems. Thus, the contingency plan includes for non-IT systems the transfer
of production between facilities and manufacturing equipment. Currently, we
believe that we have enough manufacturing capacity to accommodate the
contingency plan.
CoorsTek's major IT systems are heavily dependent on two vendors. These
vendors have completed extensive Year 2000 testing on their products and
indicate they are Year 2000 compliant. In addition, CoorsTek has also performed
Year 2000 testing and has found no compliance issues. CoorsTek will continue to
monitor its systems for Year 2000 compliance and will test such systems, as
considered necessary.
CoorsTek is not dependent on any one supplier for raw materials and other
items and services necessary for the manufacturing of its products. CoorsTek
has established back-up suppliers and will maintain adequate inventory levels
at December 31, 1999 to minimize the potential business disruption in the event
of a Year 2000 failure by a supplier.
Costs--Through December 31, 1998, CoorsTek spent approximately $40,000
out of an estimated total of less than $150,000 related to the Year 2000 issue
for CoorsTek. As of September 30, 1999 CoorsTek spent $101,000 related to the
Year 2000 issue. CoorsTek has not separately tracked internal costs such as
payroll related costs for its information technologies group and other
employees working on the Year 2000 project. CoorsTek expenses all costs related
to the Year 2000 issue as incurred. These costs are being funded through
operating cash flows.
CoorsTek's current estimate of the time and costs related to the
remediation of the Year 2000 issue are based on the facts and circumstances
existing at this time. New developments could affect CoorsTek's estimates to
remediate the Year 2000 issue. These developments include, but are not limited
to: (i) the availability and cost of personnel trained in this area; (ii) the
ability to identify and remediate all IT and non-IT systems; (iii)
unanticipated failures in IT and non-IT systems; and (iv) the planning and Year
2000 compliance success that key customers and suppliers attain.
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<PAGE>
BUSINESS
General
Established in 1911 as a Colorado corporation, CoorsTek develops,
manufactures and sells engineered solutions for a multitude of industrial and
commercial applications that incorporate advanced materials such as technical
ceramics, engineered plastics or precision machined metals into components,
assemblies and systems. CoorsTek will be reincorporated in Delaware prior to
the Distribution Date.
Industry Overview
Advanced technical ceramics, also known as engineered ceramics, are
materials that exhibit superior mechanical properties, corrosion/oxidation
resistance and thermal, electrical, optical and magnetic properties. In
addition, recent acquisitions of companies offering plastics and metals
fabrication, and assembly capabilities, has expanded CoorsTek's ability to meet
increasing market demand, particularly in the semiconductor industry, for a
broader spectrum of products and services.
Markets and Products
CoorsTek provides components to most of the commonly recognized
industrial market. Our largest markets include:
. Semiconductor
. Electronics
. Advanced Products
. Pulp and Paper
. Wear and Mining
Semiconductor includes the manufacture, assembly and integration of
ceramic and metal components for use in semiconductor processing equipment in
the semiconductor industry. Currently, the semiconductor industry is one of the
fastest growing market segments for our products. Opportunities exist in this
industry to aggressively pursue new applications for ceramics to replace
certain metal and other conventional materials used in a variety of
applications. In addition, we can offer machined metal components and cleanroom
assembly services for applications where ceramic is not the material of choice.
Electronics is a diverse market group with applications in aerospace,
automotive, computer, defense, power generation and distribution, and
telecommunications. Materials used in this application include high purity
ceramics often combined with metal components and precious metals plating.
Advanced Products, is our most diversified group of products and includes
components for aerospace, automotive, chemical and material processing,
computer, consumer, defense, electrical, fluid handling, mechanical, medical,
paper, and petroleum markets. This category can include ceramics, plastics and
metals. Materials and processes utilized offer specialized solutions for severe
use applications.
Pulp and Paper primarily involves the manufacture of wear and corrosion
resistant components for the paper pulp processing industry. Materials include
ceramics often in a composite form with plastics and/or metals.
Wear and Mining includes products used in chemical and material
processing, mining, paper, and other mechanical applications. Materials
utilized include a wide selection of wear resistant ceramics. Contract, on-site
installation service is also available.
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In order to successfully compete in our chosen markets, we must offer
flexible production processes that are capable of producing custom designs.
Over 90% of our products are custom made to our customer's specific
requirements. Another competitive advantage we have is the ability to evaluate
new materials, applications, and opportunities for value-added products. We
place great value in building and maintaining close relationships with our
customers.
Some uses of our components include:
. Fixtures for processing of silicon wafers in semiconductor chip
fabrication;
. Slitting knives and other processing and sizing devices used in
high-speed paper making machines;
. Seals and other pump components installed in automobiles, home
appliances, chemical processing, and blood analysis equipment;
. Valves used in fluid handling;
. Precipitators used in pollution control equipment;
. Power tubes used in electrical power generation installations;
. Linings for pipe used in the processing of coal and other
abrasive materials;
. Substrates (or bases) for various electronic circuits, pressure
sensors, and semiconductor chips that are critical components in
computers, communications systems, automotive controls and
military electronics;
. Passive electronic components, such as capacitors and insulators,
used in electrical devices; and
. Advanced electronic ceramic packages, which are casings that
surround a semiconductor chip, that insulate and connect the chip
to printed circuitry. Cellular telephones, pagers, and radar
detection devices require these packages due to their need for
high reliability.
We engineer and custom design our products to comply with specific
customer requirements. Successful product design requires consultation with
customers in their choice of the correct base material and selection by
CoorsTek of the appropriate manufacturing processes. Since we sell our products
primarily to industrial manufacturers for incorporation into their products or
processes, the business is sensitive to changes in economic conditions that
affect the end users of our products.
Materials and Services
Ceramic products can be nearly as hard as diamond, can withstand extreme
temperatures and have excellent electrical properties. These properties make
ceramic products ideal materials for a variety of industrial applications.
Although sometimes more expensive than competing materials, such as plastics
and metals, ceramic products provide higher value by contributing to longer
product life and enabling our customers to enhance their technologies.
While advanced technical ceramics constitute the majority of our
business, we believe there is a large potential to expand our existing business
through products that incorporate other materials such as metals and plastics.
Two of our facilities are directly involved in the precision machining of
metals such as stainless steel and aluminum for applications in the
semiconductor equipment and aerospace markets. Both of these manufacturing
sites, acquired in 1999, are capable of performing customer specified cleanroom
assembly and packaging which integrates ceramics and metals. This business
comprises 17.2% of our revenue year-to-date in 1999.
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We are also involved in the manufacture of fluoropolymer sealing system
plastics used in the aerospace and industrial hydraulic equipment, fluid
handling systems and transportation industries. This business represents 3.5%
of our revenue year-to-date in 1999.
Strategy
We seek to grow our business by devoting resources to new product and
material development, internally and through acquisitions, particularly in
industry segments that show the most growth potential. In pursuit of this
strategy, we purchased Precision Technologies and Edwards Enterprises earlier
this year. We believe these acquisitions have strengthened our ability to
service customers, particularly in the semiconductor industry, by broadening
our materials offerings, including machined aluminum, and by positioning us to
provide assembly services.
We believe our reputation for expert custom product design, product
quality and customer service is one of our most valuable assets for achieving
our strategy. We work with key customers in diverse industries to develop value
added, engineered products. We continuously evaluate new materials and product
offerings, often with customers, in order to anticipate and satisfy customers'
future needs and to offer a greater range of products with improved performance
characteristics.
Manufacturing and Raw Materials
Ceramic manufacturing involves several steps. From raw material
preparation to completion of the finished product, a typical component will be
formed, fired and, if necessary, machined, then inspected, packaged and
shipped. The extent to which a part is processed is dependent on the
specifications placed on the finished product by the customer. Limitations of
the material and manufacturing process determine whether the part will be
processed through secondary finishing steps to meet the final specification.
The raw materials CoorsTek uses in its operations are readily available
from diverse sources. Long term, volume purchase agreements with suppliers
assure CoorsTek of consistent and ongoing supplies of raw materials.
CoorsTek owns or leases approximately 2.28 million square feet of
manufacturing space in the United States and abroad. Overall, CoorsTek
currently operates at approximately 75% of available capacity. Capacity
utilization is not currently a major constraint at CoorsTek's 18 manufacturing
locations. These facilities specialize, to a certain degree, in a particular
market and are located strategically to optimize customer service while
minimizing manufacturing and transportation costs. CoorsTek continues to invest
in computerized, high precision manufacturing equipment and believes it is well
positioned for growth opportunities in both domestic and foreign markets.
Sales and Distribution
We anticipate that more than 30% of our revenues in 1999 will come from
one customer, Applied Materials, Inc., a semiconductor equipment manufacturer.
Our dependence on this customer may increase as we further develop our
strategic supplier relationship. Any disruption in this relationship, including
a downturn in Applied Materials' business in the industry(ies) in which it
operates, would have a material adverse effect on our sales.
CoorsTek sells products primarily to manufacturers, including original
equipment manufacturers, for incorporation into industrial applications and
consumer products. CoorsTek generates sales through direct sales employees
located throughout the United States and Europe and manufacturers'
representatives. CoorsTek's sales personnel, many with engineering expertise,
receive substantial technical assistance and engineering support due to the
highly technical nature of its products.
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International sales, primarily in Western Europe and Far East markets,
constituted approximately 25%, 27%, and 31% of ceramic product sales in 1998,
1997, and 1996, respectively. CoorsTek selectively hedges the U.S. dollar
against foreign currencies used in these markets in order to mitigate the
effects of adverse currency fluctuations when sales are made in the foreign
currency. The strength of the dollar relative to the currency of our customers
or competitors may have an impact on CoorsTek's profit margins or sales to
international customers.
No single product line or class accounted for more than 10% of CoorsTek's
consolidated net revenue although sales to various industry groups such as the
petrochemical, automotive, power generation and mining, and semiconductor
industries comprised 16%, 13%, 12%, and 10%, respectively, of CoorsTek's 1998
consolidated net revenue.
CoorsTek's 25 largest customers accounted for approximately 34% of our
net sales for 1998, with no single customer representing more than 10% of
CoorsTek's annual sales. A new focus on the semiconductor industry initiated in
1999 may result in an increased dependence on certain semiconductor equipment
manufacturers with potential 1999 sales of 25%. Commitment to consistent high
quality and customer service has earned CoorsTek sole supplier status with
several major U.S. manufacturers and a leading position with several other
major customers.
As of September 30, 1999, CoorsTek had backlog orders of approximately
$89.1 million, as compared to $83.7 million as of September 30, 1998.
Approximately $62.0 million of the backlog at September 30, 1999 has been
shipped as of December 1, 1999. Customers may place annual orders, with
shipments scheduled over a twelve-month period. Backlog orders may be higher
for certain industrial product segments due to longer time periods between
order and delivery dates under purchase orders. Sales are not seasonal but can
be sensitive to overall economic conditions that affect the users of advanced
ceramic products. Backlog is not necessarily indicative of past or future
operating results.
Competition
Competition in the advanced ceramics industry is vigorous and comes
primarily from Kyocera Corporation (Japan), Morgan Crucible Co. (United
Kingdom), NGK Insulators, Ltd. (Japan), CeramTec AG (Germany) and Saint Gobain
(France). Principal competitive factors in the worldwide market include price
(including the impact of currency fluctuations), quality, and delivery
schedules. A major competitor in most of the markets we serve, CoorsTek holds a
prominent position in many product lines. It has maintained long standing
relationships with major corporations by providing consistent high product
quality and customer service.
We also face competition in our precision metal machining business and in
the fluoropolymer materials business from a multitude of relatively small
domestic companies. We believe there is an opportunity for us, as a larger
company, to compete successfully in these markets but we cannot guarantee our
success.
Ceramic materials offer advantages over conventional materials for
applications in which certain properties such as high electrical resistance,
hardness, high-temperature strength, wear and abrasion resistance, and precise
machinability are important. Ceramic products, however, face competition from
metals and other materials. For example, plastics are substituting ceramics in
certain computer and telecommunications applications because of plastics' lower
cost and lighter weight. CoorsTek believes that the overall value of ceramic
products continues to be attractive to customers. In accordance with the
strategy outlined above, CoorsTek continues to explore and evaluate the
development of, or acquisition of companies with, products manufactured from
competing or complementary materials.
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Research and Development
Our ability to commercialize CoorsTek's technologies and compete
effectively in our various markets depends significantly on our continued and
timely development of innovative technology, materials, products and processes
using advanced and cost-efficient manufacturing processes.While innovation is a
significant element of CoorsTek's business, we do not have separate, material
research and development expenses. Instead, innovations are generally made as
part of product development on a case-by-case basis in response to customer
orders or needs.
Patents, Proprietary Rights and Licenses
CoorsTek holds a number of patents and pending patent applications in the
U.S. and in foreign countries. Our policy generally is to pursue patent
protection that we consider necessary or advisable for the patentable
inventions and technological improvements of our business. CoorsTek also relies
significantly on trade secrets, technical expertise and know-how, continuing
technological innovations and other means, such as confidentiality agreements
with employees, consultants and customers, to protect and enhance CoorsTek's
competitive position in our markets.
CoorsTek considers the name "Coors" and the goodwill associated with it
to be important to its customer recognition. CoorsTek has received certain
licensing rights to use the Coors name.
CoorsTek believes that we and our subsidiaries own or have the right to
use the proprietary technology and other intellectual property necessary to our
operations. Except as noted above, we do not believe that our success is
materially dependent on the existence or duration of any individual patent,
trademark or license or related group of patents, trademarks or licenses.
Environmental Matters
CoorsTek's operations are subject to all federal, state and local
environmental, health and safety laws and regulations and, in a few instances,
foreign laws, that regulate health and safety matters and the discharge of
materials into air, land and water, and govern the handling and disposal of
solid and hazardous wastes. We believe we are in substantial compliance with
applicable environmental and health and safety laws and regulations and does
not believe that costs of compliance with these laws and regulations will have
a material effect upon our capital expenditures, earnings or competitive
position.
CoorsTek has received a demand for payment arising out of contamination
of a semiconductor manufacturing facility formerly owned by a subsidiary of
CoorsTek, Coors Components, Inc. Colorado State environmental authorities are
seeking clean up of soil and ground water contamination from a subsequent
owner. Although CoorsTek does not believe it is responsible for the
contamination or the cleanup, the parties agreed to a remediation plan.
CoorsTek will manage the remediation and is responsible to pay from 10% to 15%
of the remediation costs in excess of $500,000. There is no firm estimate of
potential clean up costs, although management does not believe it will be
material.
CoorsTek has received a Unilateral Administrative Order issued by the EPA
relating to the Rocky Flats Industrial Park (RFIP) Site, and is participating
with the RFIP group to perform an Engineering Evaluation/Cost Analysis on the
property including investigation and sampling. However, the remediation costs
to date are below $500,000 and management does not expect costs to exceed this
amount.
CoorsTek and some of its subsidiaries have been notified that they may be
or have been named as potentially responsible parties ("PRPs") under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 or
similar state laws with respect to the remediation of certain sites where
hazardous substances have been released into the environment. CoorsTek cannot
predict with certainty the total costs of remediation, its share of the total
costs, the extent to which
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contributions will be available from other parties, the amount of time
necessary to complete the remediation, or the availability of insurance.
However, based on investigations to date, CoorsTek believes that any liability
with respect to these sites would not be material to the financial condition or
results of operations of CoorsTek, without consideration for insurance
recoveries. There can be no certainty, however, that CoorsTek will not be named
as a PRP at additional sites or be subject to other environmental matters in
the future or that the costs associated with those additional sites or matters
would not be material.
In addition, CoorsTek has received demands or requests for information
relating to alleged contamination of various properties currently or formerly
owned by CoorsTek or to which CoorsTek allegedly shipped waste. In management's
opinion, none of these claims will result in liability that would materially
affect CoorsTek's financial position or results of operations.
Employees
As of September 30, 1999, CoorsTek had approximately 3,300 full-time
employees. None of the employees is subject to a collective bargaining
agreement. Management considers its employee relations to be good.
Properties
CoorsTek believes that its facilities are well maintained and suitable
for their respective operations. The table below lists CoorsTek's plants and
most other physical properties and their locations and character.
<TABLE>
<CAPTION>
Facility Location Character
-------- -------- ---------
<S> <C> <C>
Manufacturing Benton, Arkansas(1) Ceramic Products
Manufacturing Grand Junction, Colorado Ceramic Products
Manufacturing Chattanooga, Tennessee Ceramic Products
Manufacturing Hillsboro, Oregon Ceramic Products
Manufacturing Lawrence, Pennsylvania(2) Ceramic Products
Manufacturing Norman, Oklahoma Ceramic Products
Manufacturing Oklahoma City, Oklahoma(3) Ceramic Products
Manufacturing Glenrothes, Scotland Ceramic Products
Manufacturing Oak Ridge, Tennessee(4) Ceramic Products
Manufacturing Austin, Texas(5) Ceramic Products,
Assembly Operations
Manufacturing and Odessa, Texas Ceramic Products
Distribution Office
Fluoropolymer
Manufacturing El Segundo, California(2) Products
Manufacturing and Company Golden, Colorado(6) Ceramic Products
Offices
Manufacturing Newark, California Metal Machining and
Assembly Operations
Manufacturing Livermore, California(5) Metal Machining and
Assembly Operations
</TABLE>
- --------
(1) Three facilities.
(2) Leased facility.
(3) Two facilities, one of which is leased.
(4) Three facilities, one of which is leased.
(5) Three facilities, all of which are leased.
(6) Four facilities, one of which is leased.
The operating facilities of CoorsTek are not constrained by capacity
issues.
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Legal Proceedings
In the ordinary course of business, CoorsTek and its subsidiaries are
subject to various pending claims, lawsuits and contingent liabilities. In each
of these cases, CoorsTek is vigorously defending itself. CoorsTek does not
believe that disposition of these matters will have a material adverse effect
on CoorsTek's consolidated financial position or results of operations. On
August 12, 1999, five current and former employees sued one of CoorsTek's
subsidiaries in the U.S. District Court for the Eastern District of Arkansas
claiming gender discrimination, sexual harassment and retaliation. The
plaintiffs are seeking class certification which the Company is resisting based
on the distinctions among their respective claims. Our preliminary evaluation
indicates the case is largely without merit, however we do not have sufficient
information to determine the ultimate outcome or any potential liability
related to these claims. Specific information regarding environmental legal
proceedings is discussed under the caption "Environmental Matters."
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MANAGEMENT
Directors
CoorsTek's Bylaws require seven directors. Five initial directors have
been elected by ACX, the sole stockholder of CoorsTek. The CoorsTek Board
intends to appoint the remaining two directors as soon as possible. Directors
of CoorsTek will relinquish any positions held with ACX on the Distribution
Date.
CoorsTek's Certificate of Incorporation provides for the division of the
Board of Directors into three classes. The full slate of directors will stand
for election at the first annual meeting of stockholders, to be held in 2001,
and prior to that election will be nominated to serve for terms of one, two and
three years (Classes I, II and III), respectively. Stockholders will elect one
class, consisting of approximately one third of the Directors, for three-year
terms at each succeeding annual meeting. CoorsTek's Certificate of
Incorporation sets a cap on the number of directors at 11 and the number of
directors may be fixed by or in the manner provided in the Bylaws. On the
Distribution Date, the directors will be the persons named below.
Joseph Coors and William K. Coors will serve as Directors Emeritis. As
Directors Emeritis Messrs. Coors will provide advice and consulting services to
the Board but shall not constitute "directors" and shall not have voting
rights.
<TABLE>
<CAPTION>
Principal Occupation or
Name Age Employment for the Past Five Years
---- --- ----------------------------------
<S> <C> <C>
John K. Coors......... 43 President of CoorsTek since October 1998; Chief
Executive Officer of Golden Genesis Company (a
former publicly traded subsidiary of ACX), from
January 1997 to October 1998; President of Golden
Photon Company from July 1992 to October 1998; Vice
President and Plant Manager of Coors Brewing
Company's Memphis, Tennessee brewery from January to
July 1992; director of Golden Genesis Company from
1997 to August 1999. He has been a director of ACX
since 1996.
Joseph Coors, Jr. .... 57 President and director of ACX since its formation in
August 1992; Chairman of CoorsTek since 1989, Chief
Executive Officer of CoorsTek since March 1997, and
President of CoorsTek from 1997 to October 1998 and
from 1985 to 1993; Director of Golden Genesis
Company from May 1998 until August 1999; Chairman of
Golden Aluminum (a former subsidiary of ACX) from
1993 to 1997; Executive Vice President of Adolph
Coors Company from 1991 to 1992; director of Hecla
Mining Company (NYSE: HL); Chairman of the Air Force
Memorial Foundation.
</TABLE>
[Additional directors]
Committees of the CoorsTek Board
The CoorsTek Board will have four standing committees: Audit,
Compensation, Executive and Corporate Governance. The membership of each
committee will be determined following the spin-off.
Audit Committee (all members will be nonemployee directors):
. Reviews the scope and results of the audit of CoorsTek by CoorsTek's
independent accountants.
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. Recommends the appointment of CoorsTek's independent accountants.
. Reviews the adequacy of CoorsTek's systems of internal control and
accounting policies and procedures, including compliance with
CoorsTek's ethics policy.
. Directs and supervises investigations into matters within the scope of
its duties.
Compensation Committee (all members will be nonemployee directors):
. Reviews and recommends to the Board compensation of management
personnel.
. Reviews and approves executive incentive and benefit plans.
. Reviews and recommends to the Board general employee benefits.
Executive Committee (all members will be employee directors):
. Exercises all of the authority of the Board when the Board is not in
session except as provided in CoorsTek's Certificate of Incorporation,
Bylaws and applicable law.
Corporate Governance Committee (all members will be nonemployee directors):
. Considers and recommends nominees for election as directors.
. Reviews and evaluates the performance of the Board.
Compensation of Directors
Employee directors will not receive additional compensation for serving
as directors of CoorsTek. Each non-employee director of CoorsTek will receive a
meeting fee of $7,000 per meeting that the director attends, 50 percent of
which will be paid in shares of CoorsTek's common stock. The balance of the
retainer will be paid in cash unless the non-employee director elects to take
all or a portion of it in CoorsTek's common stock.
In addition, CoorsTek has adopted the Stock Option and Incentive Plan
under which each non-employee director will receive a grant of 2,000 non-
qualified stock options at the beginning of his or her annual term that ends on
the date of the annual shareholders' meeting following receipt of the shares.
The options, with an exercise price equal to 100% of market value on the date
of grant, will vest in equal increments over a three-year period and will
expire, if unexercised, ten years from the date of grant.
No additional amounts will be paid to directors for committee meetings.
Directors will be reimbursed for expenses incurred while attending Board or
committee meetings and in connection with any other Company business. In
addition, CoorsTek will purchase accidental death and dismemberment insurance
for the non-employee directors.
Family Relationships
John K. Coors and Joseph Coors, Jr. are brothers and are sons of Joseph
Coors and nephews of William K. Coors.
Executive Officers
On the Distribution Date, the executive officers of CoorsTek will be as
follows:
Joseph Coors, Jr., age 57, has been Chairman of CoorsTek since 1989 and
its Chief Executive Officer since March 1997. He was President of CoorsTek from
1985 to 1993 and from 1997 to October
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1998. Mr. Coors has been President of ACX and a Director since its formation in
1992, and was a Director of Golden Genesis Company from May 1998 until August
1999, a Chairman of Golden Aluminum Company from 1993 to 1997, and an Executive
Vice President of Adolph Coors Company from 1991 to 1992. He also is a director
of Hecla Mining Company (NYSE:HL) and Chairman of the Air Force Memorial
Foundation. Mr. Coors holds a bachelor's degree in applied mathematics from the
University of North Carolina.
John K. Coors, age 43, has been President of CoorsTek since October 1998.
He also has been a Director of ACX since 1996 and of Golden Genesis Company
from January 1997 to August 1999. Mr. Coors was Chief Executive Officer of
Golden Genesis Company from January 1997 to October 1998, President of Golden
Photon Company from July 1992 to October 1998 and Vice President and Plant
Manager of Coors Brewing Company's Memphis, Tennessee brewery from January to
July 1992. Mr. Coors holds a bachelor's degree in chemical engineering from
Colorado School of Mines and a masters degree in biochemistry from Texas and
Austin and a doctorate degree in engineering from Technical University of
Munich.
Derek C. Johnson, age 39, has been Executive Vice President of Sales and
Marketing and Operations of CoorsTek since August 1999. Mr. Johnson was Vice
President of Sales and Marketing from October 1998 to August 1999, Vice
President of Golden Operations from 1997 to 1998 and Manager of Manufacturing
for Golden Operations from 1992 to 1997, for CoorsTek. Mr. Johnson received a
bachelor's degree in electrical engineering from the KirkCaldy Technical
College of Scotland and a master's degree in business administration from the
University of Denver.
Larry D. Murphy, age 57, has been Executive Vice President of Strategic
Initiatives of CoorsTek since October 1999. Prior to joining CoorsTek, he
served as Financial Services Group Banking Director with Andersen Consulting
from 1990 to September 1999. From 1987 to 1990, Mr. Murphy was Chief
Information Officer for Union Bank and he served as Chief Executive Officer and
President of Security Pacific Information Services, Inc. from 1980 to 1987. Mr.
Murphy received a bachelor's degree in mathematics from Auburn University and a
master's degree in business administration from National University.
Katherine A. Resler, age 40, has been General Counsel and Secretary of
CoorsTek since September 1999. Ms. Resler has been Counsel for ACX since 1998,
its Director of Executive Compensation since 1995 and its Assistant Secretary
since 1992. Ms. Resler received a bachelor's degree in science and a master's
degree in business administration from Colorado State University, and a J.D.
from the University of Denver.
Joseph G. Warren, Jr., age 54, has been Chief Financial Officer and
Treasurer of CoorsTek since August 1999. Mr. Warren was Vice President of
Finance, Chief Financial Officer, Secretary and Treasurer of White Electronics
& Designs, Inc., a semi-conductor manufacturer, from 1995 to July 1999. From
1994 to 1995 he served as Vice President and Chief Financial Officer of Axxess
Technologies, Inc. and from 1993 to 1994 served as Secretary, Treasurer and
Vice President of Golden Technologies Company, Inc., a wholly-owned subsidiary
of ACX. From 1992 to 1993, Mr. Warren was President of Coors Ceramicon Designs,
Ltd., a subsidiary of CoorsTek, and from 1985 to 1992 was Vice President of
CoorsTek. Mr. Warren received a bachelor's degree in accounting from Arizona
State University.
Other officers are:
Janet D. Comerford, age 41, has been Vice President of Human Resources
and Environmental Health and Safety of CoorsTek since October 1998. Ms.
Comerford was Regional Human Resources Manager of CoorsTek in 1997, served as
Manager of Administration from 1994 to 1997 and was a Production Manager from
1991 to 1994. Ms. Comerford received a bachelor's degree in business
administration from the University of Arizona.
39
<PAGE>
Dean A. Rulis, age 52, has been Vice President of Acquisitions and
Technology of CoorsTek since 1998. He was President and General Manager of
Wilbanks International, Inc. (a wholly owned subsidiary of CoorsTek) from 1997
to 1998; President of Golden Technologies Company, Inc. from 1992 to 1997. He
holds a bachelor's degree in mechanical engineering from Purdue University.
EXECUTIVE COMPENSATION
Compensation Philosophy
CoorsTek's compensation philosophy is intended to create value for
CoorsTek's stockholders through long-term growth in sales and earnings. The
total compensation package will consist of salary, benefits, an annual
incentive opportunity and equity grants and will be designed to attract,
motivate and retain the quality of executives needed to successfully lead and
manage CoorsTek. This package will intentionally tie a significant portion of
the executives' total compensation to CoorsTek's performance and shareholder
value.
CoorsTek Cash Compensation Arrangements
The following table sets forth the initial annual base salaries to be
paid for fiscal year 2000 to the named executive officers. The compensation
amounts do not include incentive cash bonuses that may be payable under
management incentive plans, but which will not be determined until a future
date.
<TABLE>
<CAPTION>
Estimated Cash
Name Position Compensation
---- -------- --------------
<S> <C> <C>
Joseph Coors, Jr. ...... Chairman and Chief Executive Officer $510,000
John K. Coors........... President $300,000
Derek C. Johnson........ Executive Vice President $225,000
Larry D. Murphy......... Executive Vice President $402,000
Joseph G. Warren, Jr. .. Chief Financial Officer and Treasurer $240,000
</TABLE>
Summary of Executive Compensation
The following information relates to the compensation paid by ACX to
Joseph Coors, Jr., who was as of December 31, 1998, and who will be as of the
Distribution Date, the Chief Executive Officer of CoorsTek. Other individuals
who will be executive officers of CoorsTek as of the Distribution Date, were
not among the CoorsTek executive officers for the year ended December 31, 1998
or earned less than $100,000 during 1998 and as a result are not included in
the table. All cash compensation reported in the table was paid by ACX and all
stock compensation was in the form of ACX common stock or options to purchase
shares of ACX common stock.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation/
Annual Compensation Awards
------------------------------ -------------
Securities
Other Annual Underlying All other
Name and Principal Salary Bonus Compensation Options/ SARs Compensation
Position Year ($) ($) ($) (#) ($)
------------------ ---- -------- -------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Coors, Jr. ..... 1998 $485,000 $305,550 -- 62,000 $12,705(1)
Chairman and Chief Ex-
ecutive 1997 $460,000 $479,780 $3,236(2) 15,000 $ 8,659
Officer 1996 $460,000 $437,460 -- -- $ 8,408
</TABLE>
- --------
(1) Other Compensation includes the value of term life insurance benefitting
the executive and the employer's contribution to the 401(k) plan,
respectively, as follows: $8,705 and $4,000.
(2) The amount shown is reimbursement during the year for taxes.
40
<PAGE>
Option/SAR Grants in Last Fiscal Year
CoorsTek is adopting a 1999 Comprehensive Stock and Incentive Plan (the
"1999 Plan"), which provides for the grant of stock options, stock appreciation
rights, restricted stock, restricted stock units, deferred stock awards,
unrestricted stock awards, performance stock awards, dividend equivalent
rights, performance awards and annual incentive awards. Awards may be made
under the 1999 Plan to employees, directors, service providers and consultants
to the Company and to any other individual whose participation in the 1999 Plan
is determined to be in the best interests of the Company by the Board. The
number of shares of common stock to be reserved for issuance under the 1999
Plan is ( ) shares, subject to adjustment for stock dividends, splits
and other similar events. Stock options intended to qualify as incentive stock
options under the Internal Revenue Code of 1986, and options that do not
qualify as incentive stock options may be granted under the Plan. The exercise
price of each option will be determined by the Board (or a committee if the
Board so delegates) but may not be less than 100% of the fair market value of
the Company's common stock on the date of grant.
The following table provides information on grants of options to purchase
shares of ACX common stock made during 1998. All options are granted at the ACX
common stock's market value on the grant date, and each grant has an expiration
date as specified in the table. All options vest in the event of a change in
control. The option price may be paid in cash, by surrendering shares owned for
more than 6 months, or through irrevocable instructions to a broker to deduct
the option price from the proceeds of the sale.
Individual Grants
<TABLE>
<CAPTION>
Number of %of Total
Securities Options/SARS Grant
Underlying Granted to Date
Options/SARs Employees Exercise or Present
Granted in Fiscal Base Price Value
Name (#) Yr. ($/Sh) Expiration Date ($)(1)
---- ------------ ------------ ----------- --------------- --------
<S> <C> <C> <C> <C> <C>
Joseph Coors, Jr. ...... 62,000(2) 13.0% $24.344 2/10/08 $795,460
</TABLE>
- --------
(1) Values indicated are an estimate based on the Black-Scholes option pricing
model using the following assumptions: (a) 28.1 percent stock price
volatility based on the average stock price volatility of the companies
included in the S&P Manufacturing (Diversified/Industrials) Index; (b) 5.63
percent risk-free rate of return; (c) zero dividend yield; (d) anticipated
exercising at the end of the option term; and (e) no adjustment for non-
transferability or risk of forfeiture. The actual value realized will be
determined by the excess of the stock price over the exercise price on the
date the option is exercised. There is no certainty the actual value
realized will be at or near the value estimated by the Black-Scholes option
pricing model.
(2) Options granted annually vest ratably over 3 years with each vested
increment being exercisable until the tenth anniversary of the grant date.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Securities In-The-Money
Underlying Unexercised Options/SARs
Shares Acquired Value Options/SARs at 12/31/98 ($) (1)
On Exercise Realized ------------------------- -------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---- --------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph Coors, Jr. ...... 5,900 $87,269 607,266 90,900 $273,418 $ 0
</TABLE>
- --------
(1) Value of unexercised options equals market value of the shares ($12.8125)
underlying in-the-money options at December 31,1998, less the exercise
price, times the number of in-the-money options outstanding.
41
<PAGE>
Retirement Plan
The Board of Directors of ACX Technologies, Inc. approved the spin-off of
the assets and liabilities of the ACX Technologies, Inc. Retirement Plan
attributable to current and former employees of CoorsTek and its subsidiaries
into a separate CoorsTek Retirement Plan ("Retirement Plan"), effective August
31, 1999. The Retirement Plan's assets will be held in trust. The provisions of
the Retirement Plan will be substantially the same as the provisions applicable
to the CoorsTek portion of the ACX Retirement Plan. The Retirement Plan will be
administered by an administrative committee appointed by the Board of Directors
of CoorsTek. Until the spin-off is completed, employees of CoorsTek and its
subsidiaries will continue to participate in the ACX retirement plan.
The retirement benefit is generally based on length of service and
average monthly compensation. Compensation taken into account is the total base
compensation, including commissions, overtime pay and amounts deferred by the
employee under Company plans pursuant to (S)(S) 125 and 401(k) of the Internal
Revenue Code of 1986, as amended, but excluding profit sharing pay and cash
bonuses. Average monthly compensation is determined by using the average of the
highest 36 consecutive months out of the last ten years, including years with
ACX and its subsidiaries and Adolph Coors Company and its subsidiaries.
The normal annual retirement benefit equals 1.25% of average annual
compensation times years of service (maximum of 25 years), plus .5% of average
annual compensation in excess of covered compensation times years of service
(maximum of 25 years), plus .5% of average annual compensation times years of
service in excess of 25 years, plus, beginning in 1996, the sum of 1.5% of
bonus pay for each plan year (not to exceed 25% of base pay). Covered
compensation is generally based on an average of the Social Security taxable
wage bases in effect during the 35 years ending with the calendar year in which
the employee's social security retirement age occurs. Years of service includes
years of service with ACX and its subsidiaries (and Adolph Coors Company and
its subsidiaries with respect to certain employees).
Unreduced normal retirement benefits are payable under the Retirement
Plan at (i) age 65, regardless of years of service or (ii) any time after age
60 provided age plus years of vesting service total at least 90. The benefit
accrued under the pension formula set forth above is in the form of a straight
life annuity. An employee with at least ten years of vesting service who
retires prior to normal retirement date is eligible for a retirement benefit,
at reduced rates, provided the employee is at least age 55.
42
<PAGE>
The following table sets forth annual retirement benefits for
representative years of service and average annual compensation as of December
31, 1998. The amounts shown in the table were calculated without taking into
account an amount for covered compensation; accordingly, the benefits shown
would be subject to a reduction to reflect the payment of Social Security
benefits. Furthermore, the amounts shown in the table were calculated without
adding any amounts related to the portion of the formula which adds, beginning
in 1996, the sum of 1.5% of bonus pay for each plan year (not to exceed 25% of
base pay). This portion of the formula is not based on average annual
compensation.
The maximum permissible benefit under ERISA from the qualified Retirement
Plan for 1998 was $130,000. In addition, the maximum compensation for 1998 that
may be used in determining benefits from the qualified Retirement Plan is
$160,000. CoorsTek's Executive Deferred Compensation Plan provides for the
benefits that are not payable from the Retirement Plan because of these two
limitations. The amounts shown in this table include the benefits payable under
the excess benefit plan and the non-qualified supplemental retirement plan.
Pension Plan
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------------------
Remuneration 15 20 25 30 35
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $ 32,813 $ 43,750 $ 54,688 $ 57,813 $ 56,328
$150,000 39,375 52,500 65,625 69,375 67,594
$175,000 45,938 61,250 76,563 80,938 78,859
$200,000 52,500 70,000 87,500 92,500 90,125
$225,000 59,063 78,750 98,438 104,063 101,391
$250,000 65,625 87,500 109,375 115,625 112,656
$275,000 72,188 96,250 120,313 127,188 123,922
$300,000 78,750 105,000 131,250 138,750 135,188
$325,000 85,313 113,750 142,188 150,313 146,453
$350,000 91,875 122,500 153,125 161,875 157,719
$375,000 98,438 131,250 164,063 173,438 168,984
$400,000 105,000 140,000 175,000 185,000 180,250
$425,000 111,563 148,750 185,938 196,563 191,516
$450,000 118,125 157,500 196,875 208,125 202,781
$475,000 124,688 166,250 207,813 219,688 214,047
$500,000 131,250 175,000 218,750 231,250 225,313
$525,000 137,813 183,750 229,688 242,813 236,578
$550,000 144,375 192,500 240,625 254,375 247,844
$575,000 150,938 201,250 251,563 265,938 259,109
</TABLE>
- --------
(1) As of fiscal year-end 1998, average annual compensation covered by the
Retirement Plan, which is equal to the highest average salary amount over a
consecutive 36 month period in the last 10 years, and credited years of
service with ACX, including previous compensation and years of service with
CoorsTek and its subsidiaries, for the named executives are as follows:
Joseph Coors, Jr.--$466,808 and 22 years; John K. Coors--$174,152 and 20
years; and Derek C. Johnson--$125,600 and 14 years. Larry D. Murphy and
Joseph G. Warren, Jr. have been with CoorsTek less than the above 36-month
period.
43
<PAGE>
Employment Contracts, Termination of Employment, Salary Continuation and
Change-in-Control Arrangements
CoorsTek has employment contracts with all of the named executives for a
three year period. Under the contracts, the executives receive an annual salary
as indicated in the Compensation Table, receive a $25,000 signing bonus and are
eligible to participate in equity incentive and annual bonus plans. In
addition, Larry D. Murphy received 85,000 ACX nonqualified stock options and
Joseph G. Warren, Jr. received 50,000 ACX nonqualified stock options subject to
vesting conditions based on time and stock performance. Upon termination, the
executive receives: nothing if terminated for cause; the greater of the
remaining term or one year's salary if termination is not for cause but two
years salary if termination is due to a Change in Control (as defined in the
stock option and incentive plan); and a gross-up amount if certain excise tax
payments are triggered.
Compensation received by the named executives upon retirement includes
normal retirement benefits and, for the Chief Executive Officer and the
President, a number of shares of stock to be granted under salary continuation
agreements. The shares will be payable in full upon retirement at age 60 or
after. Additionally, the shares will be 50 percent vested at age 50 with 10
years of service and the remaining 50 percent will vest in 5 percent increments
between ages 51 and 60.
In addition, in the case of a Change in Control of CoorsTek, CoorsTek's
compensation plans will be affected as follows: (1) under the Stock Option and
Incentive Plan, all outstanding options will become exercisable in full and all
stock units will become payable in full and prorated bonuses will be calculated
and paid, if earned; (2) under the deferred compensation plan, distributions of
deferred amounts will be made in a lump sum within 90 days after the Change in
Control; and (3) under the salary continuation agreements, stock units vest
100% without regard to the executive's age or service. The definition of change
in control for these purposes is as follows: (i) if beneficial ownership of 50%
or more of either the outstanding shares of CoorsTek's common stock or the
combined voting power of CoorsTek's voting stock is acquired by persons or
entities not related to CoorsTek without consent of the current Board, (ii)
upon the election of individuals constituting a majority of the Board who were
either not members prior to their election or not recommended to the
shareholders by the Board, (iii) upon a merger, consolidation or sale of all or
substantially all of CoorsTek's assets, whereupon (a) at least 50% of the
outstanding shares of CoorsTek's common stock and of the combined voting power
of voting securities are not held in the same proportion, and by the same
persons as the beneficial owners prior to such event, (b) at least 35% of
CoorsTek's common stock is held by a person that did not hold such amount prior
to the event and (c) a majority of the current Board did not continue to serve
as directors, or (iv) approval by the stockholders of CoorsTek of a complete
liquidation or dissolution of CoorsTek.
Stock Purchase Plan
CoorsTek is also adopting an Employee Stock Purchase Plan (the "Stock
Purchase Plan"), which will permit eligible employees, including directors and
executive officers, to purchase shares of common stock of the Company at a
discount. All employees of the Company whose customary employment is more than
20 hours per week and for more than five months in any calendar year will be
eligible to participate in this plan, provided that any employee who would own
five percent or more of the total combined voting power or value of the
Company's stock immediately after any grant is not eligible to participate.
During a purchase period, the Company will withhold amounts through payroll
deductions for eligible employees who elect to participate in the Stock
Purchase Plan. At the end of each purchase period, the Company will use
accumulated payroll deductions to purchase stock at a price equal to no less
than 85% of the market price on behalf of eligible employees who are
participating in the plan. The Company intends to reserve [ ] shares of
common stock for issuance under the Stock Purchase Plan. The Company intends
that the Stock Purchase Plan meet the requirements for an "employee stock
purchase plan" under Section 423 of the Code.
44
<PAGE>
Security Ownership of Certain Beneficial Owners,
Directors and Executive Officers
of CoorsTek
None of the present executive officers or directors of CoorsTek currently
owns any shares of CoorsTek common stock, all of which are owned currently by
ACX. However, the executive officers and directors of CoorsTek will receive, by
virtue of their ownership of ACX common stock, shares of CoorsTek common stock
in the spin-off. In addition, as discussed under "Management," certain existing
options and warrants to purchase shares of ACX common stock under ACX executive
plans will be converted into comparable options and warrants to purchase shares
of CoorsTek common stock.
The following table lists beneficial ownership of ACX common stock as of
September 30, 1999 by owners of more than five percent of the ACX common stock,
each of the directors, each of the named executive officers and all directors
and executive officers of CoorsTek as a group. Except as otherwise indicated,
the beneficial owner has sole voting and investment power.
<TABLE>
<CAPTION>
Amount and Nature of
Address for 5% Beneficial Percent
Name Owners Ownership of Class
---- ---------------------------- -------------------- --------
<S> <C> <C> <C>
Adolph Coors, Jr. Trust Adolph Coors Company 2,800,000 9.8%
(William K. Coors, Golden, Colorado 80401
Jeffrey H.
Coors, J. Brad Coors,
Joseph
Coors, and Peter H.
Coors, co-
trustees with shared
voting and
investment power)
Grover C. Coors Trust Adolph Coors Company 2,727,016 9.6%
(William K. Coors, Golden, Colorado 80401
Jeffrey H.
Coors, John K. Coors,
Joseph
Coors, and Joseph
Coors, Jr., co-
trustees with shared
voting and
investment power)
May Kistler Coors Trust Adolph Coors Company 1,726,652 6.1%
(William K. Coors, Golden, Colorado 80401
Jeffrey H.
Coors, Joseph Coors,
Joseph
Coors, Jr. and Peter
H. Coors,
co-trustees with
shared voting
and investment power)
Tweedy, Browne Company 52 Vanderbilt Avenue 1,481,685 5.2%
LLC New York, New York 10017
and Affiliates
Herman F. Coors Trust Adolph Coors Company 1,435,000 5.0%
(William K. Coors, Golden, Colorado 80401
Jeffrey H.
Coors, Joseph Coors,
Joseph
Coors, Jr. and Peter
H. Coors, co-
trustees with shared
voting
and investment power)
William K. Coors (1) Adolph Coors Company 1,856,421 6.5%
Golden, Colorado 80401
Jeffrey H. Coors (2) ACX Technologies, Inc. 2,477,883 8.7%
16000 Table Mountain Parkway
Golden, Colorado 80403
Joseph Coors (3) Adolph Coors Company 1,981,788 7.0%
Golden, Colorado 80401
Peter H. Coors (4) Adolph Coors Company 1,735,726 6.1%
Golden, Colorado 80401
John K. Coors (5) 54,558 *
Joseph Coors, Jr. (6) 2,459,392 8.6%
Derek C. Johnson (7) 14,532 *
Larry D. Murphy 0 --
Joseph G. Warren, Jr. 0 --
Directors and Executive
Officers
as a Group (6 persons) 2,517,482 8.8%
</TABLE>
45
<PAGE>
- --------
* Holds less than 1% of the Common Stock
(1) Includes 1,726,652 shares held by William K. Coors as trustee, as to which
he shares voting and investment power with Jeffrey H. Coors, Joseph Coors,
Joseph Coors, Jr. and Peter H. Coors, as co-trustees. Does not include the
786,412 shares held by William K. Coors as director of the Adolph Coors
foundation, of which Jeffrey H. Coors, Peter H. Coors and William K. Coors,
among others, are the directors. Also does not include the following shares
held by William K. Coors as trustee as to which he disclaims beneficial
ownership: (1) 178,064 shares; Jeffrey H. Coors, Joseph Coors and Peter H.
Coors, co-trustees with shared voting and investment power, and (2)
1,599,408 shares: Jeffrey H. Coors, Joseph Coors, Joseph Coors, Jr. and
Peter H. Coors, co-trustees with shared voting and investment power.
Includes 3,333 shares of ACX common stock issuable pursuant to options that
are currently exercisable or will be exercisable within 60 days.
(2) Includes 1,726,652 shares held by Jeffrey H. Coors as trustee, as to which
he shares voting and investment power with William K. Coors, Joseph Coors,
Joseph Coors, Jr. and Peter H. Coors, as co-trustees. Does not include
786,412 shares held by Jeffrey H. Coors as director of the Adolph Coors
foundation, of which Jeffrey H. Coors, Peter H. Coors and William K. Coors,
among others, are the directors. Also does not include the following shares
held by Jeffrey H. Coors as trustee as to which he disclaims beneficial
ownership: (1) 178,064 shares: William K. Coors, Joseph Coors and Peter H.
Coors, co-trustees with shared voting and investment power; and (2)
1,599,408 shares: William K. Coors, Joseph Coors, Joseph Coors, Jr. and
Peter H. Coors, co-trustees with shared voting and investment power. Does
not include: 72,350 shares of Common Stock restricted and unissued until
the earlier of (i) grantee's retirement, death, disability or termination
of employment, or (ii) the year 2000 (5,726) shares), 2001 (3,600 shares),
2002 (5,344 shares), 2004 (10,096 shares), 2005 (11,443) and 2010 (12,618
shares); or 66,672 shares of Common Stock restricted and unissued until
retirement. Includes 628,442 shares of ACX common stock issuable pursuant
to options that are currently exercisable or will be exercisable within 60
days.
(3) Includes 250,000 shares held by Joseph Coors as co-trustee of his revocable
trust. Also includes 1,726,652 shares held by Joseph Coors as trustee, as
to which he shares voting and investment power with William K. Coors,
Jeffrey H. Coors, Joseph Coors, Joseph Coors, Jr. and Peter H. Coors, as
co-trustees. Does not include the following shares held by Joseph Coors as
trustee as to which he disclaims beneficial ownership: (1) 178,064 shares:
William K. Coors, Jeffrey H. Coors and Peter H. Coors, co-trustees with
shared voting and investment power; and (2) 1,349,408 shares: William K.
Coors, Jeffrey H. Coors, Joseph Coors, Jr. and Peter H. Coors, co-trustees
with shared voting and investment power. Includes 2,000 shares of ACX
common stock issuable pursuant to options that are currently exercisable or
will be exercisable within 60 days.
(4) Includes 1,726,652 shares held by Peter H. Coors as trustee, as to which he
shares voting and investment power with William K. Coors, Jeffrey H. Coors,
Joseph Coors, and Joseph Coors, Jr., as co-trustees. Does not include
786,412 shares held by Peter H. Coors as director of the Adolph Coors
foundation, of which Jeffrey H. Coors, Peter H. Coors and William K. Coors,
among others, are the directors. Also does not include the following shares
held by Peter H. Coors as trustee as to which he disclaims beneficial
ownership: (1) 178,064 shares: William K. Coors, Joseph Coors and Jeffrey
H. Coors, co-trustees with shared voting and investment power; and (2)
1,599,408 shares: William K. Coors, Joseph Coors, Joseph Coors, Jr. and
Jeffrey H. Coors, co-trustees with shared voting and investment power.
(5) Does not include 2,727,016 shares held by John K. Coors as trustee as to
which he disclaims beneficial ownership. As to the 2,727,016 shares, John
K. Coors shares voting and investment power with Jeffrey H. Coors, William
K. Coors, Joseph Coors and Joseph Coors, Jr. The 2,727,016 shares also does
not include 18,156 shares of ACX common stock restricted and unissued until
retirement. Includes 52,324 shares of ACX common stock issuable pursuant to
options that are currently exercisable or will be exercisable within 60
days.
(6) Does not include 1,599,408 shares held by Joseph Coors, Jr. as trustee as
to which he disclaims beneficial ownership. As to the 1,599,408 shares,
Joseph Coors, Jr. shares voting and investment power with Jeffrey H. Coors,
Joseph Coors, William K. Coors and Peter H. Coors. Also does not include
1,798 shares of ACX common stock restricted and unissued until the earlier
of retirement or death, disability or termination of employment; or 64,032
shares of common stock restricted and unissued until retirement. Includes
651,832 of ACX common stock issuable pursuant to options that are currently
exercisable or will be exercisable within 60 days.
(7) Includes 11,332 shares of ACX common stock issuable pursuant to options
that are currently exercisable or will be exercisable within 60 days.
46
<PAGE>
DESCRIPTION OF INDEBTEDNESS
In connection with the spin-off, CoorsTek expects to enter into a Credit
Agreement (the "Bank of America Loan"), provided by Bank of America and a
syndicate of other lenders. The Bank of America Loan will provide for a $270
million credit facility consisting of a $95 million revolving credit facility
maturing in five years, an $85 million term facility maturing in five years and
a $90 million term facility maturing in seven years. Borrowings under the
credit facility will bear interest at rates generally based on LIBOR plus a
spread that will vary depending upon CoorsTek's performance. The Bank of
America Loan will be collateralized by substantially all of CoorsTek's assets,
including real estate and all of the outstanding capital stock of CoorsTek's
subsidiaries, whether now owned or later acquired. The agreement for the Bank
of America Loan is expected to contain covenants restricting liens, capital
expenditures, investments, borrowing, payment of dividends, mergers, and
acquisitions and sale of assets. In addition, the agreement for the Bank of
America Loan, as amended, is expected to contain financial covenants
restricting maximum annual capital expenditures, recapturing excess cash flow
and requiring maintenance of the following ratios:
. maximum total debt to EBITDA (as defined in the agreement for the
Bank of America Loan);
. minimum EBITDA to interest; and
. minimum tangible net worth.
CoorsTek will pay $200 million of the debt proceeds to ACX for reduction
of intercompany obligations and payment of a special dividend.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Authorized Shares
Under CoorsTek's Certificate of Incorporation, the authorized capital
stock of CoorsTek consists of 100,000,000 shares of common stock, par value
$.01 per share, and 20,000,000 shares of preferred stock, $.01 par value per
share. ACX currently owns all outstanding shares of common stock. No shares of
preferred stock have been issued. Immediately after the spin-off, based on the
number of shares of common stock of ACX outstanding at November 26, 1999 and
the distribution ratio of one share of CoorsTek common stock for every four
shares of ACX common stock, approximately 7,134,880 shares of the CoorsTek
common stock and no shares of the preferred stock will be issued and
outstanding. ACX will not own shares of CoorsTek common stock after the spin-
off.
Common Stock
Holders of CoorsTek common stock are entitled to one vote for each share
on all matters voted on by stockholders. Holders of CoorsTek common stock do
not have cumulative voting rights in the election of directors. The first
annual meeting of stockholders is expected to be held during 2001.
There is no established public trading market for CoorsTek common stock,
although a "when issued" market is expected to develop prior to the spin-off
date. We have applied for inclusion of CoorsTek common stock in the Nasdaq
National Market upon official notice of inclusion and we expect to receive
approval of such inclusion prior to the spin-off.
All shares of CoorsTek common stock to be distributed will be fully paid
and nonassessable. Holders of CoorsTek common stock do not have any
subscription, redemption or conversion privileges.
Under the Delaware General Corporation Law, we may pay dividends out of
"surplus" (as determined in accordance with the Delaware General Corporation
Law) or, if there is no surplus, out of net profits for the fiscal year in
which the dividends are declared and/or the preceding fiscal year (subject to
certain restrictions). Subject to the preferences or other rights of any
CoorsTek preferred stock that may be issued from time to time, holders of
CoorsTek common stock are entitled to participate ratably in dividends on the
common stock as declared by the Board of Directors. Our dividend policy will be
established by our Board of Directors from time to time. Subject to legal and
contractual restrictions, its decisions regarding dividends will be based on
all considerations that in its business judgment are relevant at the time,
including past and projected earnings, cash flows, economic, business and
securities market conditions and anticipated developments concerning our
business and operations. We do not currently intend to pay dividends on the
common stock.
Holders of CoorsTek common stock are entitled to share ratably in all
assets available for distribution to stockholders in the event of liquidation
or dissolution of CoorsTek, subject to distribution of the preferential amount,
if any, to be distributed to holders of preferred stock.
Preferred Stock
The Certificate of Incorporation authorizes the Board, without any vote
or action by the holders of common stock, to issue preferred stock from time to
time in one or more series. The Board is authorized to determine the number of
shares and to fix the powers, designations, preferences and relative,
participating, optional or other special rights of any series of preferred
stock. Issuances of preferred stock would be subject to the applicable rules of
the Nasdaq National Market or other organizations on which CoorsTek stock is
then quoted or listed. Depending upon the terms of preferred stock established
by the Board of Directors, any or all series of preferred stock could have
preference over the common stock with respect to dividends and other
distributions and upon liquidation of
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CoorsTek. If any shares of preferred stock are issued with voting powers, or if
additional shares of common stock are issued, the voting power of the
outstanding common stock would be diluted.
CoorsTek believes that the availability of preferred stock will provide
increased flexibility to facilitate possible future financings and acquisitions
and to meet other corporate needs that might arise.
Transfer Agent and Registrar
Norwest Bank Minnesota, NA will be the transfer agent and registrar for
the CoorsTek common stock immediately following the spin-off.
Anti-takeover Effects of Certain Provisions
CoorsTek's Certificate of Incorporation and Bylaws, the Delaware General
Corporation Law and the Stockholder Rights Plan contain provisions that may
discourage or delay the acquisition of control of CoorsTek by means of a tender
offer, open market purchases, a proxy contest or otherwise.
Purposes of Provisions
The relevant provisions of the Certificate of Incorporation and Bylaws
are intended to discourage certain types of transactions that may involve an
actual or threatened change of control of CoorsTek and to encourage any person
who might seek to acquire control of CoorsTek to negotiate with the Board of
Directors. Management of ACX and CoorsTek believe that generally the interests
of the stockholders would be served best if any change in control results from
negotiations with the CoorsTek Board of the proposed terms, such as the price
to be paid, the form of consideration and the anticipated tax effects of the
transaction. However, to the extent that these provisions do discourage
takeover attempts, they could make it more difficult to accomplish transactions
that are opposed by the incumbent Board and could deprive stockholders of
opportunities to realize takeover premiums for their shares or other advantages
that large accumulations of stock would provide.
The Certificate of Incorporation, the Bylaws and the Stockholder Rights
Plan will be effective on or before the Distribution Date, and are filed as
exhibits to CoorsTek's registration statement on Form 10 of which this
Information Statement is a part.
Delaware Section 203
Section 203 of the Delaware General Corporation Law provides that,
subject to certain exceptions, a corporation shall not engage in any "business
combination" with any "interested stockholder" for a three-year period
following the time that such stockholder becomes an interested stockholder
unless:
. prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
. upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain
shares); or
. on or subsequent to such time, the business combination is approved
by the board of directors of the corporation and by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not
owned by the interested stockholder.
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Section 203 generally defines an "interested stockholder" to include:
. any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within three years
immediately prior to the relevant date; and
. the affiliates and associates of any such person.
Section 203 generally defines a "business combination" to include:
. mergers and sales or other dispositions of 10% or more of the assets
of the corporation with or to an interested stockholder;
. certain transactions resulting in the issuance or transfer to the
interested stockholder of any stock of the corporation or its
subsidiaries;
. certain transactions which would result in increasing the
proportionate share of the stock of the corporation or its
subsidiaries owned by the interested stockholder; and
. receipt by the interested stockholder of the benefit (except
proportionately as a stockholder) of any loans, advances, guarantees,
pledges, or other financial benefits.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
certificate of incorporation or stockholder-adopted bylaws may exclude a
corporation from the restrictions imposed thereunder. Neither the Certificate
nor the Bylaws exclude CoorsTek from the restrictions imposed under Section
203. It is anticipated that the provisions of Section 203 may encourage
companies interested in acquiring CoorsTek to negotiate in advance with the
Board of Directors since the stockholder approval requirement would be avoided
if the Board approves, prior to the time the acquirer becomes an interested
stockholder, either the business combination or the transaction that results in
the acquirer becoming an interested stockholder.
Classification of the Board
The total number of directors will be divided into three classes, with
each class containing one-third of the total, as near as may be. The terms of
directors will expire as follows:
. the terms of the first class will expire at the second annual meeting
of stockholders held after the spin-off,
. the terms of directors in the second class will expire at the third
annual meeting of stockholders held after the spin-off, and
. the terms of directors in the third class will expire at the fourth
annual meeting of stockholders held after the spin-off.
Upon the expiration of the initial staggered terms, directors shall be
elected for terms of three years to succeed those whose terms expire. Of the
initial directors, the first class will consist of two persons, the second
class will consist of two persons and the third class will consist of one
person. The two additional directors will be elected to the third class and the
first class, respectively. The structure of the classified board is intended to
promote continuity and stability of CoorsTek's management and policies because
a majority of the directors serving at any given time will have prior
experience as directors of CoorsTek.
The classification of directors could make it more difficult for
stockholders to quickly change the composition of the Board. At least two
annual meetings of stockholders, instead of one, generally would be required to
effect a change in the majority of the Board.
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Number of Directors; Removal; Vacancies
The Certificate of Incorporation provides that the number of directors
will not be fewer than three or more than 11. The initial Board of Directors
will consist of seven persons. The exact number of directors is set in
accordance with the Bylaws by resolution from time to time of two-thirds of the
directors then in office. Interim vacancies on the Board, or vacancies created
by an increase in the number of directors, may be filled by a majority of the
directors then in office. A director appointed to fill a vacancy will hold
office for the remainder of the term of the class of director in which the
vacancy occurred or the new directorship was created.
Directors may be removed for cause only by a class vote of the holders of
two-thirds of the stockholders entitled to vote thereon. This provision, in
conjunction with the provisions of the Amended and Restated Articles
authorizing the Board to fill vacant directorships, would prevent stockholders
holding less than two-thirds of the voting stock from removing incumbent
directors and filling the resulting vacancies with their own nominees.
Stockholder Action
The Certificate of Incorporation requires all stockholder action to be
taken at an annual or special meeting of stockholders and prohibits stockholder
action by written consent, unless the action is by unanimous consent. The
Certificate of Incorporation and Bylaws also provide that special meetings of
stockholders may be called by the Board of Directors, the Chairperson or the
President.
The provisions prohibiting stockholder action by consent resolution
except by unanimous consent and, not permitting any stockholder or group
thereof to call a special meeting may have the effect of delaying consideration
of a stockholder proposal until the next annual meeting of the stockholders
unless a special meeting is called by the Board of Directors, the Chairperson
or the President.
Stockholder Proposals
CoorsTek's Bylaws establish an advance notice procedure for nominations
(other than by or at the direction of the Board) of candidates for election as
directors at, and for proposals to be brought before, an annual meeting of
stockholders. Subject to any other applicable requirements, only such
nominations may be considered and such business may be conducted at an annual
meeting as have been brought before the meeting by or at the direction of the
Board or by a stockholder who has given to the Secretary of CoorsTek timely
written notice, in proper form, of the same.
To be timely, notice of nominations or other business to be brought
before an annual meeting must be received by the Secretary of CoorsTek not less
than 90 days nor more than 120 days prior to the anniversary of the preceding
year's annual meeting. For the purposes of CoorsTek's first annual meeting held
after 2000, the anniversary date shall be deemed to be May , 2001.
Each notice must set forth:
. the identity (including name and address) of the stockholder or
stockholders who intend to make the nomination or proposal,
. the class and number of shares of common stock and preferred stock
owned directly or indirectly, by such stockholder,
. a representation that the stockholder is a holder of record of Coors
Ceramic stock entitled to vote at the meeting and intends to appear
in person or by proxy at the meeting to propose the business or
nomination,
. a representation whether the stockholder or the beneficial owner, if
any, intends or is part of a group which intends:
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. to deliver a proxy statement and/or form of proxy to holders of at
least the percentage of CoorsTek's capital stock required to approve
the proposal or elect the nominee, or
. otherwise to solicit proxies from stockholders is support of the
proposal or nomination,
. in the case of a stockholder proposal,
-- a brief description of the business desired to be brought before
the meeting,
-- the text of the proposal (including the text of any resolutions
proposed for consideration and in the event that the business
includes a proposal to amend the Bylaws, the language of the
proposed amendment),
-- the reasons for conducting such business at the meeting and
-- any material interest of such stockholder in the proposed
business, if any, and
. in the case of a nomination for election of a director,
-- all information regarding the nominee proposed by the stockholder
that would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange
Commission, and
-- the consent of the nominee to be named in a proxy statement as a
candidate for election and to serve as a director if elected.
CoorsTek may require any proposed nominee to furnish such other
information as it may reasonably require to determine the eligibility of such
proposed nominee to serve as a director.
The chairperson of the meeting at which the directors are to be elected
or at which the stockholder action is to be taken shall have the power and
duty:
-- to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed in accordance with
these procedures, and
-- if any proposed nomination or business was not made or proposed in
compliance with these procedures, to declare that the nomination
shall be disregarded or that the proposed business shall not be
transacted.
These provisions are intended to facilitate planning for the conduct of
CoorsTek's annual meeting of stockholders and to provide time for proposals to
be evaluated fully. They may have the effect of precluding a nomination or the
conduct of business at a particular meeting if the proper procedures are not
followed and may deter a potential acquirer from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of CoorsTek, even if the conduct of such solicitation or such attempt
might be beneficial to the stockholders.
Acquisition Proposals
In determining whether an acquisition proposal is in the long-term best
interests of CoorsTek and its stockholders, the Certificate of Incorporation
provide that the Board may consider the effect of both an acquisition proposal
and a potential acquisition on creditors, customers and employees of CoorsTek
and on the community in general, the risks of non-consummation of an
acquisition proposal, the identity, prior background and other business
experiences of the person or entity making an acquisition proposal, and the
business plans of both CoorsTek and the person or entity making an acquisition
proposal and their respective effects on stockholder interests.
Stockholder Vote for Amendment of Certificate and Bylaws
Under Delaware law, amendments to a company's certificate of
incorporation require a resolution of the board of directors and the approval
of the holders of majority of the outstanding shares entitled to vote and, in
certain cases, of a majority of the outstanding shares of each class entitled
to
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vote, voting separately as a class. Delaware law also permits a company's
certificate of incorporation to require a greater vote than the vote otherwise
required for any corporate action. The Certificate of Incorporation require the
concurrence of the holders of at least two-thirds of the voting stock of
CoorsTek, voting together as a single class, to amend or repeal, or adopt any
provision inconsistent with, the anti-takeover provisions of the Certificate of
Incorporation discussed above. The Certificate of Incorporation also provide
that the Amended and Restated Bylaws may be amended or repealed by an
affirmative vote of two-thirds of the directors then in office or by an
affirmative vote of two-thirds of the stockholders entitled to vote thereon.
These supermajority vote requirements are intended to prevent a stockholder
with a majority of CoorsTek's common stock from avoiding the requirements of
these provisions by simply amending them.
Other Provisions of Certificate
CoorsTek's Certificate of Incorporation authorize the Board of Directors
to take such action as it may determine to be reasonably necessary or desirable
to encourage any person or entity to enter into negotiations with the Board and
management of CoorsTek respecting any transaction that may result in a change
of control and to contest or oppose any such transaction that the Board
determines to be unfair, abusive or otherwise undesirable to CoorsTek or its
stockholders, business, customers, employees or other constituencies. This
provision specifically permits the Board to adopt plans or to issue securities
(including common stock or preferred stock, rights or debt securities), which,
among other things, may be exchangeable or convertible into cash or other
securities on such terms as the Board determines, may provide for differential
and unequal treatment of different holders or classes of holders and may
contain restrictions that preclude or limit the entitlement, exercise or
transfer of such securities by a person who, after their creation, acquires a
certain percentage of CoorsTek's voting stock. This provision is intended, in
part, to give the Board greater bargaining power to negotiate on behalf of
stockholders in the event of a takeover proposal. It may, however, discourage
or make more difficult a hostile takeover or acquisition of control and could
deprive stockholders of possible opportunities to realize premiums for their
shares and reduce the risk to management that it might be displaced by a
takeover.
Preferred Stock and Additional Common Stock
The Board's authority to issue of shares of common stock and preferred
stock and to fix by resolution the terms and conditions of each series of
preferred stock may either impede or facilitate the completion of a merger,
tender offer or other takeover attempt. For example, the issuance of new shares
might impede a business combination if the terms of those shares include series
voting rights that would enable the holder to block business combinations or
the issuance of new shares might facilitate a business combination if those
shares have general voting rights sufficient to cause an applicable percentage
vote requirement to be satisfied. The Board of Directors will make any
determination regarding issuance of additional shares based on its judgment as
to the best interest of its stockholders, customers, employees or other
constituencies.
Stockholder Rights Plan
Prior to the spin-off, the Ceramics board will adopt a Stockholder Rights
Plan and cause to be issued, with each share of common stock to be distributed
in the spin-off, one preferred share purchase right (a "Right"). Each Right
will entitle the registered holder to purchase from CoorsTek one one-thousandth
of a share of Series A Junior Participating Preferred Stock of CoorsTek (the
"Junior Preferred") at an exercise price of $[38], subject to adjustment. The
description and terms of the Rights will be set forth in a Stockholder Plan
Rights Agreement between CoorsTek and [Norwest Bank N.A.], as Rights Agent (the
"Rights Agent").
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Initially, the Rights will be attached to all certificates representing
shares of common stock then outstanding. The Rights will separate from the
common stock and a distribution of Rights Certificates will occur upon the
earlier to occur of:
. days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of
15% or more of the outstanding shares of common stock (the "Stock
Acquisition Date"), or
. business days following the commencement of a tender offer or
exchange offer the consummation of which would result in the
beneficial ownership by a person of 15% or more of the outstanding
shares of common stock.
The earlier of such dates is referred to as the "Distribution Date."
Until the Distribution Date:
. the Rights will be evidenced by the common stock certificates, no
separate certificates evidencing the Rights will be distributed and
the Rights will be transferred only with the common stock
certificates, and
. the surrender for transfer of any certificates for common stock
outstanding will also constitute the transfer of the Rights
associated with the common stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on January [ ], 2010, unless earlier redeemed
or exchanged by CoorsTek as described below. The Rights will not be exercisable
by a holder in any jurisdiction where the requisite qualification to the
issuance to such holder, or the exercise by such holder, of the Rights has not
been obtained or is not obtainable.
As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Rights Certificates") will be mailed to
holders of record of the common stock as of the close of business on the
Distribution Date and, thereafter, the separate Rights Certificates alone will
evidence the Rights. Except as otherwise determined by the Ceramics board, only
shares of common stock issued prior to the Distribution Date will be issued
with Rights.
If a person or group becomes an Acquiring Person (except pursuant to an
offer for all outstanding shares of common stock that the independent directors
determine to be fair to and otherwise in the best interests of CoorsTek and its
stockholders), each holder of a Right will, after the end of a redemption
period referred to below, have the right to receive, upon exercise, common
stock (or, in certain circumstances, cash, property or other securities of
CoorsTek) having a value equal to two times the exercise price of the Right.
Notwithstanding any of the foregoing, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by
any Acquiring Person will be null and void. However, Rights are not exercisable
following the occurrence of the events set forth above until such time as the
Rights are no longer redeemable by CoorsTek as set forth below.
For example, at a Purchase Price of [$38] per Right, each Right not owned
by an Acquiring Person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase [$76]
worth of common stock (or other consideration, as noted above) for [$38].
Assuming that the common stock had a per share value of [$19] at such time, the
holder of each valid Right would be entitled to purchase 4 shares of common
stock for [$38].
If, at any time following the Stock Acquisition Date,
. CoorsTek is acquired in a merger or other business combination
transaction in which CoorsTek is not the surviving corporation (other
than a merger which follows an offer for
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all outstanding shares of common stock that the independent directors
determine to be fair to and otherwise in the best interests of
CoorsTek and its stockholders), or
. 50% or more of CoorsTek's assets or earning power is sold or
transferred,
each holder of a Right (except Rights that previously have been voided as set
forth above) shall, after the expiration of the redemption period referred to
below, have the right to receive, upon exercise, common stock of the acquiring
company having a value equal to two times the Purchase Price of the Right
(e.g., common stock of the acquiring company having a value of [$76] for the
[$38] Purchase Price).
At any time after a person or group becomes an Acquiring Person,
CoorsTek Board may exchange the Rights (other than Rights owned by such
Acquiring Person that have become void), in whole or in part, at an exchange
ratio of one share of common stock per Right (subject to adjustment).
The Purchase Price payable, and the number of one one-thousandths of a
share of Junior Preferred or other securities or property issuable, upon
exercise of the Rights, are subject to adjustment from time to time to prevent
dilution:
. in the event of a stock dividend on, or a subdivision, combination or
reclassification of the Junior Preferred,
. upon the grant to holders of the Junior Preferred of certain rights or
warrants to subscribe for Junior Preferred or convertible securities at
less than the current market price of the Junior Preferred, or
. upon the distribution to holders of the Junior Preferred of evidences of
indebtedness or assets (other than regular quarterly cash dividends and
dividends payable in Junior Preferred) or of subscription rights or
warrants (other than those referred to above).
The Stockholder Rights Plan provides that the number of outstanding
Rights shall adjust in the event of a stock dividend on CoorsTek's common
stock payable in shares of common stock and in the event of any subdivisions,
consolidations or combinations of common stock occurring, in any such case,
prior to the Distribution Date.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares will be issued (other than fractions
of Junior Preferred that are integral multiples of one one-thousandth of a
share of Junior Preferred, which may, at CoorsTek's election be evidenced by
depositary receipts) and in lieu thereof, an adjustment in cash will be made
based on the market price of the Junior Preferred on the last trading date
prior to the date of exercise.
CoorsTek does not have authority to redeem shares of the Junior
Preferred. Each share of Junior Preferred will be entitled, when, as and if
declared, to a minimum preferential quarterly dividend payment of the greater
of:
. $0.01 per share; and
. 1,000 times the aggregate per share amount of all cash dividends, and
1,000 times the aggregate per share amount (payable in kind) of all non
cash dividends or other distributions other than a dividend payable in
shares of common stock.
Upon any liquidation (voluntary or otherwise), dissolution or winding up
of CoorsTek, no distribution shall be made to the holders of shares of
CoorsTek's capital stock ranking junior to the Junior Preferred unless, prior
thereto, the holders of shares of Junior Preferred shall have received
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$[36] per share (the "Junior Preferred Liquidation Preference"), plus any
unpaid dividends and distributions payable thereon, whether or not declared, to
the date of such payment.
Following the payment of the Junior Preferred Liquidation Preference, no
additional distributions shall be made to the holders of Junior Preferred
unless, prior thereto, the common stockholders shall have received an amount
per share equal to the quotient obtained by dividing the Junior Preferred
Liquidation Preference by 1,000.
Each share of Junior Preferred shall entitle the holder thereof to 1,000
votes on all matters submitted to a vote of the common stockholders of the
Corporation. In the event of any merger, consolidation or other transaction in
which outstanding shares of Ceramics common stock are converted or exchanged,
each share of Junior Preferred will be entitled to receive 1,000 times the
amount received per share of common stock. These rights, and the rights
described in the preceding two paragraphs, are protected by customary
antidilution provisions.
In general, the Board may cause CoorsTek to redeem the Rights in whole,
but not in part, at any time during the period commencing on January [1], 2000,
and ending on the tenth day following the Stock Acquisition Date, as such
period may be extended or shortened by the Board (the "Redemption Period") at a
price of $.001 per Right (payable in cash, common stock or other consideration
deemed appropriate by the board). After the redemption period has expired,
CoorsTek's right of redemption may be reinstated if an Acquiring Person reduces
his beneficial ownership to 10% or less of the outstanding shares of common
stock in a transaction or series of transactions not involving CoorsTek and
there are no other Acquiring Persons. Immediately upon the action of the Board
ordering redemption of the Rights, the Rights will terminate and the only right
of the holders of Rights will be to receive the $.001 redemption price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of CoorsTek, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be subject to federal taxation to stockholders or to CoorsTek, stockholders
may, depending upon the circumstances, recognize taxable income in the event
that the Rights become exercisable for common stock (or other consideration) of
CoorsTek or for common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
Ceramics Board prior to the Distribution Date. After the Distribution Date, the
provisions of the Rights Agreement may be amended by the Ceramics Board in
order to cure any ambiguity, defect or inconsistency or to make changes which
do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person), or to shorten or lengthen any time period
under the Rights Agreement; provided however, no amendment to adjust the time
period governing redemption may be made at such time as the Rights are not
redeemable.
The Rights are being registered under the Exchange Act, together with
common stock, pursuant to the registration statement. In the event that the
Rights become exercisable, CoorsTek will register the shares of Junior
Preferred for which the Rights may be exercised, in accordance with applicable
law.
Liability and Indemnification of Officers and Directors
Elimination of Liability in Certain Circumstances
The Certificate of Incorporation eliminate the personal liability of
directors to CoorsTek or its stockholders for monetary damages for breach of
fiduciary duty, except in the instances described
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below. The Certificate of Incorporation also provides that if Delaware law is
amended to further eliminate or limit the liability of directors, then the
liability of a director will be so eliminated or limited to the fullest extent
permitted by the amended law, without further stockholder action.
Directors remain liable for:
. breaches of their duty of loyalty to CoorsTek and its stockholders,
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of laws,
. transaction from which a director derives improper personal benefit,
and
. for unlawful distributions, under a provisions of the Delaware
General Corporation Law that makes directors personally liable and
which expressly sets forth a negligence standard with respect to such
liability.
The provisions that eliminate liability as described above will apply to
officers of CoorsTek if they are directors of CoorsTek and are acting in their
capacity as directors and will not apply to officers of who are not directors.
CoorsTek believes the diligence exercised by directors stems primarily
from a desire to act in the best interest of CoorsTek and not from a fear of
monetary damages awards. Consequently, CoorsTek believes that the level of
scrutiny and care exercised by CoorsTek's directors and officers will not be
lessened by the limitations on liability provided by the Certificate of
Incorporation.
Indemnification and Insurance
The Delaware General Corporation Law contains provisions permitting and,
in some situations, requiring Delaware corporations to provide indemnification
to their officers and directors for losses and litigation expense incurred in
connection with their service to the corporation in those capacities. The
Certificate of Incorporation and Bylaws contain provisions that require
CoorsTek to indemnify its directors and officers to the fullest extent
permitted by law. Indemnification includes advancement of reasonable expenses
in certain circumstances.
The Delaware General Corporation Law permits indemnification of a
director of a Delaware corporation, in the case of a third party action, if the
director
. conducted himself or herself in good faith,
. reasonably believed that
-- in the case of conduct in his or her official capacity, his or
her conduct was in the corporation's best interest, or
-- in all other cases, his or her conduct was at least not opposed
to the corporation's best interest, and
. in the case of any criminal proceeding, had no reasonable cause to
believe that his or her conduct was unlawful.
The Delaware General Corporation Law further provides for mandatory
indemnification of directors and officers who are wholly successful on the
merits or otherwise in litigation. The Delaware statute limits the
indemnification that a corporation may provide to its directors in a derivative
action in which the director is held liable to the corporation, or in any
proceeding in which the director is held liable on the basis of his or her
improper receipt of a personal benefit.
In addition, the Delaware General Corporation Law and CoorsTek's Bylaws
authorize CoorsTek to purchase insurance for its directors and officers
insuring them against certain risks as to which
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CONSOLIDATED FINANCIAL STATEMENTS
COORSTEK, INC.
(A Wholly-owned Subsidiary of ACX Technologies, Inc.)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Statement of Income and Comprehensive Income for each of the
three years ended December 31, 1998...................................... F-3
Consolidated Balance Sheet at December 31, 1998 and December 31, 1997..... F-4
Consolidated Statement of Cash Flows for each of the three years ended
December 31, 1998........................................................ F-5
Consolidated Statement of Shareholder's Equity for each of the three years
ended December 31, 1998.................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
Financial Statement schedule for the fiscal years ended December 31, 1998,
1997 and 1996
Schedule II--Valuation and Qualifying Accounts.......................... F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of CoorsTek, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of CoorsTek, Inc. and its subsidiaries at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and the financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards 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 the opinion expressed above.
PricewaterhouseCoopers LLP
Denver, Colorado
September 24, 1999
F-2
<PAGE>
COORSTEK, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------ ----------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Sales........................ $266,936 $230,390 $296,614 $304,824 $276,352
Cost of goods sold........... 200,455 173,291 222,906 219,821 200,220
-------- -------- -------- -------- --------
Gross profit............... 66,481 57,099 73,708 85,003 76,132
Selling, general and
administrative.............. 35,957 28,528 37,758 41,754 35,928
Asset impairment charge...... -- 11,814 11,814 -- --
-------- -------- -------- -------- --------
Operating income........... 30,524 16,757 24,136 43,249 40,204
Other income (expense):
Interest expense........... (3,693) (2,943) (4,125) (110) (182)
Interest income............ 62 49 601 82 95
Miscellaneous--net......... -- -- -- (40) 81
-------- -------- -------- -------- --------
Total other expense...... (3,631) (2,894) (3,524) (68) (6)
Income before income taxes... 26,893 13,863 20,612 43,181 40,198
Income tax expense........... 10,101 5,117 7,682 16,192 14,996
-------- -------- -------- -------- --------
Net income................... $ 16,792 $ 8,746 $ 12,930 $ 26,989 $ 25,202
======== ======== ======== ======== ========
Other comprehensive income:
Minimum pension liability
adjustment, net of tax of
$167...................... -- -- (281) -- --
Foreign currency
translation adjustments... (130) (188) (56) 27 601
-------- -------- -------- -------- --------
Comprehensive income......... $ 16,662 $ 8,558 $ 12,593 $ 27,016 $ 25,803
======== ======== ======== ======== ========
Net income per basic share of
common stock (unaudited).... $ 2.36 $ 1.23 $ 1.81 $ 3.84 $ 3.61
======== ======== ======== ======== ========
Weighted average shares
outstanding-basic
(unaudited)................. 7,111 7,130 7,126 7,030 6,975
======== ======== ======== ======== ========
Net income per diluted share
of common stock
(unaudited)................. $ 2.34 $ 1.20 $ 1.78 $ 3.74 $ 3.54
======== ======== ======== ======== ========
Weighted average shares
outstanding-diluted
(unaudited)................. 7,185 7,281 7,258 7,221 7,126
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
COORSTEK, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
------------------- ------------------
Pro Forma 1999 1998 1997
---------------------------------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $ -- $ -- $ 17,203 $ 988
Accounts receivable, less allowance
for doubtful accounts of $2,572 in
1999 (unaudited), $1,839 in 1998 and
$1,993 in 1997....................... 50,868 50,868 39,044 44,430
Inventories........................... 67,861 67,861 56,223 54,583
Other assets.......................... 12,893 12,893 10,241 10,566
-------- -------- -------- --------
Total current assets................ 131,622 131,622 122,711 110,567
-------- -------- -------- --------
Properties, net......................... 138,070 138,070 131,324 132,538
Goodwill, less accumulated amortization
of $5,064 in 1999 (unaudited), $3,656
in 1998 and $2,750 in 1997............. 37,454 37,454 11,839 11,951
Debt issuance costs..................... 5,000 -- -- --
Other assets............................ 13,463 13,463 12,485 7,631
-------- -------- -------- --------
Total assets........................ $325,609 $320,609 $278,359 $262,687
======== ======== ======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities:
Accounts payable...................... $ 14,836 $ 14,836 $ 10,837 $ 16,298
Accrued salaries and vacation......... 9,781 9,781 11,794 11,884
Taxes other than income............... 2,985 2,985 2,874 2,626
Accrued expenses and other
liabilities.......................... 20,977 20,977 7,911 8,110
Advances payable to Parent............ -- 9,436 -- --
-------- -------- -------- --------
Total current liabilities........... 48,579 58,015 33,416 38,918
-------- -------- -------- --------
Long-term debt payable to Parent........ -- 50,000 50,000 --
Long-term debt.......................... 205,000 -- -- --
Accrued postretirement benefits......... 15,327 15,327 15,327 14,994
Other long-term liabilities............. 13,180 13,180 13,791 5,620
-------- -------- -------- --------
Total liabilities................... 282,086 136,522 112,534 59,532
-------- -------- -------- --------
Commitments and contingencies (note 11)
Shareholders' Equity:
Common stock, 200,000 shares
authorized, $50 par value per share
(actual), 100,000,000 shares
authorized, $.01 par value per share
(pro forma); 200,000 shares issued
and outstanding (actual), 7,120,614
shares issued and outstanding (pro
forma) .............................. 71 10,000 10,000 10,000
Paid-in capital......................... 42,145 75,060 75,060 124,983
Paid-in capital-warrants................ 1,600 1,600 -- --
Retained earnings....................... -- 97,720 80,928 67,998
Other comprehensive income (loss)....... (293) (293) (163) 174
-------- -------- -------- --------
Total shareholders' equity.......... 43,523 184,087 165,825 203,155
-------- -------- -------- --------
Total liabilities and shareholders'
equity............................. $325,609 $320,609 $278,359 $262,687
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements
F-4
<PAGE>
COORSTEK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year ended December 31,
------------------ ----------------------------
1999 1998 1998 1997 1996
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................. $ 16,792 $ 8,746 $ 12,930 $ 26,989 $ 25,202
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization.............. 17,587 14,933 19,977 18,664 16,159
Asset impairment charges... -- 11,814 11,814 -- --
Change in deferred income
taxes..................... (1,500) (3,619) (3,372) (972) 805
(Gain) loss on sale of
properties................ 558 98 (810) 303 975
Change in current assets
and current liabilities,
net of effects from
acquisitions:
Accounts receivable....... (6,171) 3,244 5,386 (5,842) 873
Inventories............... (2,850) (1,437) (1,640) (3,657) (5,022)
Other assets.............. 172 445 540 (1,044) 1,266
Accounts payable.......... 1,715 (2,930) (5,460) 3,899 (4,863)
Accrued expenses and other
liabilities.............. 9,190 10,530 (163) 1,853 (5,324)
Change in deferred
compensation.............. (780) 662 1,237 (1,204) 1,197
Change in other............ (40) (7) 2,076 19 (1,860)
-------- -------- -------- -------- --------
Net cash provided by
operating activities........ 34,673 42,479 42,515 39,008 29,408
Cash flows from investing
activities:
Additions to properties..... (8,077) (22,369) (26,890) (28,812) (28,667)
Acquisitions, net of cash
acquired................... (52,841) (915) (915) (15,781) (6,636)
Proceeds from sale of
properties................. -- -- 1,863 89 315
Other....................... 1,033 (282) (343) (284) (1,165)
-------- -------- -------- -------- --------
Net cash used in investing
activities.................. (59,885) (23,566) (26,285) (44,788) (36,153)
Cash flows from financing
activities, net of debt
assumed in acquisitions:
Net capital contributions
from (to) Parent........... 8,009 (449) (15) 5,829 7,097
-------- -------- -------- -------- --------
Net cash provided by (used
in) financing activities.... 8,009 (449) (15) 5,829 7,097
Cash and cash equivalents:
Net increase (decrease) in
cash and cash equivalents.. (17,203) 18,464 16,215 49 352
Balance at beginning of
period..................... 17,203 988 988 939 587
-------- -------- -------- -------- --------
Balance at end of period.... $ -- $ 19,452 $ 17,203 $ 988 $ 939
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
COORSTEK, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(In thousands)
<TABLE>
<CAPTION>
Common Paid-in Paid-in Capital Retained
Stock Capital Warrants Earnings Other Total
------- -------- --------------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... $10,000 $104,812 $ -- $16,023 $(454) $130,381
Net capital contribution
from Parent............ -- 7,495 -- -- -- 7,495
Dividends paid to
Parent................. -- -- -- (216) -- (216)
Net income.............. -- -- -- 25,202 -- 25,202
Cumulative translation
adjustment............. -- -- -- -- 601 601
------- -------- ------ ------- ----- --------
Balance at December 31,
1996................... $10,000 $112,307 $ -- $41,009 $ 147 $163,463
Net capital contribution
from Parent............ -- 12,676 -- -- -- 12,676
Net income.............. -- -- -- 26,989 -- 26,989
Cumulative translation
adjustment............. -- -- -- -- 27 27
------- -------- ------ ------- ----- --------
Balance at December 31,
1997................... $10,000 $124,983 $ -- $67,998 $ 174 $203,155
Net capital distribution
to Parent.............. -- (49,923) -- -- -- (49,923)
Net income.............. -- -- -- 12,930 -- 12,930
Minimum pension
liability adjustment... -- -- -- -- (281) (281)
Cumulative translation
adjustment............. -- -- -- -- (56) (56)
------- -------- ------ ------- ----- --------
Balance at December 31,
1998................... $10,000 $ 75,060 $ -- $80,928 $(163) $165,825
Net income (unaudited).. -- -- -- 16,792 -- 16,792
Issuance of warrants
(unaudited)............ -- -- 1,600 -- -- 1,600
Cumulative translation
adjustment
(unaudited)............ -- -- -- -- (130) (130)
------- -------- ------ ------- ----- --------
Balance at September 30,
1999, (unaudited)...... $10,000 $ 75,060 $1,600 $97,720 $(293) $184,087
======= ======== ====== ======= ===== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. General Information
The accompanying financial statements and notes are based on the separate
historical financial statements of CoorsTek, Inc., which was formerly named
Coors Porcelain Company and operated its business as Coors Ceramics Company
(the "Company" or "CoorsTek"). During the periods presented, CoorsTek was a
wholly owned subsidiary of ACX Technologies, Inc. ("ACX" or "Parent"). The
Board of Directors of ACX has announced a plan to spin-off CoorsTek to existing
ACX shareholders on or about December 31, 1999. This plan is contingent on
certain requirements, most notably the pending ruling by the Internal Revenue
Service of the transaction as a tax free distribution.
Established in 1911, CoorsTek develops, manufactures and sells engineered
solutions for a multitude of industrial and commercial applications that
incorporate advanced materials such as technical ceramics, engineered plastics
or precision machined metals into components, assemblies and systems.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation: The consolidated financial statements include the
assets, liabilities, results of operations, cash flows and changes in
shareholder's equity of CoorsTek and its wholly-owned subsidiaries. All
material intercompany accounts and transactions have been eliminated. CoorsTek
was a wholly-owned subsidiary of ACX for the periods presented. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles, using management's best estimates and
judgments when appropriate.
The consolidated financial statements include allocations of certain
charges from ACX for general management, legal, treasury, tax, internal audit,
financial reporting, environmental affairs and other miscellaneous services.
Management believes the charges are a reasonable estimate of the costs that
would have been incurred by CoorsTek on a stand-alone basis.
The financial information included herein may not necessarily reflect the
consolidated financial position, results of operations, cash flows and changes
in shareholder's equity of CoorsTek in the future or what they would have been
had CoorsTek been a separate, stand-alone company during the periods presented.
Parent Allocations: Selling, general and administrative expense for 1998,
1997 and 1996 includes allocation of $4.7 million, $5.0 million and $4.0
million, respectively of certain ACX corporate expenses for general management,
legal, treasury, tax, internal audit, financial reporting and environmental
services. Management believes the basis for allocating the foregoing
allocations was reasonable but may not necessarily equal the costs that would
have been or will be incurred by CoorsTek on a stand-alone basis. In
determining the allocation of ACX corporate costs, CoorsTek performed a review
of 1) the services performed by ACX, 2) headcount, facilities and sales
comparisons and 3) management oversight provided to CoorsTek, as well as
considering other factors.
Long-term debt consists of intercompany debt transferred from ACX in 1998
at an annual interest rate of 8%. CoorsTek had no intercompany debt prior to
1998. Interest expense for the nine months ended September 30, 1999 and the
year ended December 31, 1998 includes $3.0 million (unaudited) and $4.0 million
paid to ACX on intercompany debt, respectively. Interest income (expense)
includes ($0.6) million (unaudited) and $0.5 million (paid) earned from the
participation in ACX's cash management system during the nine months ended
September 30, 1999 and the year ended December 31, 1998, respectively. No
interest income was earned from participation in ACX's cash
F-7
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
management during 1997 or 1996. If intercompany debt had been transferred from
ACX in 1997 and 1996, the debt costs would have been approximately $4.0 million
on debt of $50.0 million at an annual rate of 8%.
Use of estimates: The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as revenues and expenses reported for the
periods presented. Actual results can differ from these estimates.
Interim financial information: The financial information as of September
30, 1999 and for the nine months ended September 30, 1999 and 1998 is unaudited
but includes all adjustments that management considers necessary for a fair
presentation of its financial position, results of operations, cash flows and
changes in shareholder's equity. Results for the nine months ended September
30, 1999 are not necessarily indicative of results to be expected for the full
fiscal year 1999 or for any future period.
Pro Forma Financial Information: The pro forma balance sheet as of
September 30, 1999 is unaudited but includes all pro forma adjustments that
management considers necessary for a fair presentation of its financial
position after the proposed spin off giving effect to the anticipated
incurrence of debt and payment of a special dividend to the Parent (see
subsequent event discussion). The pro forma balance sheet is not necessarily
indicative of the financial position that would have been attained had the spin
off occurred on September 30, 1999.
Revenue recognition: Revenues are recognized when finished products are
shipped to customers or services have been rendered.
Inventories: Inventories are stated at the lower-of-cost or market. Cost
is determined by the first-in, first-out (FIFO) method. The classification of
inventories, in thousands, was as follows:
<TABLE>
<CAPTION>
December 31,
September 30, -----------------
1999 1998 1997
------------- -------- --------
(unaudited)
<S> <C> <C> <C>
Finished..................................... $ 26,889 $ 21,890 $ 19,106
In process................................... 25,979 22,049 23,299
Raw materials................................ 14,993 12,284 12,178
-------- -------- --------
Total inventories.......................... $ 67,861 $ 56,223 $ 54,583
======== ======== ========
</TABLE>
Properties: Land, buildings and equipment are stated at cost. For
financial reporting purposes, depreciation is recorded principally on a
straight-line method over the estimated useful lives of the asset as follows:
<TABLE>
<S> <C>
Buildings and improvements........... 10 to 30 years
Machinery and equipment.............. 3 to 30 years
Leasehold improvements............... The shorter of the useful life, lease term or 20 years
Goodwill............................. The shorter of the useful life or 20 years
</TABLE>
F-8
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The cost of properties and related accumulated depreciation, in
thousands, consisted of the following:
<TABLE>
<CAPTION>
December 31,
September 30, --------------------
1999 1998 1997
------------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Land and improvements.................... $ 7,339 $ 6,401 $ 6,401
Buildings................................ 74,140 65,739 64,052
Machinery and equipment.................. 229,681 197,513 185,373
Construction in progress................. 9,374 12,178 11,729
--------- --------- ---------
320,534 281,831 267,555
Less: accumulated depreciation........... (182,464) (150,507) (135,017)
--------- --------- ---------
Net properties......................... $ 138,070 $ 131,324 $ 132,538
========= ========= =========
</TABLE>
Accelerated depreciation methods are generally used for income tax
purposes. Expenditures for new facilities and improvements that substantially
extend the capacity or useful life of an asset are capitalized. Ordinary
repairs and maintenance are expensed as incurred.
In early 1998, CoorsTek changed the estimated depreciable lives for
certain long-lived assets based on the actual lives exhibited for similar
assets. The effect of this change positively impacted earnings before interest
and taxes by approximately $2.0 million in 1998.
Impairment of Long-Lived Assets and Identifiable Intangibles: CoorsTek
periodically reviews long-lived assets, identifiable intangibles and goodwill
for impairment whenever events or changes in business conditions indicate the
carrying amount of the assets may not be fully recoverable. Measurement of the
impairment loss is based on fair value of the asset, which is generally
determined by the discounting of future estimated cash flows. See Note 4.
Cash and Cash Equivalents: CoorsTek defines cash equivalents as highly
liquid investments with original maturities of 90 days or less. The carrying
value of CoorsTek's cash equivalents approximates their fair market value.
Miscellaneous-net: Certain royalty and building rental revenues are
included in "Miscellaneous-net" in the Consolidated Statement of Income.
Earnings per share: On or about January 1, 2000, CoorsTek will issue
approximately 7,120,614 shares of common stock based on a conversion ratio of
one CoorsTek share for every four outstanding shares of ACX common stock based
on the number of shares of ACX stock outstanding on September 30, 1999.
Unaudited basic and diluted net earnings per common share have been
computed by dividing the net earnings for each period presented by the number
of common shares of ACX outstanding during the periods presented as adjusted
for the conversion ratio described above. All ACX common stock equivalents were
considered for purposes of determining dilutive shares outstanding.
Environmental Expenditures: Environmental expenditures that relate to
current operations are expensed or capitalized as appropriate. Expenditures
that relate to an existing condition caused by past operations, and which do
not contribute to current or future revenue generation, are expensed.
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable and the costs can be reasonably estimated.
F-9
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Hedging Transactions: CoorsTek from time to time engages in hedging
activities against fluctuations in foreign currency prices. These activities
are immaterial to CoorsTek and are expected to remain so in the future.
Subsequent Event: CoorsTek anticipates issuing debt and paying $200
million of the proceeds to ACX for settlement of intercompany obligations and
payment of a special dividend. CoorsTek plans to issue debt of $270 million
consisting of a $95 million short-term revolver, Senior Term A debt of $85
million and Senior Term B debt of $90 million. The revolver will have an unused
commitment of $65 million and will initially bear interest at LIBOR plus 2%
with a maturity of five years. The Senior Term A debt will initially bear
interest at LIBOR plus 2% and mature in five years. The Senior Term B debt will
initially bear interest at LIBOR plus 2.75% and mature in seven years. The
interest spread for the three debt instruments will vary in future periods
based upon performance pricing criteria.
Adoption of New Accounting Standards: Statement of Financial Accounting
Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging
Activities" which establishes accounting and reporting standards for derivative
instruments and for hedging activities was issued in June 1998. This statement
requires the recognition of all derivatives as either assets or liabilities at
fair value in the statement of financial position. This statement is effective
for the year ending December 31, 2000 and is not expected to have a material
effect on CoorsTek's financial statements.
Note 3. Operating Leases
CoorsTek has leases for a variety of equipment and facilities that expire
in various years. Future minimum lease payments, in thousands, required as of
December 31, 1998, under non-cancelable operating leases with terms exceeding
one year, are as follows:
<TABLE>
<S> <C>
1999.................................................................. $1,435
2000.................................................................. 1,068
2001.................................................................. 579
2002.................................................................. 443
2003 and thereafter................................................... 337
------
Total............................................................... $3,862
======
</TABLE>
Operating lease rentals for warehouse, production, office facilities and
equipment amounted to $1.5 million for the nine months ended September 30, 1999
(unaudited) and $0.9 million, $1.2 million and $2.3 million for the years ended
December 1998, 1997 and 1996, respectively.
Note 4. Asset Impairment Charges
During 1998, CoorsTek recorded $11.8 million in asset impairment charges.
A $6.2 million charge was taken in March of 1998 in conjunction with the
cancellation of the C-4 technology agreement with IBM. Changes in the market
for C-4 applications extended the time frame for achieving commercial sales
beyond original expectations. This lack of near term commercial sales
opportunities, combined with increasing overhead costs, prompted CoorsTek to
negotiate termination of the agreement with IBM. Consequently, CoorsTek wrote
off the long-lived assets associated with this project. As a result of strong
offshore competition in the electronic package market, CoorsTek recorded an
additional $5.6 million asset impairment charge in September of 1998 at the
Chattanooga, Tennessee operation. A review of estimated undiscounted future
cash flows indicated the carrying
F-10
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
amount of property, plant and equipment at Chattanooga may not be recoverable.
Accordingly, the assets were written down to fair value calculated under the
asset held for use model.
Note 5. Income Taxes
CoorsTek and its U.S. subsidiaries file consolidated Federal and Colorado
state income tax returns with ACX. In addition, CoorsTek files state income tax
returns in various other states. The Federal income tax sharing agreement with
ACX that is currently being negotiated substantially approximates a Federal
income tax provision and liability as if CoorsTek was filing on a separate
income tax return basis. Liabilities for Federal and Colorado state income
taxes are payable to ACX. CoorsTek directly pays to all other states in which
it files a state tax return. CoorsTek's foreign subsidiaries file separate
returns with the applicable taxing authority.
The components of income before income taxes, in thousands, for the years
ended December 31 were:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Domestic......................................... $ 20,319 $ 42,933 $ 39,201
Foreign.......................................... 293 248 997
-------- -------- --------
Total income before taxes...................... $ 20,612 $ 43,181 $ 40,198
======== ======== ========
</TABLE>
The provision for income taxes, in thousands, for the years ended
December 31, included the following:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Current provision:
Federal....................................... $ 9,209 $ 14,889 $ 12,086
State......................................... 1,764 2,122 1,762
Foreign....................................... 81 153 343
------- -------- --------
Total current tax expense................... 11,054 17,164 14,191
------- -------- --------
Deferred provision:
Federal....................................... (3,014) (898) 785
State......................................... (358) (74) 20
------- -------- --------
Total deferred tax expense (benefit)........ (3,372) (972) 805
------- -------- --------
Total income tax expense.................... $ 7,682 $ 16,192 $ 14,996
======= ======== ========
</TABLE>
F-11
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Temporary differences which give rise to a significant portion of
deferred tax assets and liabilities, in thousands, at December 31, are as
follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Deferred tax asset arising from:
Depreciation and other property related.................. $ 2,517 $ 2,885
Pension and employee benefits............................ 12,181 10,159
Inventory................................................ 2,205 1,672
All other................................................ 3,223 1,890
Valuation allowance...................................... (3,386) (3,657)
------- -------
Gross deferred tax assets.............................. 16,740 12,949
------- -------
Deferred tax liabilities arising from:
Depreciation and other property related.................. 7,325 6,462
Interest................................................. -- 411
Pension and employee benefits............................ -- 159
All other................................................ 157 31
------- -------
Gross deferred tax liabilities......................... 7,482 7,063
------- -------
Net deferred tax asset..................................... $ 9,258 $ 5,886
======= =======
</TABLE>
The principal differences between the effective income tax rate and the
U.S. statutory federal income tax rate at December 31, were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected tax rate....... 35.0 % 35.0 % 35.0 %
State income taxes (net
of federal benefit).... 4.9 % 3.5 % 3.5 %
Research tax credits.... (2.2)% (1.3)% (0.7)%
Non-taxable income and
expenses............... (1.0)% (0.1)% 0.0 %
Foreign tax expense..... 0.1 % 0.0 % (0.8)%
Other--net.............. 0.5 % 0.4 % 0.3 %
---- ---- ----
Effective tax rate...... 37.3 % 37.5 % 37.3 %
==== ==== ====
</TABLE>
The Internal Revenue Service (IRS) has completed its examination of ACX's
Federal income tax returns through 1995. The IRS will begin reviewing the
Federal income tax returns for 1996 through 1998 during 1999. In the opinion of
management, adequate accruals have been provided for all income tax matters and
related interest.
CoorsTek has not provided for U.S. or additional foreign taxes on $5.4
million of undistributed earnings of its foreign subsidiaries. These
undistributed earnings are considered to be reinvested indefinitely. If such
earnings were repatriated, foreign tax credits should become available under
current law to reduce or eliminate the resulting U.S. income tax liability.
ACX, CoorsTek and their respective subsidiaries will execute a Tax
Sharing Agreement that defines the parties' rights and obligations with respect
to deficiencies and refunds of Federal, state and other taxes relating to the
CoorsTek business for tax years prior to the spin-off and with respect to
certain tax attributes of CoorsTek after the spin-off. In general, ACX will be
responsible for filing consolidated Federal and combined or consolidated state
tax returns and paying the associated taxes for periods through the date of the
spin-off (the "Distribution Date"). CoorsTek will reimburse ACX for the
F-12
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
portion of such taxes relating to the CoorsTek business. CoorsTek is
responsible for filing returns and paying taxes related to the CoorsTek
business for periods beginning on or after the Distribution Date. ACX and
CoorsTek will agree to cooperate with each other and to share information in
preparing such tax returns and in dealing with other tax matters. ACX and
CoorsTek will be responsible for their own taxes other than those described
above.
The Tax Sharing Agreement is designed to preserve the status of the spin-
off as a tax-free distribution. CoorsTek has agreed that it will refrain from
engaging in certain transactions during the two-year period following the spin-
off unless it first provides ACX with a ruling from the Internal Revenue
Service or an opinion of tax counsel acceptable to ACX that the transaction
will not adversely affect the tax-free nature of the spin-off. The transactions
subject to these restrictions, which are not expected to materially affect
CoorsTek's operating flexibility, consist of liquidations, mergers or
consolidations of CoorsTek, redemptions by CoorsTek of certain amounts of its
stock, sales of assets out of the ordinary course of business, discontinuance
of certain businesses and certain issuances of CoorsTek's common stock. In
addition, CoorsTek will agree to indemnify ACX against any tax liability or
other expense it may incur if the spin-off is determined to be taxable as a
result of CoorsTek's breach of any covenant or representation contained in the
Tax Sharing Agreement or CoorsTek's action in effecting such transactions. By
its terms, the Tax Sharing Agreement will terminate when the statutes of
limitations under applicable tax laws expire.
Note 6. Stock Compensation
ACX has an equity incentive plan that provides for the granting of
nonqualified stock options and incentive stock options to certain key employees
of its subsidiaries that eligible CoorsTek employees participate in. The equity
incentive plan also provides for the granting of restricted stock, bonus
shares, stock units and offers to officers of ACX and its subsidiaries to
purchase stock. Generally, options outstanding under ACX's equity incentive
plan are subject to the following terms: (1) the exercise price of a stock
option is generally equal to the fair market value of ACX's common stock on the
date of grant; (2) ratable vesting over either a three-or four-year service
period; and (3) maximum term of ten years from the date of grant.
There are currently approximately 1,009,000 and 998,000 vested and
unvested ACX options, respectively, held by current CoorsTek employees and ACX
employees who will be transferred to CoorsTek upon the spin-off. The exercise
price for these shares ranges from $10.14 to $27.06. CoorsTek will grant
substituted options for outstanding vested and unvested ACX options. It is
currently not known how many substituted CoorsTek options will be granted or
what the range of the exercise prices will be. The number of options granted
and the corresponding exercise prices will be based on the respective ACX and
CoorsTek stock prices pre and post spin. CoorsTek does not anticipate incurring
any compensation charges as 1) the aggregate intrinsic value of the options
immediately subsequent to the spin off will not exceed the aggregate intrinsic
value of the options immediately prior to the spin off, 2) the ratio of the
exercise price per option to the market value per share will not be reduced and
3) the vesting provisions and option period of the original grant will remain
the same.
Pro forma information: CoorsTek applies the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," in accounting for stock options granted to CoorsTek
employees. Accordingly, no compensation expense has been recognized for the
issuance of employee stock options as the exercise price of the options equaled
or exceeded the fair market value of the ACX stock at the time of grant.
F-13
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro forma net earnings and earnings per share information, as required by
SFAS No. 123 "Accounting for Stock-Based Compensation" has been determined as
if ACX had accounted for employee stock options grants to CoorsTek employees
under SFAS No. 123's fair value method. The fair value of these options was
estimated at the grant date using a Black-Scholes option pricing model with the
following weighted-average assumptions: (1) dividend yield of 0%; (2) expected
volatility of 28.1% in 1998, 23.2% in 1997, and 22.6% in 1996; (3) risk-free
interest rate ranging from 4.8% to 5.0% in 1998, 5.4% to 5.5% in 1997 and 6.1%
to 6.4% in 1996; and (4) expected life of 3 to 7.36 years in 1998, 3 to 6.23
years in 1997 and 3 to 6.37 years in 1996. The weighted average per share fair
value of options granted during 1998, 1997, and 1996 was $22.16, $21.26 and
$15.17, respectively.
The pro forma effect of recognizing compensation expense in accordance
with SFAS No. 123 would have been to reduce CoorsTek's reported net earnings by
$0.7 million in 1998, $0.3 million in 1997 and $0.6 million in 1996. Had
compensation expense been recorded by CoorsTek in accordance with SFAS No. 123,
the effect would be to reduce unaudited pro forma diluted net earnings per
share to $1.68 in 1998, $3.68 in 1997 and $3.44 in 1996.
Note 7. Retirement and Other Postretirement Benefit Plans
Pension Plan: CoorsTek participates with ACX in a defined benefit
retirement plan for substantially all of CoorsTek's employees. The Parent
manages the plan including plan assets which consist primarily of equity and
interest-bearing investments. Benefits are based on years of service and
average base compensation levels over a period of years. The Parent's funding
policy is to contribute annually not less than the ERISA minimum funding
standards nor more than the maximum amount that can be deducted for Federal
income tax purposes.
Retiree Medical Plan: In addition to receiving pension benefits, CoorsTek
employees may participate in ACX's medical plan which provides health care and
life insurance benefits to eligible retirees and their dependents. Eligible
employees may receive these benefits after reaching age 55 with 10 years of
service. Prior to reaching age 65, eligible retirees may receive certain health
care benefits substantially similar to those available to active employees. The
amount the retiree pays is based on age and service at the time of retirement.
These plans are not funded.
401(k) Plan: Eligible employees of CoorsTek may participate in CoorsTek's
401(k) plan in which employees can contribute up to 18% of annual eligible
compensation subject to certain regulatory and plan limitations. CoorsTek
matches contributions by employees up to 1% of the employee's compensation.
CoorsTek's expense related to the 401(k) match was $0.7 million each for 1998
and 1997 and $0.6 million in 1996.
CoorsTek will establish separate defined benefit retirement and retiree
medical plans for its current and former employees. An allocable share of the
defined benefit plan assets and pension obligations will be transferred from
the ACX retirement plan to the CoorsTek retirement plan. This allocation will
be based on the requirements of the applicable regulatory body at the date of
the spin-off. Included in the December 31, 1998 and 1997 balance sheets of
CoorsTek are estimates of assets and pension obligations to be transferred to
CoorsTek. Actual amounts to be transferred will be measured at the spin date
and will likely be different from these estimates.
F-14
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following tables set forth the estimated change in benefit
obligation, change in plan assets, funded status, net periodic benefit cost and
other information applicable to the CoorsTek defined benefit and retiree
medical plans. This information is based on the estimated allocations of the
respective plan assets and liabilities as described above. The actual results
could differ from these estimates. All information, except interest rates, is
in thousands.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of
year............................... $ 90,267 $ 82,605 $ 12,357 $ 11,570
Service Cost........................ 2,290 1,968 338 248
Interest Cost....................... 6,439 4,470 892 763
Actuarial loss (gain)............... 1,890 3,986 (3) 258
Benefits Paid....................... (3,071) (2,762) (422) (482)
-------- -------- -------- --------
Benefit obligation at end of year... 97,815 90,267 13,162 12,357
-------- -------- -------- --------
Change in plan assets
Fair value of plan assets at
beginning of year.................. 79,404 68,601 -- --
Actual return on plan assets........ 630 13,212 -- --
Acquisitions........................ -- -- -- --
Company contributions............... -- 353 -- --
Benefits paid....................... (2,805) (2,762) -- --
-------- -------- -------- --------
Fair value of plan assets at end of
year............................... 77,229 79,404 -- --
-------- -------- -------- --------
Funded status......................... (20,586) (10,863) (13,162) (12,357)
Unrecognized actuarial loss (gain).... 11,794 2,046 (1,929) (2,407)
Unrecognized prior service cost....... 4,070 3,810 (793) (991)
-------- -------- -------- --------
Accrued benefit cost.................. $(4,722) $(5,007) $(15,884) $(15,755)
======== ======== ======== ========
Amounts recognized in the Consolidated
Balance Sheet consist of:
Accrued benefit liability........... $(9,738) $(5,007) $(15,884) $(15,755)
Intangible asset.................... 4,568 -- -- --
Accumulated other comprehensive
income............................. 448 -- -- --
-------- -------- -------- --------
Net amount recognized............... $(4,722) $(5,007) $(15,884) $(15,755)
======== ======== ======== ========
Weighted average assumptions at year
end:
Discount rate....................... 6.80% 7.25% 6.80% 7.25%
Expected return on plan assets...... 9.75% 9.75%
Rate of compensation increase....... 4.30% 4.75%
</TABLE>
It is the Parent's policy to amortize unrecognized gains and losses in
excess of 10% of the larger of plan assets and the projected benefit obligation
(PBO) over the expected service of active employees (12-15 years). However, in
cases where the accrued benefit liability exceeds the actual unfunded liability
by more than 20% of the PBO, the amortization is reduced to 5 years.
For measurement purposes, a 7.5% annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1998. The rate was
assumed to decrease by 0.5% per annum to 4.25% and remain at that level
thereafter.
F-15
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------- --------------------
1998 1997 1996 1998 1997 1996
------- ------- ------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic
benefit cost
Service cost............... $ 2,290 $ 1,968 $ 1,815 $ 338 $ 248 $ 495
Interest cost.............. 6,439 4,470 3,605 892 763 807
Expected return on plan
assets.................... (843) (8,595) (6,132) -- -- --
Amortization of prior
service costs............. 651 306 150 (198) (104) (199)
Recognized actuarial loss
(gain).................... (6,082) 4,879 3,436 (481) (90) (38)
------- ------- ------- ----- ----- ------
Net periodic benefit cost.. $ 2,455 $ 3,028 $ 2,874 $ 551 $ 817 $1,065
======= ======= ======= ===== ===== ======
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% Point 1% Point
Increase Decrease
-------- --------
<S> <C> <C>
Effect on total of services and interest cost
components............................................. 297 276
Effect on postretirement benefit obligation............. 903 849
</TABLE>
Note 8: Supplemental Cash Flow Information:
<TABLE>
<CAPTION>
Nine months ended
September 30, 1999 1998 1997 1996
------------------ ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C>
Total interest costs............ $3,693 $ 4,125 $ 224 $ 217
Interest capitalized............ -- -- 114 35
Interest expensed............... 3,693 4,125 110 182
Interest paid (primarily to
Parent)........................ 3,000 4,000 24 145
Income taxes paid (primarily to
Parent)........................ $ 966 $11,882 $16,950 $18,390
</TABLE>
Non-Cash Investing Activities: See description of non-cash investing
activities with ACX in Note 10.
Interest costs for the nine months ended September 30, 1999 and the year
ended December 31, 1998 includes $3.0 million (unaudited) and $4.0 million paid
to ACX on intercompany debt, respectively.
Note 9. Acquisitions
In March 1999, CoorsTek acquired the net assets of Precision Technologies
for approximately $22.0 million in cash and 300,000 warrants to receive shares
of the Parent's common stock at an exercise price equal to the fair market
value at the date of close. These warrants will be converted into warrants to
purchase shares of CoorsTek common stock after the spin-off. These warrants
vest only upon the achievement of certain revenue goals within three years. The
warrants have been recorded as an increase in the purchase price at their
estimated fair value on the date of acquisition using the Black-Scholes pricing
model. The acquisition has been accounted for under the purchase method of
accounting and goodwill of approximately $21.1 million is being amortized over
20 years. Precision Technologies, located in Livermore, California,
manufactures precision-machined parts for the semiconductor, medical, and
aircraft industries.
F-16
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 1999, CoorsTek acquired all of the outstanding shares of Edwards
Enterprises for approximately $18.0 million. The acquisition has been accounted
for under the purchase method of accounting and goodwill of approximately $4.2
million is being amortized over 20 years. Edwards Enterprises, located in
Newark, California, manufactures precision-machined parts for the semiconductor
industry.
In May of 1998, CoorsTek acquired the assets of Pulsation Equipment for
$0.9 million. The acquisition was accounted for under the purchase method of
accounting and goodwill of $0.8 million is being amortized over 15 years on a
straight line basis.
On August 1, 1997, CoorsTek acquired the assets of Tetrafluor, Inc.,
based in El Segundo, California for $15.8 million. Tetrafluor manufactures
Teflon fluoropolymer sealing systems and components for use in aerospace,
industrial and transportation industries. The acquisition was accounted for
under the purchase method of accounting, and Tetrafluor's results of operations
are included in CoorsTek's consolidated financial statements from the date of
acquisition. The purchase price was allocated to the net assets acquired based
upon their estimated fair value. Goodwill for Tetrafluor was $10.7 million and
is being amortized over 15 years on a straight-line basis.
During 1996, CoorsTek purchased the operating assets of H.B. Company,
Inc., a manufacturer of oilfield pump components based in Oklahoma City,
Oklahoma. The acquisition was accounted for under the purchase method of
accounting, and CoorsTek's results of operations for 1996 include the results
of the acquisition since March 19, 1996. The purchase price was $6.6 million
and was allocated to the net assets acquired based upon their estimated fair
market value. Goodwill of $1.4 million is being amortized over 15 years on a
straight-line basis.
Note 10. Related Party Transactions
Beginning on December 28, 1992, Adolph Coors Company (ACCo) had no
ownership interest in CoorsTek. However, certain Coors family trusts have
significant interests in both ACX and ACCo. Transactions with ACCo were
immaterial for 1998, 1997 and 1996.
Since the formation of ACX, CoorsTek has engaged in several related party
transactions with ACX and its subsidiaries. These include, but are not limited
to, participation in ACX's cash management system (see Note 2), benefiting from
administrative services provided by ACX (see Note 2), intercompany debt
allocations (see Note 2), payments of dividends, miscellaneous asset and
liability transfers between the entities as well as miscellaneous capital
contributions of other forms between the entities. The average amount due to
ACX, during the nine months ended September 30, 1999 was $70.3 million
(unaudited). The average amount due to ACX for the years ended December 31,
1998 and 1997 was $45.8 million and $0, respectively. At September 30, 1999,
the Company owed ACX $59.4 million (unaudited). At December 31, 1998 and 1997,
the Company owed ACX $50.0 million and $0, respectively.
F-17
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Dividends paid to ACX totaled $0, $38,000 and ($216,000) in 1998, 1997
and 1996, respectively. Net capital contributions from ACX, in thousands, for
the year ended December 31, consisted of:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- -------
<S> <C> <C> <C>
Assets transferred from ACX.................... $ 13 $ 6,846 $ 630
Bonuses paid in common stock of ACX............ 79 177 747
Transfer of liability to ACX................... -- (176) (979)
Transfer of long-term debt from ACX............ (50,000) -- --
Capital contribution to ACX.................... (15) -- --
Capital contribution from ACX.................. -- 5,829 7,097
--------- -------- -------
Total net capital contributions.............. $ (49,923) $ 12,676 $ 7,495
========= ======== =======
</TABLE>
Note 11. Commitments and Contingencies
CoorsTek is self-insured for certain insurable risks consisting primarily
of employee health insurance programs and workers compensation. Certain stop-
loss and excess insurance policies are also maintained to reduce overall risk.
In addition, CoorsTek maintains insurance policies to protect against loss
related to property, business interruption and general liability risks.
CoorsTek is named as a defendant in various actions and proceedings
arising in the normal course of business, including claims by current or former
employees relating to employment or termination. Although the eventual outcome
of the various lawsuits cannot be predicted, it is management's opinion that
these suits will not result in liabilities to such extent that they would
materially affect CoorsTek's financial position or results of operations.
CoorsTek has received a demand for payment arising out of contamination
of a semiconductor manufacturing facility formerly owned by a subsidiary of
CoorsTek, Coors Components, Inc. ("CCI"). Colorado State environmental
authorities are seeking clean up of soil and ground water contamination from a
subsequent owner. The contamination is believed to have occurred prior to
CoorsTek's ownership of CCI and there are possible off site sources of
contamination. CCI was sold in November, 1987. Although CoorsTek does not
believe it is responsible for the contamination or the cleanup, the parties
agreed to a remediation plan. CoorsTek will manage the remediation and is
responsible to pay from 10% to 15 % of the remediation costs in excess of
$500,000. However, the remediation costs to date are below $500,000 and
management does not expect costs to exceed this amount.
CoorsTek has received a Unilateral Administration Order issued by the EPA
relating to the Rocky Flats Industrial Park Site, (RFIP) and is participating
with the RFIP Group to perform an Engineering Evaluation/Cost Analysis on the
property. There is no estimate of potential clean up costs, but management does
not believe it will be material.
Some of CoorsTek's subsidiaries have been notified that they may be
potentially responsible parties ("PRPs") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") or similar state
laws with respect to the remediation of certain sites where hazardous
substances have been released into the environment. CoorsTek cannot predict
with certainty the total costs of remediation, its share of the total costs,
the extent to which contributions will be available from other parties, the
amount of time necessary to complete the remediation or the availability of
insurance. However, based on investigations to date, CoorsTek believes that any
liability with respect to these sites would not be material to the financial
condition and results of operations of CoorsTek, without
F-18
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consideration for insurance recoveries. There can be no certainty, however,
that CoorsTek will not be named as a PRP at additional sites or be subject to
other environmental matters in the future or that the costs associated with
those additional sites or matters would not be material.
CoorsTek is a guarantor on industrial development bonds of CCI, a former
subsidiary that was sold in November 1987. The buyer of CCI assumed the
liability at the time of purchase. The terms require annual principal and
interest payments and a balloon payment of $2.2 million in May 2000. In the
event of default by the buyer, CoorsTek would assume the liability. The buyer
has made all payments to date in a timely manner and management does not
believe CoorsTek is at risk for payment of the bonds as of December 31, 1998.
The outstanding balance as of December 31, 1998, 1997 and 1996 was $2.4
million, $3.0 million and $3.1 million, respectively.
Note 12. Segment Information
Prior to 1999, the Company operated as a single segment that consisted
primarily of industrial ceramic products. In 1999, the Company acquired Edwards
Enterprises and Precision Technologies (see Note 9). These companies
manufacture precision-machined parts primarily for the semiconductor industry.
As a result of acquiring these companies and the resultant significance of the
semiconductor market to the Company, the Company changed its internal reporting
to track two segments separately: semiconductor products and industrial
ceramics products. The semiconductor products segment produces both ceramic and
non-ceramic products that are used in the semiconductor industry. The
industrial ceramics products segment produces primarily ceramic products that
are used in non-semiconductor industries.
The accounting policies of the segments are the same as those described
in Note 2 and there are generally no intersegment transactions. The Company
evaluates the performance of its segments and allocates resources to them based
primarily on gross margin.
The table below summarizes information about reportable segments, in
thousands, as of and for the nine months ended September 30 (unaudited):
<TABLE>
<CAPTION>
Depreciation
Net Gross and Capital
Sales Margin Amortization Expenditures
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
1999
Semiconductor........................ $ 73,986 $20,559 $ 3,682 $ 1,504
Industrial ceramics.................. 192,950 45,922 13,905 6,573
-------- ------- ------- -------
Consolidated total................. $266,936 $66,481 $17,587 $ 8,077
======== ======= ======= =======
1998
Semiconductor........................ $ 11,898 $ 3,874 $ 956 $ 970
Industrial ceramics.................. 218,492 53,225 13,977 21,399
-------- ------- ------- -------
Consolidated total................. $230,390 $57,099 $14,933 $22,369
======== ======= ======= =======
</TABLE>
The depreciation and amortization for the semiconductor segment for the
periods ended September 30, 1999 and 1998 includes $702 and $0, respectively,
of goodwill amortization that is included in selling, general and
administrative expense. The depreciation and amortization for the industrial
ceramics segment for the periods ended September 30, 1999 and 1998 includes
$691 and $679, respectively, of goodwill amortization that is included in
selling, general and administrative expense.
F-19
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The table below summarizes information about reportable segments, in
thousands, as of and for the years ended December 31:
<TABLE>
<CAPTION>
Depreciation
Net Gross and Capital
Sales Margin Amortization Assets Expenditures
-------- ------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
1998
Semiconductor............... $ 17,061 $ 4,976 $ 1,337 $ 20,626 $ 1,015
Industrial ceramics......... 279,553 68,732 18,640 257,733 25,875
-------- ------- ------- -------- -------
Consolidated total........ $296,614 $73,708 $19,977 $278,359 $26,890
======== ======= ======= ======== =======
1997
Semiconductor............... $ 19,199 $ 6,928 $ 1,527 $ 19,279 $ 1,032
Industrial ceramics......... 285,625 78,075 17,137 243,408 27,780
-------- ------- ------- -------- -------
Consolidated total........ $304,824 $85,003 $18,664 $262,687 $28,812
======== ======= ======= ======== =======
1996
Semiconductor............... $ 19,500 $ 8,443 $ 807 $ 17,942 $ 4,146
Industrial ceramics......... 256,852 67,689 15,352 198,693 24,521
-------- ------- ------- -------- -------
Consolidated total........ $276,352 $76,132 $16,159 $216,635 $28,667
======== ======= ======= ======== =======
</TABLE>
Depreciation and amortization for the industrial ceramics segment
includes $912, $438 and $93 of goodwill amortization for the years ended
December 31, 1998, 1997 and 1996, respectively. This amortization expense is
included in selling, general and administrative expense. There was no goodwill
amortization included in depreciation and amortization for the semiconductor
segment for the years ended December 31, 1998, 1997 and 1996.
Information related to CoorsTek's operations by geographic area is
presented below:
Revenue from unaffiliated customers, in thousands:
<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States.................................. $224,295 $224,272 $193,061
Europe......................................... 39,338 41,815 39,109
Asia........................................... 19,975 23,497 23,512
Canada......................................... 8,446 8,886 7,614
Other Foreign.................................. 6,696 8,161 14,128
Less: discounts and allowances................. (2,136) (1,807) (1,072)
-------- -------- --------
Total........................................ $296,614 $304,824 $276,352
======== ======== ========
Long-lived assets, in thousands:
<CAPTION>
December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States.................................. $151,630 $155,712 $126,687
Europe......................................... 3,486 3,101 2,978
Canada......................................... 6 84 72
-------- -------- --------
Total........................................ $155,122 $158,897 $129,737
======== ======== ========
</TABLE>
F-20
<PAGE>
COORSTEK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-lived assets consist primarily of net property, plant and equipment,
goodwill and cash surrender values on certain insurance policies.
Note 13. Quarterly Financial Information (unaudited)
The following summarizes selected quarterly financial information, in
thousands, for each of the two years in the period ended December 31, 1998.
<TABLE>
<CAPTION>
First Second Third Fourth Year
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1998
Net sales....................... $80,945 $79,422 $70,023 $66,224 $296,614
Cost of goods sold.............. 60,241 59,258 53,792 49,615 222,906
------- ------- ------- ------- --------
Gross profit.................... 20,704 20,164 16,231 16,609 73,708
Selling, general &
administrative................. 10,076 9,762 8,690 9,230 37,758
Asset impairment charges........ 6,232 -- 5,582 -- 11,814
------- ------- ------- ------- --------
Operating income................ 4,396 10,402 1,959 7,379 24,136
Other income (expense):
Interest expense, net......... (1,055) (984) (855) (630) (3,524)
------- ------- ------- ------- --------
Income before income taxes...... 3,341 9,418 1,104 6,749 20,612
Income tax expense.............. 1,229 3,485 403 2,565 7,682
------- ------- ------- ------- --------
Net income...................... $ 2,112 $ 5,933 $ 701 $ 4,184 $ 12,930
======= ======= ======= ======= ========
Net income per basic share...... $ 0.29 $ 0.83 $ 0.10 $ 0.59 $ 1.81
======= ======= ======= ======= ========
Weighted average shares
outstanding--basic............. 7,106 7,138 7,145 7,115 7,126
======= ======= ======= ======= ========
Net income per diluted share.... $ 0.29 $ 0.81 $ 0.10 $ 0.58 $ 1.78
======= ======= ======= ======= ========
Weighted average shares
outstanding--diluted........... 7,284 7,306 7,255 7,186 7,258
======= ======= ======= ======= ========
1997
Net sales....................... $71,416 $75,011 $79,329 $79,068 $304,824
Cost of goods sold.............. 50,444 52,871 58,126 58,380 219,821
------- ------- ------- ------- --------
Gross profit.................... 20,972 22,140 21,203 20,688 85,003
Selling, general &
administrative................. 10,774 10,601 9,999 10,380 41,754
------- ------- ------- ------- --------
Operating income................ 10,198 11,539 11,204 10,308 43,249
Other income (expense):
Interest income (expense)..... (4) (1) (12) (11) (28)
Miscellaneous--net............ 20 12 (36) (36) (40)
------- ------- ------- ------- --------
Income before income taxes...... 10,214 11,550 11,156 10,261 43,181
Income tax expense.............. 3,829 4,334 4,184 3,845 16,192
------- ------- ------- ------- --------
Net income...................... $ 6,385 $ 7,216 $ 6,972 $ 6,416 $ 26,989
======= ======= ======= ======= ========
Net income per basic share...... $ 0.91 $ 1.03 $ 0.99 $ 0.91 $ 3.84
======= ======= ======= ======= ========
Weighted average shares
outstanding--basic............. 6,991 7,002 7,045 7,079 7,030
======= ======= ======= ======= ========
Net income per diluted share.... $ 0.89 $ 1.01 $ 0.96 $ 0.88 $ 3.74
======= ======= ======= ======= ========
Weighted average shares
outstanding--diluted........... 7,150 7,176 7,262 7,294 7,221
======= ======= ======= ======= ========
</TABLE>
F-21
<PAGE>
SCHEDULE II
Allowance for doubtful receivables (deducted from accounts receivable)
<TABLE>
<CAPTION>
Additions
Balance at charged to costs Balance at end
beginning of year and expenses Other Deductions of year
----------------- ---------------- ----- ---------- --------------
<S> <C> <C> <C> <C> <C>
1996........ $1,608 301 19 (646) $1,282
1997........ $1,282 1,079 60 (428) $1,993
1998........ $1,993 547 (5) (696) $1,839
</TABLE>
F-22
<PAGE>
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Document Description
------- --------------------
<C> <S>
2 Distribution Agreement
3.1 Form of Certificate of Incorporation of Registrant+
3.2 Form of Bylaws of Registrant+
10.1 Description of Officers' Life Insurance Program*
10.2 Form of CoorsTek, Inc. Stock Option and Incentive Plan
10.3 CoorsTek, Inc. Executive Deferred Compensation Plan*
10.4 Tax Sharing Agreement
10.5 Environmental Responsibility Agreement
10.6 Transitional Services Agreement
10.7 Salary Continuation Agreement for John K. Coors*
10.8 Salary Continuation Agreement for Joseph Coors, Jr.*
10.9 Employment Agreement for John K. Coors*
10.10 Form of Employment Agreement for Joseph Coors, Jr.
10.11 Employment Agreement for Derek C. Johnson*
10.12 Employment Agreement for Larry D. Murphy*
10.13 Employment Agreement for Joseph Warren*
21 List of Subsidiaries
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment
+ Filed with registration statement on Form 10 filed October 7, 1999
I-4
<PAGE>
Signatures
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
CoorsTek, Inc.
/s/ Joseph Coors, Jr.
By: _________________________________
Name:Joseph Coors, Jr.
Title:Chairman and Chief
Executive Officer
December , 1999
Signing Date
I-5
<PAGE>
EXHIBIT 2
DISTRIBUTION AGREEMENT
BETWEEN
ACX TECHNOLOGIES, INC.
AND
COORSTEK, INC.
December 1, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS ......................................................1
ARTICLE II PRE-DISTRIBUTION TRANSACTIONS ...................................5
2.01 Transferred Assets and Assumed Liabilities ......................5
2.02 Financing Arrangements ..........................................5
2.03 Related Agreements ..............................................6
2.04 ACX Approval ....................................................6
2.05 Securities Law Actions ..........................................6
ARTICLE III ASSUMPTION AND RETENTION OF LIABILITIES ........................6
3.01 Assumed Liabilities .............................................6
3.02 Retained Liabilities ............................................7
ARTICLE IV THE DISTRIBUTION ................................................7
4.01 The Distribution ................................................7
4.02 Fractional Shares ...............................................7
4.03 ACX Board Action ................................................7
ARTICLE V SURVIVAL, INDEMNIFICATION, CLAIMS AND OTHER MATTERS ..............8
5.01 Survival of Agreements ..........................................8
5.02 Indemnification .................................................8
5.03 Procedure for Indemnification ...................................9
5.04 Direct Claims ..................................................10
5.05 Adjustment of Indemnifiable Losses .............................11
5.06 No Third Party Beneficiaries ...................................12
5.07 Joint Defense Agreements .......................................12
5.08 Special Notices ................................................12
ARTICLE VI CERTAIN ADDITIONAL MATTERS ......................................13
6.01 Construction of Agreements .....................................13
6.02 No Representations or Warranties; Exceptions ...................13
6.03 Further Assurances .............................................14
6.04 Consents, etc. .................................................14
6.05 Officers and Directors .........................................14
6.06 Existing Intercompany Arrangements .............................14
6.07 Intercompany Accounts ..........................................14
6.08 Transfer Taxes .................................................14
6.09 Proration of Taxes, Lease and Utility Payments .................15
ARTICLE VII ACCESS TO INFORMATION AND SERVICES ............................15
7.01 Provision of Corporate Records .................................15
-i-
<PAGE>
7.02 Access to Information ..........................................15
7.03 Production of Witnesses and Individuals ........................16
7.04 Retention of Records ...........................................16
7.05 Confidentiality ................................................16
7.06 Privileged Matters .............................................17
ARTICLE VIII INSURANCE ....................................................18
8.01 General ........................................................18
8.02 Certain Insured Claims .........................................19
ARTICLE IX DISPUTE RESOLUTION .............................................19
9.01 Initiation .....................................................19
9.02 Mediation ......................................................19
9.03 Arbitration ....................................................20
9.04 Cost of Arbitration ............................................20
ARTICLE X MISCELLANEOUS ...................................................20
10.01 Complete Agreement .............................................20
10.02 Expenses .......................................................21
10.03 Governing Law ..................................................21
10.04 Notices ........................................................21
10.05 Amendment and Modification .....................................21
10.06 Termination ....................................................21
10.07 Successors and Assigns .........................................22
10.08 No Third Party Beneficiaries ...................................22
10.09 Counterparts ...................................................22
10.10 Interpretation .................................................22
10.11 Schedules, Etc. ................................................22
10.12 Legal Enforceability ...........................................22
SCHEDULE I - TRANSFERRED ASSETS AND ASSUMED LIABILITIES
SCHEDULE II - INTERCOMPANY DEBT
EXHIBIT A - FORM OF PROMISSORY NOTE
EXHIBIT B - FORM OF ENVIRONMENTAL RESPONSIBILITY AGREEMENT
EXHIBIT C - FORM OF TRANSITIONAL SERVICES AGREEMENT
EXHIBIT D - FORM OF TAX SHARING AGREEMENT
-ii-
<PAGE>
DISTRIBUTION AGREEMENT
----------------------
THIS DISTRIBUTION AGREEMENT (this "Distribution Agreement" or this
"Agreement"), dated as of December 1, 1999, is between ACX Technologies, Inc., a
Colorado corporation ("ACX"), and COORSTEK, INC., a Colorado corporation and a
wholly-owned subsidiary of ACX (together with its subsidiaries, "CTI").
RECITALS
1. ACX conducts its business through its subsidiaries, Graphic Packaging
Holdings Inc. and its subsidiaries, ACX International Sales Corp. and CTI.
2. The Board of Directors of ACX (the "Board") has authorized a plan
that, if completed as contemplated herein, will separate CTI from ACX's business
by distributing the CTI common stock (the "CTI Common Stock"), to the holders of
the common stock of ACX (the "ACX Common Stock"), on a pro rata basis.
3. ACX and CTI have determined that it is necessary and desirable to
establish the principal corporate transactions required to separate CTI's
business from ACX and distribute the CTI Common Stock, and to agree on certain
other matters, all as provided in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, ACX and CTI agree as follows:
ARTICLE I
DEFINITIONS
-----------
As used in this Agreement, capitalized terms shall have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
ACX Group: ACX and its Affiliates immediately following the Distribution.
---------
Action: any action, claim, suit, arbitration, inquiry, subpoena, discovery
------
request, proceeding or investigation by or before any court or grand jury, any
governmental or other regulatory or administrative agency or commission or any
arbitration tribunal.
Affiliate: with respect to any specified person, a person that, directly
---------
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such specified person; provided that ACX
--------
(and its subsidiaries) shall not be deemed to be Affiliates of CTI (and its
subsidiaries), and vice versa, for purposes of this Agreement; further provided,
------- --------
that neither ACX nor CTI (and their respective subsidiaries) shall be deemed to
be Affiliates of Adolph Coors Company (and its subsidiaries), or vice versa, for
purposes of this Agreement.
<PAGE>
Agent: Norwest Bank Minnesota, NA, the distribution agent appointed by ACX
-----
to distribute the CTI Common Stock.
Assumed Liabilities: collectively, the Liabilities and other obligations
-------------------
of ACX related to CTI that are described or listed on Schedule 1 hereto.
Bill of Sale, Assignment and Assumption Agreements: one or more bills of
--------------------------------------------------
sale, assignments and assumption agreements to be entered into between ACX and
CTI on or after the date of this Distribution Agreement pursuant to which ACX
transfers the Transferred Assets to CTI and CTI assumes the Assumed Liabilities,
as and when contemplated by Section 2.01 of this Distribution Agreement.
Board: as defined in the Recitals to this Agreement.
-----
Books and Records: the books and records (including computerized books and
-----------------
records) of ACX or its Affiliates that relate principally to CTI, all books and
records relating to Employees; and all files relating to any Action being
assumed by CTI as part of the Assumed Liabilities or any Action in which, as
between the parties hereto or their Affiliates, CTI is the principal party in
interest.
CTI Group: CTI and its Affiliates immediately following the Distribution.
---------
Code: the Internal Revenue Code of 1986, as amended.
----
Conveyancing and Assumption Instruments: collectively, the Bill of Sale,
---------------------------------------
Assignment and Assumption Agreements and any other agreements, instruments and
other documents to be entered into in order to effect the transfer to CTI of the
Transferred Assets and the assumption by CTI of the Assumed Liabilities.
Distribution: the distribution as a dividend to holders of ACX Common
------------
Stock of CTI Common Stock on the basis provided in Article IV hereof, which
shall be made on the date specified by the Board.
Distribution Date: the date of the Distribution as determined by the
-----------------
Board.
Distribution Ratio: as determined by the Board, the ratio of the number of
------------------
shares (or fraction thereof) of CTI Common Stock to be distributed to the
holders of each share of ACX Common Stock on the Record Date.
Dividend: the special cash dividend in an amount equal to $200 million
--------
less the Intercompany Debt to be paid by CTI to ACX on the Distribution Date.
-2-
<PAGE>
Employee: any employee of ACX or any of its subsidiaries other than CTI
--------
who is assigned to CTI on or prior to the Distribution Date, including but not
limited to any such employee who was laid off, on leave of absence or on
disability leave as of the Distribution Date.
Environmental Responsibility Agreement: the agreement, substantially in
--------------------------------------
the form of Exhibit B hereto, pursuant to which ACX and CTI will provide for
---------
responsibility for potential environmental matters.
Exchange Act: the Securities Exchange Act of 1934, as amended.
------------
Final Determination: as defined in the Tax Sharing Agreement.
-------------------
Form 10: the registration statement on Form 10, as amended from time to
-------
time, filed by CTI with the SEC to register the CTI Common Stock pursuant to the
Exchange Act.
Indemnifiable Loss Deduction: as defined in Section 5.05(b).
----------------------------
Indemnifiable Losses: with respect to any claim by an Indemnitee for
--------------------
indemnification authorized pursuant to Article V hereof, any and all losses,
liabilities, claims, damages, obligations, payments, costs and expenses
(including, without limitation, the costs and expenses of any and all Actions,
demands, assessments, judgments, settlements and compromises relating thereto
and reasonable attorneys' fees and expenses in connection therewith) suffered by
such Indemnitee with respect to such claim.
Indemnifying Party: any party who is required to pay any other person
------------------
pursuant to Article V hereof.
Indemnity Return: as defined in Section 5.05.
----------------
Indemnitee: any party who is entitled to receive payment from an
----------
Indemnifying Party pursuant to Article V hereof.
Indemnity Payment: the amount an Indemnifying Party is required to pay an
-----------------
Indemnitee pursuant to Article V hereof.
Information Statement: the definitive information statement, substantially
---------------------
in compliance with Schedule 14C under the Exchange Act, to be mailed to the
holders of ACX Common Stock in connection with the Distribution.
Insurance Effective Time: as defined in Section 8.03(a).
------------------------
Insurance Program: collectively, the series of policies as of the date of
-----------------
this Agreement pursuant to which various insurance carriers provide or have
provided insurance coverage to ACX and its Affiliates.
-3-
<PAGE>
Intercompany Debt: the aggregate intercompany debt owed to ACX by CTI set
-----------------
forth on Schedule II hereto. In no event shall trade payables incurred in the
ordinary course of business between ACX and CTI or their Affiliates be
considered Intercompany Debt for purposes of this definition.
Intercompany Debt Methodology: the financial methodology heretofore
-----------------------------
approved by the Board to split the consolidated debt of ACX between ACX and CTI
prior to the Distribution.
Liabilities: any and all debts, liabilities and obligations, whether
-----------
accrued, contingent or reflected on a balance sheet, known or unknown,
including, without limitation, those arising under any law, rule, regulation,
Action, order or consent decree of any governmental entity or any judgment of
any court of any kind or award of any arbitrator of any kind, and those arising
under any contract, commitment or undertaking.
New Debt: shall mean at least $205 million principal amount of debt to be
--------
incurred by CTI prior to the Distribution Date.
Notice: as defined in Section 9.01.
------
Policy Termination Date: as defined in Section 8.01(a).
-----------------------
Privilege: as defined in Section 7.06(a).
---------
Privileged Information: as defined in Section 7.06(a).
----------------------
Promissory Note: as defined in Section 2.02.
---------------
Record Date: the date determined by the Board as the record date for the
-----------
Distribution.
Recovery: the amount obtained pursuant to a claim under an insurance
--------
policy in the Insurance Program.
Related Agreements: the Environmental Responsibility Agreement,
------------------
Transitional Services Agreement, Tax Sharing Agreement, any joint defense
agreement, the Conveyancing and Assumption Instruments, all other agreements
referred to in Section 2.04 and any other agreement entered into by ACX or one
or more of its Affiliates, and CTI and one or more of its Affiliates pursuant to
this Agreement or otherwise in connection with the Distribution.
Restated Tax Saving Amount: as defined in Section 5.05(b).
--------------------------
Retained Liabilities: collectively, all Liabilities and obligations of ACX
--------------------
that are not Assumed Liabilities.
SEC: the Securities and Exchange Commission.
---
-4-
<PAGE>
Tax Ruling: the ruling by the Internal Revenue Service that the
----------
Distribution will be tax free to ACX and ACX stockholders under Section 355 of
the Code.
Tax Saving Amount: as defined in Section 5.05.
-----------------
Tax Sharing Agreement: the agreement substantially in the form of Exhibit
--------------------- -------
D hereto, pursuant to which ACX and CTI will provide for certain tax matters.
- -
Third Party Claim: as defined in Section 5.03(b).
-----------------
Transferred Assets: Collectively, all assets of ACX being transferred to
------------------
CTI that are described or listed on Schedule I hereto.
Transfer Taxes: as defined in Section 6.08.
--------------
Transitional Services Agreement: the agreement, substantially in the form
-------------------------------
of Exhibit C hereto, pursuant to which ACX and CTI, or their Affiliates, will
---------
provide certain transitional services to each other.
ARTICLE II
PRE-DISTRIBUTION TRANSACTIONS
-----------------------------
Section 2.01 Transferred Assets and Assumed Liabilities. Certain
------------------------------------------
Transferred Assets to be transferred and certain Assumed Liabilities to be
assumed pursuant to this Agreement are to be transferred and assumed on or
before December 15, 1999. Certain other Transferred Assets to be transferred
and Assumed Liabilities to be assumed are to be transferred and assumed as of
the close of business on the Distribution Date. Schedule I hereto sets forth
the Transferred Assets and Assumed Liabilities and their respective transfer and
assumption dates. ACX and CTI agree to execute such Bill of Sale, Assignment
and Assumption Agreements as necessary or desirable to effect such transfers and
assumptions in accordance with this Agreement and such Schedule.
Section 2.02 Financing Arrangements. ACX and CTI shall use their
----------------------
respective best efforts to cause the following to occur on or before the close
of business on the Distribution Date:
(a) the incurrence by CTI of the New Debt;
(b) the repayment by CTI from the proceeds of the New Debt of
the Intercompany Debt; and
(c) the payment by CTI of the Dividend to ACX from the proceeds
of the New Debt.
-5-
<PAGE>
ACX and CTI agree that if CTI shall not have received the proceeds of the New
Debt on or before the close of business on the Distribution Date, then CTI shall
make the payments in subsections (b) and (c) above by issuing to ACX on the
Distribution Date a promissory note substantially in the form of Exhibit A
---------
hereto, which shall be due on January 4, 1999 subject to extension to a later
date by mutual agreement of the parties. ACX and CTI further agree that CTI
shall indemnify ACX pursuant to Article V for any payment or fee ACX is required
to pay or any other expense ACX may incur in respect of the New Debt.
Section 2.03 Related Agreements. ACX and CTI shall use their best
------------------
efforts to cause, on or before the Distribution Date, the execution and delivery
by ACX and CTI, or their respective Affiliates, of the Transitional Services
Agreement, Environmental Responsibility Agreement, any Joint Defense Agreement,
Tax Sharing Agreement, and other agreements deemed necessary or desirable by the
applicable parties to establish and govern their post-Distribution
relationships.
Section 2.04 ACX Approval. ACX, as the sole shareholder of CTI, shall
------------
approve or ratify any actions that are reasonably necessary or desirable to be
taken by CTI to effectuate the transactions contemplated by this Agreement in a
manner consistent with the terms of this Agreement, including, without
limitation, approval of appropriate equity or other plans, agreements and
arrangements for Employees and non-Employee members of CTI's Board of Directors.
Section 2.05 Securities Law Actions. ACX and CTI shall have prepared and
----------------------
filed with the SEC, the Form 10, which shall include or incorporate by reference
the Information Statement setting forth appropriate disclosure concerning CTI,
the Distribution and any other appropriate matters required to be stated
therein. ACX and CTI shall update, supplement and amend this information and
shall use reasonable efforts to cause the Form 10 to become effective under the
Exchange Act, and thereafter ACX shall mail the Information Statement to holders
of ACX Common Stock as of the Record Date.
(b) ACX and CTI shall take all such action as may be necessary
or appropriate under the securities or blue sky laws of states or other
political subdivisions of the United States in connection with the Distribution.
(c) CTI shall prepare and file an application and shall pursue
inclusion of its Common Stock in the Nasdaq National Market System.
ARTICLE III
ASSUMPTION AND RETENTION OF LIABILITIES
---------------------------------------
Section 3.01 Assumed Liabilities. Upon the terms and subject to the
-------------------
conditions set forth in this Agreement and the Bill of Sale, Assignment and
Assumption Agreements, CTI hereby agrees with ACX to assume, pay, perform and
discharge in due course any and all Assumed Liabilities.
-6-
<PAGE>
Section 3.02 Retained Liabilities. Upon the terms and subject to the
--------------------
conditions set forth in this Agreement and the Bill of Sale, Assignment and
Assumption Agreements, ACX hereby agrees with CTI to pay, perform and discharge
in due course any and all Retained Liabilities.
ARTICLE IV
THE DISTRIBUTION
----------------
Section 4.01 The Distribution. Prior to the Distribution Date, ACX shall
----------------
deliver to CTI the certificate for 200,000 shares of CTI Common Stock held by
ACX and representing all of the outstanding CTI Common Stock, and CTI shall
cancel such certificate and issue and deliver to ACX in exchange therefor an
omnibus stock certificate representing that number of shares of CTI Common Stock
equal to the product of (i) the number of shares of ACX Common Stock outstanding
on the Record Date multiplied by (ii) the Distribution Ratio. ACX shall then
deliver such omnibus certificate to the Agent and shall instruct the Agent to
distribute, beginning on the Distribution Date, to holders of ACX Common Stock
on the Record Date, the appropriate number of shares of CTI Common Stock based
on the Distribution Ratio, and, as soon thereafter as reasonably practicable,
cash, if applicable, in lieu of fractional shares obtained in the manner
provided in Section 4.02 hereof. CTI agrees to provide to the Agent sufficient
certificates in such denominations as the Agent may request in order to effect
the Distribution. All of the shares of CTI Common Stock issued in the
Distribution shall be fully paid, nonassessable and free of preemptive rights.
ACX shareholders shall not be required to pay cash or other consideration for
the CTI Common Stock received in the Distribution.
Section 4.02 Fractional Shares. No certificate or scrip representing
-----------------
fractional shares of CTI Common Stock shall be issued as part of the
Distribution. In lieu of receiving fractional shares, each holder of ACX Common
Stock who would otherwise be entitled to receive a fractional share of CTI
Common Stock pursuant to the Distribution will receive cash for such fractional
share. ACX shall instruct the Agent to determine the number of whole shares and
fractional shares of CTI Common Stock allocable to each holder of record of
ACXCommon Stock on the Record Date, to aggregate all such fractional shares into
whole shares and sell the whole shares obtained thereby in the open market at
then prevailing prices on behalf of holders who otherwise would be entitled to
receive fractional share interests and to distribute to each such holder such
holder's ratable share of the total proceeds (net of total selling expenses) of
such sale; provided however that the Agent shall have sole discretion to
determine when, how, through which broker-dealer and at what price to make its
sales; further provided that the broker-dealer shall not be an affiliate of ACX
or CTI.
Section 4.03 ACX Board Action.
----------------
(a) The Board, in its discretion, shall establish the Record
Date, the Distribution Date, the Distribution Ratio and all appropriate
procedures in connection with the Distribution.
-7-
<PAGE>
(b) In its sole discretion for any reason, (including failure to
receive confirmation (if requested) of the Tax Ruling) the Board may refuse to
declare the Distribution; and after the declaration and until the Distribution,
the Board may postpone or rescind the Distribution. In any event, the Board
shall refuse to declare the Distribution until and unless the following
conditions have been satisfied:
(i) the Tax Ruling shall have been obtained and shall continue
to be in effect;
(ii) CTI Common Stock shall have been approved for inclusion in
the Nasdaq National Market.
ARTICLE V
SURVIVAL, INDEMNIFICATION, CLAIMS
---------------------------------
AND OTHER MATTERS
-----------------
Section 5.01 Survival of Agreements.
----------------------
(a) The obligations of CTI with respect to the Assumed
Liabilities and the obligations of ACX with respect to the Retained Liabilities,
and the related indemnification rights under this Agreement, shall survive
indefinitely. Except as specifically provided for herein or in any Related
Agreement, all other obligations of ACX and CTI shall terminate and be of no
further force and effect on the tenth anniversary of the Distribution Date.
(b) The obligations of ACX and CTI under this Agreement shall
survive the sale or other transfer by either of them of any assets or businesses
or the assignment by either of them of any Liabilities. To the extent that ACX
transfers any of the Retained Liabilities (except for such amounts of Retained
Liabilities that are not material individually or in the aggregate), ACX shall
cause the transferee of such Retained Liabilities to assume specifically its
obligations with respect thereto under this Agreement and to fulfill its
obligations related to such Retained Liabilities. To the extent that CTI
transfers any of the Assumed Liabilities (except for such amounts of Assumed
Liabilities that are not material individually or in the aggregate), CTI shall
cause the transferee of such Assumed Liabilities to assume specifically its
obligations with respect thereto under this Agreement and to fulfill its
obligations related to such Assumed Liabilities. No such transfer shall relieve
either ACX or CTI from its respective obligations under this Agreement or the
Related Agreements.
Section 5.02 Indemnification.
---------------
(a) ACX shall indemnify, defend and hold harmless the CTI Group,
and each of their respective directors, officers, employees and agents from and
against any and all Indemnifiable Losses incurred or suffered by the CTI Group
in connection with any Action or threatened Action and arising out of or due to,
directly or indirectly, (i) any of the Retained
-8-
<PAGE>
Liabilities, or (ii) any failure to perform, or violation of, any provision of
this Agreement or any Related Agreement that is to be performed or complied with
by ACX or its Affiliate.
(b) CTI shall indemnify, defend and hold harmless the ACX Group,
and each of their respective directors, officers, employees and agents from and
against any and all Indemnifiable Losses incurred or suffered by the ACX Group
in connection with any Action or threatened Action and arising out of or due to,
directly or indirectly, (i) any of the Assumed Liabilities, (ii) any payment,
fee or other expense incurred by ACX in respect of the New Debt, or (iii) any
failure to perform, or violation of, any provision of this Agreement or any
Related Agreement that is to be performed or complied with by CTI or its
Affiliates.
Section 5.03 Procedure for Indemnification.
-----------------------------
(a) The following procedures shall apply to any claim for
indemnification made by the ACX Group or the CTI Group pursuant to the
indemnities provided in Section 5.02 of this Agreement and pursuant to any
indemnities provided in any Related Agreement unless such Related Agreement
establishes other procedures with respect to indemnities thereunder.
(b) If ACX or CTI shall receive notice of any Action by any
third party, or any fact or allegation upon which such Action could be based
(hereinafter a "Third Party Claim"), with respect to which the other party is or
may be obligated to make an Indemnity Payment, it shall give such other party
prompt notice thereof (including any pleadings relating thereto), specifying in
reasonable detail the nature of such Third Party Claim and the amount or
estimated amount thereof to the extent then feasible (which estimate shall not
be conclusive of the final amount of such Indemnity Payment); provided, however,
--------
that the failure of a party to give notice as provided in this Section 5.03
shall not relieve the other party of its indemnification obligations under this
Article V, except to the extent that such other party is actually prejudiced by
such failure to give notice.
(c) For any Third Party Claim upon which notice is required to
be given under paragraph (b) of this Section 5.03, the Indemnifying Party shall
defend such Third Party Claim at its sole cost and expense and through counsel
employed by the Indemnifying Party and reasonably acceptable to the Indemnitee.
Within 30 days of receipt of the notice of Third Party Claim received under
paragraph (b), the Indemnifying Party shall give notice of its intent to defend
or objection to the claim of indemnification specifying in reasonable detail the
grounds therefore. Failure to provide such notice within such 30-day period
shall be deemed acknowledgment by the Indemnifying Party of its indemnity
obligation for the Third Party Claim.
(d) The Indemnifying Party's right to defend any Third Party
Claim includes the right to control, manage and direct the defense of the Third
Party Claim and to compromise, settle or consent to the entry of any judgment or
determination of liability concerning such Third Party Claim; provided, however,
that the Indemnifying Party shall not compromise, settle or consent to the entry
of judgment or determination of liability against the Indemnitee without prior
written approval by the Indemnitee, which approval shall not be unreasonably
withheld; provided, however, that if the Indemnifying Party shall seek the
--------
approval of the Indemnitee to a
-9-
<PAGE>
settlement for monetary damages for which the Indemnifying Party accepts
responsibility and if the Indemnitee shall withhold approval of such settlement,
then the obligation of the Indemnifying Party shall be limited to the amount of
the proposed and unapproved settlement, plus attorney's fees and costs to the
date of the proposed settlement, and the Indemnitee shall be solely responsible
for any additional amount.
(e) The Indemnitee may participate in the Indemnifying Party's
defense of any Third Party Claim in which the Indemnitee has an interest and be
represented by counsel of its own choosing at the Indemnitee's sole cost and
expense.
(f) If the Indemnifying Party fails to defend a Third Party
Claim, the Indemnitee may defend and may compromise and settle or consent to an
entry of judgment or a determination of liability concerning such Third Party
Claim at the sole cost and expense of the Indemnifying Party.
(g) Regardless of the party that defends a Third Party Claim,
the other shall make available to the Indemnifying Party all employees, Books
and Records, communications, and documents, within its possession or control
that are necessary, appropriate or reasonably deemed relevant with respect to
such defense, and otherwise shall reasonably cooperate in the defense of the
Third Party Claim.
(h) With respect to any Third Party Claim, neither party to this
Agreement shall enter into any compromise or settlement or consent to the entry
of any judgment that does not include as an unconditional term thereof the
giving by the third party of a release, from all further liability concerning
such Third Party Claim, of the other party to this Agreement.
(i) Upon final judgment after exhaustion of all appeals,
settlement, compromise or other final resolution of any Third Party Claim, and
unless otherwise agreed by the parties, the Indemnifying Party shall pay
promptly on behalf of the Indemnitee, or to the Indemnitee in reimbursement of
any amount theretofore required to be paid by it, the amount so determined by
final judgment after exhaustion of all appeals, settlement, compromise or final
resolution. Upon the payment in full by the Indemnifying Party of such amount,
the Indemnifying Party shall succeed to the rights of such Indemnitee, to the
extent not waived in settlement, against any third party.
Section 5.04 Direct Claims. Any claim for indemnity pursuant to Section
-------------
5.02 on account of an Indemnifiable Loss made directly by the Indemnitee against
the Indemnifying Party that does not result from a Third Party Claim shall be
asserted by written notice from the Indemnitee to the Indemnifying Party. Such
Indemnifying Party shall have a period of 90 days (or such shorter time period
as may be required by law as indicated by the Indemnitee in the written notice)
within which to respond thereto. If such Indemnifying Party does not respond
within such 90-day (or lesser period), such Indemnifying Party shall be deemed
to have accepted responsibility to make payment and shall have no further right
to contest the validity of such claim. If such Indemnifying Party does respond
within such 90-day (or lesser) period and rejects
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<PAGE>
such claim in whole or in part, such Indemnitee shall be free to pursue
resolution as provided in Article IX.
Section 5.05 Adjustment of Indemnifiable Losses.
----------------------------------
(a) The amount which an Indemnifying Party is required to pay to
an Indemnitee pursuant to Section 5.02(a) or Section 5.02(b) shall be reduced
(including, without limitation, retroactively) by any insurance proceeds and
other amounts actually recovered by such Indemnitee in reduction of the related
Indemnifiable Loss. If an Indemnitee shall have received an Indemnity Payment in
respect of an Indemnifiable Loss and shall subsequently actually receive
insurance proceeds or other amounts in respect of such Indemnifiable Loss, then
such Indemnitee shall pay to such Indemnifying Party a sum equal to the lesser
of the amount of such insurance proceeds or other amounts actually received or
the net amount of Indemnity Payments actually received previously. The
Indemnitee agrees that, (i) it shall use commercially reasonable efforts to
recover all insurance proceeds that may be available, and (ii) the Indemnifying
Party shall be subrogated to such Indemnitee under any insurance policy.
(b) (i) If an Indemnitee receives a tax saving by reason of
having incurred an Indemnifiable Loss for which such Indemnitee shall have
received an Indemnity Payment from an Indemnifying Party, then such Indemnitee
shall pay to such Indemnifying Party an amount equal to such tax saving. For
purposes of this Section 5.05(b), an Indemnitee shall be deemed to have received
a tax saving with respect to an Indemnifiable Loss if, upon the filing of a
Federal, state or local income tax return for a taxable year ending on or after
the Distribution Date (the "Indemnity Return"), an amount attributable to an
Indemnifiable Loss is deductible by the Indemnitee or any of its Affiliates and
the amount of the related Indemnity Payment that is includible in gross income
by the Indemnitee or any of its Affiliates is less than the amount of such tax
deduction. The amount, if any, by which such deduction exceeds the amount of the
related gross income is referred to herein as the "Indemnifiable Loss
Deduction." Both ACX and CTI shall consult with each other and act in good faith
to coordinate tax return filing positions with respect to Indemnity Payments for
the periods that include an Indemnity Payment.
(ii) In the event that an Indemnitee will receive a tax
saving by reason of an Indemnifiable Loss, such Indemnitee shall pay the
Indemnifying Party within 30 days after the filing of an Indemnity Return, a sum
equal to the Indemnifiable Loss Deduction multiplied by an amount equal to A +
[(1 - A) x .05)], where A equals the highest marginal corporate Federal income
tax rate applicable to corporations taxable under Subchapter C of the Code on
the date the Indemnity Return is filed (the "Tax Saving Amount").
(iii) In the event that an Indemnitee may receive a tax
saving by reason of an Indemnifiable Loss, such Indemnitee shall adopt, in good
faith, a reasonable tax return filing position so as to report the Indemnifiable
Loss Deduction on such returns. The Indemnitee shall have the sole
responsibility for the preparation of its tax returns and reporting thereon such
Indemnifiable Loss Deduction. If a dispute arises between the Indemnitee and
the Indemnifying Party as to the reasonableness of an Indemnity Return filing
position with respect to an Indemnifiable Loss Deduction, such dispute shall be
resolved by a mutually agreed upon party
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selected and approved by both the Indemnitee and Indemnifying Party. The cost of
retaining such mutually agreed upon party shall be shared by the parties
equally, and the decision shall be binding on the parties.
(iv) There shall be an adjustment to any Tax Saving Amount
calculated under Section 5.05(b)(ii) hereof in the event of an audit or other
proceeding that results in a Final Determination that increases or decreases the
amount of the Indemnifiable Loss Deduction (the "Restated Indemnifiable Loss
Deduction") reported on the Indemnity Tax Return by the Indemnitee. The
Indemnitee shall promptly inform the Indemnifying Party of any such audit or
proceeding and shall attempt in good faith to sustain the tax saving at issue.
Upon receiving a written notice of a Final Determination in respect of a
Restated Indemnifiable Loss Deduction, the Indemnitee shall redetermine the Tax
Saving Amount attributable to the Restated Indemnifiable Loss Deduction under
the tax saving calculation of Section 5.05(b) (ii) hereof substituting the
Restated Indemnifiable Loss Deduction for the Indemnifiable Loss Deduction,
taking into account the Final Determination (the "Restated Tax Saving Amount").
If the Restated Tax Saving Amount is greater than the Tax Saving Amount, the
Indemnitee shall pay the Indemnifying Party a sum equal to the difference
between such amounts, within 30 days after receiving written notice of the Final
Determination. If the Restated Tax Saving Amount is less than the Tax Saving
Amount, then the Indemnifying Party shall pay the Indemnitee, within 30 days of
receiving written notice from the Indemnitee of the Final Determination, an
amount equal to the sum of (1) the difference between such amounts, plus (2) any
interest assessed against the Indemnitee by a tax authority which is
attributable to any tax assessed as a result of a reduction in the Indemnifiable
Loss Deduction effected by the Final Determination.
Section 5.06 No Third Party Beneficiaries. Except to the extent
----------------------------
expressly provided otherwise in this Article V, the indemnification provided for
by this Article V shall not inure to the benefit of any third party or parties
and shall not relieve any insurer or other third party who would otherwise be
obligated to pay any claim of the responsibility with respect thereto or, solely
by virtue of the indemnification provisions hereof, provide any subrogation
rights with respect thereto, and each party agrees to waive such rights against
the other to the fullest extent permitted.
Section 5.07 Joint Defense Agreements. Except as otherwise provided in
------------------------
this Agreement, for any Third Party Claim in which both ACX (or its Affiliate)
and CTI (or its Affiliate) share an actual or potential material interest, ACX
and CTI or their respective Affiliates shall enter into a Joint Defense
Agreement. Unless an Indemnifying Party is the sole indemnifying party or the
parties otherwise specifically agree in writing in a Joint Defense Agreement,
each party shall pay its proportionate share (as provided in the Joint Defense
Agreement) of all costs and expenses reasonably incurred in connection with the
defense of such Third Party Claim.
Section 5.08 Special Notices.
---------------
(a) CTI shall notify ACX, in the manner specified in
subparagraph 5.03(b), concerning all Third Party Claims where ACX is or could be
named a party thereto or where,
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<PAGE>
based on information available to CTI at that time, there is a reasonable
likelihood that, based on the outcome of such Third Party Claim, the reputation
of ACX or any Affiliate of ACX could be adversely affected, or ACX's or any
Affiliate's ability to conduct its business or to take certain actions with
respect thereto could be impaired as a result of any injunctive relief sought,
or ACX could be liable for the payment of monetary damages. ACX or its Affiliate
shall have the right to participate in the development and execution of strategy
for the response to, preparation for and handling of such Third Party Claim in
addition to its rights under Section 5.03.
(a) ACX shall notify CTI, in the manner specified in
subparagraph 5.03(b), concerning all Third Party Claims where CTI is or could be
named a party thereto or where, based on information available to ACX at that
time, there is a reasonable likelihood that, based on the outcome of such Third
Party Claim, the reputation of CTI or any Affiliate of CTI could be adversely
affected, or CTI's or any Affiliate's ability to conduct its business or to take
certain actions with respect thereto could be impaired as a result of any
injunctive relief sought, or CTI could be liable for the payment of monetary
damages. CTI or its Affiliate shall have the right to participate in the
development and execution of strategy for the response to, preparation for and
handling of such Third Party Claim in addition to its rights under Section 5.03.
ARTICLE VI
CERTAIN ADDITIONAL MATTERS
--------------------------
Section 6.01 Construction of Agreements. Notwithstanding any other
--------------------------
provisions in this Agreement to the contrary, in the event and to the extent
that there is a conflict between the provisions of this Agreement (or any
Conveyancing and Assumption Instrument) and the provisions of any Related
Agreement, the provisions of such Related Agreement shall control.
Section 6.02 No Representations or Warranties; Exceptions. CTI
--------------------------------------------
understands and agrees that ALL OF THE TRANSFERRED ASSETS ARE BEING TRANSFERRED
"AS IS, WHERE IS" and that ACX is not, in this Agreement or in any other
agreement or document contemplated by this Agreement, representing or warranting
in any way (i) the value or freedom from encumbrance of, or any other matter
concerning, any Transferred Assets or (ii) the legal sufficiency to convey title
to any Transferred Assets of the execution, delivery and filing of the
Conveyancing and Assumption Instruments, and that CTI shall bear the economic
and legal risk that CTI's title to any such assets shall be other than good and
marketable and free from encumbrances. Similarly, CTI understands and agrees
that ACX is not in this Agreement, or in any other agreement or document
contemplated by this Agreement, representing or warranting in any way that the
obtaining of the consents or approvals, the execution and delivery of any
amendatory agreements or the making of the filings and applications contemplated
by this Agreement shall satisfy the provisions of all applicable agreements or
the requirements of all applicable laws or judgments, it being understood and
agreed that, subject to Section 6.04 hereof, CTI shall bear the economic and
legal risk that any necessary consents or approvals are not obtained or that any
requirements of law or judgments are not complied with.
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<PAGE>
Section 6.03 Further Assurances. Each of ACX and CTI shall execute and
------------------
deliver such further instruments of conveyance, transfer and assignment and
shall take such other actions as each of them may reasonably request of the
other as may be necessary or desirable to effect, perfect or confirm the record
and beneficial transfer of the Transferred Assets, the assumption of the Assumed
Liabilities and the purposes of this Agreement and to carry out the terms
hereof. Notwithstanding the foregoing, ACX and CTI shall not be obligated, in
connection with the foregoing, to expend monies other than reasonable out-of-
pocket expenses and attorneys' fees.
Section 6.04 Consents, etc. ACX and CTI shall use their best efforts to
--------------
obtain any consent, approval or amendment required to novate and/or assign all
agreements, leases, licenses and other rights of any nature whatsoever relating
to the Transferred Assets to CTI; provided, however, that ACX shall not be
--------
obligated to pay any consideration therefor (except for filing fees and other
administrative charges) to the third party from whom such consents, approvals
and amendments are requested.
Section 6.05 Officers and Directors. On or before the Distribution Date,
----------------------
CTI and ACX shall take all necessary actions to elect or otherwise appoint
individuals to be directors or officers (or both) of CTI and to cause the
resignations of individuals as officers and directors of each so that there are
no common directors or officers except as described in the Information Statement
under the sections entitled "Management--Directors" and "--Executive Officers."
Section 6.06 Existing Intercompany Arrangements. Except as contemplated
----------------------------------
by this Agreement or any Related Agreement, all material existing agreements
relating to goods, rights or services provided or licensed between ACX or any of
its Affiliates and CTI or any of its Affiliates shall be terminated effective as
of the close of business on the Distribution Date. Until the Distribution Date,
no such existing agreement shall be deemed terminated, amended or otherwise
affected by this Agreement. After the Distribution Date, any such agreement
between ACX or any of its Affiliates and CTI or any of its Affiliates shall be
the result of arms-length negotiations and on the basis of fair market pricing.
Section 6.07 Intercompany Accounts. Any intercompany receivable, payable
---------------------
or loan between ACX or its Affiliates and CTI or its Affiliates outstanding on
the Distribution Date (other than the Intercompany Debt) shall not be deemed
altered, amended or terminated as a result of this Agreement or the consummation
of the transactions contemplated hereby and shall be settled between ACX or its
Affiliates and CTI or its Affiliates in due course following the Distribution
Date.
Section 6.08 Transfer Taxes.
--------------
(a) CTI shall pay all federal, state and local sales taxes, use
taxes, documentary taxes, stock transfer taxes, real property transfer taxes and
any other transfer taxes or fees, including any interest, penalties or additions
to such taxes (the "Transfer Taxes") with respect to the transactions described
in Section 2.01 hereof.
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<PAGE>
(b) ACX shall file timely all tax returns and reports with
respect to Transfer Taxes that it is required to file under applicable law, and
CTI shall reimburse ACX for any Transfer Taxes due and paid with such returns
and reports. CTI shall file timely all returns and reports with respect to
Transfer Taxes that it is required to file under applicable law and shall pay
the taxes due with such returns and reports.
(c) The responsibility and authority for filing amended returns
and refund claims with respect to Transfer Taxes and the overall coordination
and administration of audits and any dispute resolution proceedings related to
Transfer Taxes shall be as set forth in the Tax Sharing Agreement. CTI shall be
obligated for any additional Transfer Taxes that are payable, and shall be
entitled to all refunds of Transfer Taxes previously paid, pursuant to these
transactions.
Section 6.09 Proration of Taxes, Lease and Utility Payments. All real
----------------------------------------------
property, personal property and similar taxes and installments of general and
special assessments, if any, with respect to the Transferred Assets shall be
prorated on the basis of actual days elapsed between the commencement of the
relevant fiscal tax year and the date of transfer, based on a 365-day year and
the most recent tax statements or bills applicable thereto, without later
adjustment. Any installment of rental payments with respect to leases that are
part of the Transferred Assets, or utility or similar periodic charges incurred
by any entity which are payable with respect to the current period in which the
transfer occurs shall be prorated between ACX and CTI on the basis of actual
days elapsed from the first day of the relevant period to the date of transfer.
ACX shall be responsible for all such taxes, payments and charges allocable to
all times prior to and including the date of transfer and CTI shall be
responsible for all such taxes, payments and charges allocable to all times
after the date of transfer. Following the date of this Agreement, each party
shall, upon request of the other party, immediately reimburse the other party
for any such taxes, payments and charges or other expenses for which said party
is responsible but which have been paid by or are owed by the other party and
for collections made by one party on behalf of the other party.
ARTICLE VII
ACCESS TO INFORMATION AND SERVICES
----------------------------------
Section 7.01 Provision of Corporate Records. As soon as practicable
------------------------------
after the date of this Agreement, ACX shall deliver to CTI all Books and
Records. Such Books and Records shall be the property of CTI, but shall be
retained and made available readily to ACX for review and duplication until the
earlier of notice from ACX that such records are no longer needed by ACX or the
tenth anniversary of the Distribution Date. Notwithstanding the foregoing
provisions of this Section 7.01, those Books and Records relating to any Action
that is the subject matter of a joint defense agreement shall be handled as
provided in such joint defense agreement.
Section 7.02 Access to Information. From and after the Distribution
---------------------
Date, ACX and CTI shall afford to each other and to each other's authorized
accountants, counsel and other designated representatives reasonable access and
duplicating rights (with copying costs to be
-15-
<PAGE>
borne by the requesting party) during normal business hours to all Books and
Records and documents, communications, items and matters, including computer
programs and data within each other's knowledge, possession or control relating
to the Transferred Assets or the Employees, insofar as such access is reasonably
required by ACX or CTI, as the case may be (and shall use reasonable efforts to
cause persons or firms possessing relevant items or information to give similar
access). Items or information may be requested under this Article VII for any
legitimate business purpose including, without limitation, audit, accounting,
claims, Actions, litigation and tax purposes, as well as for purposes of
fulfilling disclosure and reporting obligations, but not for competitive
purposes.
Section 7.03 Production of Witnesses and Individuals. From and after the
---------------------------------------
date of this Agreement, ACX and CTI shall use reasonable efforts to make
available to each other, upon written request, its officers, directors,
employees and agents for fact finding, consultation and interviews and as
witnesses to the extent that any such person may reasonably be required in
connection with any Actions in which the requesting party may from time to time
be involved relating to the conduct of CTI prior to the date of this Agreement.
Except as otherwise agreed between the parties or pursuant to a Joint Defense
Agreement, ACX and CTI agree to reimburse each other for reasonable out-of-
pocket expenses (but not labor charges or salary payments) incurred by the other
in connection with providing individuals and witnesses pursuant to this Section
7.03.
Section 7.04 Retention of Records. Except when a longer retention period
--------------------
is otherwise required by law, agreed to in writing or specifically provided for
herein or in any Related Agreement, ACX and CTI shall retain, for a period of at
least ten years following the date of this Agreement, all material Information
relating to CTI. Notwithstanding the foregoing, in lieu of retaining any
specific information, ACX or CTI may offer in writing to deliver such
information to the other and, if such offer is not accepted within 90 days, the
offered information may be destroyed or otherwise disposed of at any time. If a
recipient of such offer shall request in writing prior to the scheduled date for
such destruction or disposal that any of the information proposed to be
destroyed or disposed of be delivered to such requesting party, the party
proposing the destruction or disposal shall promptly arrange for the delivery of
such of the information as was requested (at the cost of the requesting party).
Section 7.05 Confidentiality. ACX and CTI shall hold, and shall cause
---------------
its directors, officers, employees, agents, consultants and advisors to hold, in
strict confidence, unless compelled to disclose by judicial or administrative
process or, in the opinion of its independent legal counsel, by other
requirements of law, all information concerning the other party furnished it by
such other party or its representatives pursuant to this Agreement (except to
the extent that such information can be shown to have been (a) available to such
party on a non-confidential basis prior to its disclosure by the other party,
(b) in the public domain through no fault of such party or (c) later lawfully
acquired from other sources by the party to which it was furnished), and neither
party shall release or disclose such information to any other person, except its
auditors, attorneys, financial advisors, bankers and other consultants and
advisors who shall be bound by the provisions of this Section 7.05. Each party
shall be deemed to have satisfied its
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<PAGE>
obligation to hold confidential information concerning or supplied by the other
party if it exercises the same care as it takes to preserve confidentiality for
its own similar information.
Section 7.06 Privileged Matters.
------------------
(a) The parties each agree that they will maintain, preserve and
assert all privileges, including without limitation privileges arising under or
relating to the attorney-client relationship (which shall include without
limitation the attorney-client and work product privileges), that relate
directly or indirectly to such party for any period prior to the Distribution
Date ("Privilege" or "Privileges"). Neither party shall not waive any Privilege
that could be asserted under applicable law without the prior written consent of
the other party. The rights and obligations created by this paragraph shall
apply to all information as to which, but for the Distribution, a party would
have been entitled to assert or did assert the protection of a Privilege
("Privileged Information"), including but not limited to (i) any and all
information generated prior to the Distribution Date but which, after the
Distribution, is in the possession of the other party; (ii) all communications
subject to a Privilege occurring prior to the Distribution Date between counsel
for such party and any person who, at the time of the communication, was an
employee of such party, regardless of whether such employee is or becomes an
employee of the other party; and (iii) all information generated, received or
arising after the Distribution Date that refers or relates to Privileged
Information generated, received or arising prior to the Distribution Date.
(b) Upon receipt by a party or any of its Affiliates of any
subpoena, discovery or other request that arguably calls for the production or
disclosure of Privileged Information or if such party or any of its Affiliates
obtains knowledge that any current or former employee of such party or any of
its Affiliates has received any subpoena, discovery or other request which
arguably calls for the production or disclosure of Privileged Information, such
party shall promptly notify the other party of the existence of the request and
shall provide the other party a reasonable opportunity to review the information
and to assert any rights it may have under this Section 7.06 or otherwise to
prevent the production or disclosure of Privileged Information. Neither party
will produce or disclose any information arguably covered by a Privilege under
this Section 7.06 unless (a) the other party has provided its express written
consent to such production or disclosure, or (b) a court of competent
jurisdiction has entered a final, non-appealable order finding that the
information is not entitled to protection under any applicable privilege.
(c) ACX's transfer of Books and Records and other information to
CTI, and each party's agreement to permit the other party to possess Privileged
Information occurring or generated prior to the date of this Agreement, are made
in reliance on such other party's agreement, as set forth in this Section 7.06,
to maintain the confidentiality of Privileged Information and to assert and
maintain all applicable Privileges. The access to information being granted
pursuant to Section 7.02 hereof, the agreement to provide witnesses and
individuals pursuant to Section 7.03 hereof and transfer of Privileged
Information pursuant to this Agreement shall not be deemed a waiver of any
Privilege that has been or may be asserted under this Section 7.06 or otherwise.
Nothing in this Distribution Agreement shall operate to reduce,
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<PAGE>
minimize or condition the rights granted to, or the obligations imposed upon
either party by this Section 7.06.
(d) If there is a reasonable likelihood that the waiver by
either party of any Privilege could expose the other party or any of its
Affiliates to liability or could otherwise adversely affect the other party or
any of its Affiliates, such party will notify the other party prior to such
waiver, and, at the other party's request, such party will assert or preserve
the Privilege, as applicable, if such party's interests will not be adversely
affected by its assertion or preservation of the Privilege.
ARTICLE VIII
INSURANCE
---------
Section 8.01 General.
-------
(a) ACX shall use its best efforts to keep in effect all
policies under its Insurance Program that are in effect as of the date of this
Agreement insuring the Transferred Assets and CTI until the next termination
date of each policy occurring on or after the Distribution Date. If ACX's
insurers will not provide continued coverage, ACX shall assist CTI in obtaining
such insurance to be effective on the Distribution Date. Premiums for such
continued policies and any applicable interest charges for such policies shall
be allocated between ACX and CTI in accordance with the methods employed by ACX
for the allocation of such premiums among ACX, its Affiliates and CTI as of the
date of this Agreement. The date and time as of which each ACX policy issued
under its Insurance Program will, pursuant to this provision, cease covering the
Transferred Assets or CTI will be referred to herein as the "Policy Termination
Date" for that policy. CTI understands that ACX will be terminating coverage
under each policy issued under its Insurance Program with respect to the
Transferred Assets and CTI as of the Policy Termination Date of each policy.
After such date, ACX shall, if so requested by CTI, use reasonable efforts to
assist CTI in obtaining its own insurance coverage, but shall not be obligated
to obtain or pay for such insurance, and if CTI is unable to obtain its own
policies, and if requested by CTI, ACX will use reasonable efforts to obtain
coverage for CTI, at CTI's expense.
(b) From the Distribution Date and until the Policy Termination
Date, CTI shall be responsible for reporting to ACX any claims it or any of its
Affiliates may have under any policy continued under paragraph (a). From and
after the Policy Termination Date, CTI shall be responsible for notifying the
appropriate insurance carrier of any claims it or any of its Affiliates may
have.
(c) Each of ACX and CTI shall cooperate with and assist the
other party in making claims under insurance policies relating to periods prior
to the Policy Termination Date and collecting Recoveries with respect thereto.
ACX and CTI shall each give the other periodic reports regarding claims arising
prior to the Policy Termination Date that are material or may
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<PAGE>
reasonably jeopardize the availability of coverage for the other and shall give
each other prompt notice of any dispute that is anticipated to give rise to a
claim against any insurance carrier.
Section 8.02 Certain Insured Claims. ACX agrees that with respect
----------------------
to claims made prior to the Policy Termination Date that arise from or relate to
the Transferred Assets or Transferred Business, ACX or its Affiliate will, prior
to the Policy Termination Date, use its reasonable efforts to obtain Recoveries
for CTI and remit to CTI any Recovery obtained by ACX pursuant to such claims.
From and after the Policy Termination Date, CTI shall be responsible for
administering all claims relating to the Transferred Assets or CTI, including
those claims initiated prior to the Policy Termination Date; provided, however,
--------
that if a claim relates to both ACX or its Affiliates, and CTI or its
Affiliates, ACX or its Affiliate shall continue to administer the claim, and CTI
shall pay its proportionate share of the costs of such administration, based on
the reasonable estimate of the proportionate amount of each party's claim, as
agreed to by the parties. If the amount of any Recovery is less than the claims
of ACX and CTI or their Affiliates to be paid from such Recovery, the parties
shall agree on the allocation of the Recovery between the parties.
ARTICLE IX
DISPUTE RESOLUTION
------------------
Section 9.01 Initiation. Except with respect to matters involving
----------
Section 7.06 hereof, if ACX or its Affiliate and CTI or its Affiliate are unable
to resolve any disagreement or dispute, either party may refer the matter to the
Chief Executive Officers (CEOs) of the parties by giving the other party written
notice ("Notice"). Within 20 days after delivery of Notice, or if the CEOs fail
to meet within 20 days after delivery of Notice, the CEOs of both parties shall
meet at a mutually acceptable time and place to exchange relevant information
and to attempt to resolve the dispute. If the matter has not been resolved
within 45 days after delivery of Notice, or if the CEOs fail to meet within 20
days after delivery of Notice, either party may initiate mediation and, if
applicable, arbitration proceedings as set forth herein. All negotiations
pursuant to this Section 9.01 shall be confidential and shall be treated as
compromise and settlement negotiations for purposes of the Federal Rules of
Evidence and state rules of evidence.
Section 9.02 Mediation. In the event a dispute exists between the
---------
parties and the respective CEOs are unable to resolve the dispute, the parties
agree to participate in a nonbinding mediation procedure as follows:
(a) A mediator will be selected by having counsel for each party
agree on a person to act as mediator. The parties' counsel as well as the CEOs
of each party and not more than two other participants from each party will
appear before the mediator at a time and place determined by the mediator, but
not more than 60 days after delivery of Notice. The fees of the mediator and
other costs of mediation shall be shared equally by the parties.
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(b) Each party's counsel will have 45 minutes to present a
review of the issues and arguments before the mediator. After each counsel's
presentation, the other counsel may present specific counter-arguments not to
exceed 10 minutes. The 45-minute and 10-minute periods will be exclusive of the
time required to answer questions from the mediator or attendees.
(c) After both presentations, the CEOs may ask questions of the
other side. At the conclusion of both presentations and the question periods,
the CEOs and their respective counsel will meet together to try and resolve the
dispute. The length of the meeting will be as agreed between the parties. Either
party may abandon the procedure at the end of the presentations and question
periods if they feel it is not productive to go further. This mediation
procedure shall not be binding on either party.
(d) The duties of the mediator are to be sure that the above set
- -out time periods are adhered to and to ask questions so as to clarify the
issues and understanding of the parties. The mediator may also offer possible
resolutions of the issue but has no duty to do so.
Section 9.03 Arbitration. After applying the mediation procedure set
-----------
forth above, or if either party refuses to take part in the mediation process,
the parties hereby agree to submit all controversies, claims and matters of
difference that are unresolved to arbitration in Denver, Colorado, according to
the rules and practices of the American Arbitration Association from time to
time in force, except that insofar as such rules and practices are unenforceable
under or are directly supplemented by the Colorado Rules of Civil Procedure or
any other provisions of Colorado law then in force, such Colorado rules and
provisions shall govern. This submission and agreement to arbitrate shall be
specifically enforceable. Arbitration may proceed in the absence of either party
if notice of the proceedings has been given to such party. The arbitrators are
not empowered to award damages in excess of compensatory damages, and each party
hereby irrevocably waives any damages in excess of compensatory damages. The
parties agree to abide by all awards rendered in such proceedings. Such awards
shall be final and binding on all parties to the extent and in the manner
provided by the Colorado Rules of Civil Procedure. All awards may be filed with
the clerk of one or more courts, state or federal, having jurisdiction over the
party against whom such award is rendered or such party's property as a basis of
judgment and of the issuance of execution for its collection.
Section 9.04 Cost of Arbitration. The costs of arbitration shall be
-------------------
apportioned between ACX and CTI as determined by the arbitrator in such manner
as the arbitrator deems reasonable taking into account the circumstances of the
case, the conduct of the parties during the proceeding, and the result of the
arbitration.
ARTICLE X
MISCELLANEOUS
-------------
Section 10.01 Complete Agreement. This Agreement, including the Schedules
------------------
and Exhibits and the agreements and other documents referred to herein, shall
constitute the entire
-20-
<PAGE>
agreement between ACX and CTI with respect to the subject matter hereof and
shall supersede all previous negotiations, commitments and writings with respect
to such subject matter.
Section 10.02 Expenses. Except as otherwise expressly provided in this
--------
Agreement, ACX and CTI shall each pay their own costs and expenses incurred in
connection with the Distribution and the consummation of the transactions
contemplated by this Agreement.
Section 10.03 Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Colorado
(regardless of the laws that might otherwise govern under applicable principles
of conflicts law) as to all matters, including, without limitation, matters of
validity, construction, effect, performance and remedies.
Section 10.04 Notices. All notices, requests, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed to
have been duly given (i) on the date of service if served personally on the
party to whom notice is given, (ii) on the day of transmission if sent via
facsimile transmission to the facsimile number given below, provided telephonic
confirmation of receipt is obtained promptly after completion of transmission,
(iii) on the business day after delivery to an overnight courier service or the
Express mail service maintained by the United States Postal Service, provided
receipt of delivery has been confirmed, or (iv) on the fifth day after mailing,
provided receipt of delivery is confirmed, if mailed to the party to whom notice
is to be given, by registered or certified mail, postage prepaid, properly
addressed and return-receipt requested, to the party as follows:
If to ACX: ACX Technologies, Inc.
Attn: Jill B.W. Sisson, General Counsel
4455 Table Mountain Drive
Golden, Colorado 80403
If to CTI: CoorsTek, Inc.
Attn: Katherine A. Resler, General Counsel
16000 Table Mountain Parkway
Golden, Colorado 80403
Any party may change its address by giving the other party written notice of its
new address in the manner set forth above.
Section 10.05 Amendment and Modification. This Agreement may be amended,
--------------------------
modified or supplemented only by written agreement of the parties.
Section 10.06 Termination. This Agreement may be terminated and the
-----------
Distribution abandoned at any time prior to the Distribution Date by and in the
sole discretion of the Board without the approval of CTI. In the event of such
termination, no party shall have any liability of any kind to any other party.
-21-
<PAGE>
Section 10.07 Successors and Assigns. This Agreement and all of the
----------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party without the prior written consent of the other party.
Section 10.08 No Third Party Beneficiaries. This Agreement is solely for
----------------------------
the benefit of the parties hereto and is not intended to confer upon any other
person except the parties hereto any rights or remedies hereunder.
Section 10.09 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 10.10 Interpretation. The Article and Section headings contained
--------------
in this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, the term "person"
shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof. Whenever any words are used herein in the
masculine gender, they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply.
Section 10.11 Schedules, Etc.. The Schedules and Exhibits shall be
---------------
construed with and as an integral part of this Agreement to the same extent as
if the same had been set forth verbatim herein.
Section 10.12 Legal Enforceability. Any provision of this Agreement which
--------------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
* * * * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Distribution
Agreement to be executed and delivered as of the day and year first written
above.
ACX TECHNOLOGIES, INC.
By: /s/ Jill B. W. Sisson
____________________________________
Name: Jill B. W. Sisson
Title: General Counsel and Secretary
COORSTEK, INC.
By: /s/ Katherine A. Resler
_________________________________
Name: Katherine A. Resler
Title: General Counsel and Secretary
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<PAGE>
SCHEDULE I
Transferred Assets and Assumed Liabilities
Transferred Assets:
1. [Airplane]
2. [Sports tickets]
Assumed Liabilities:
[?]
I-1
<PAGE>
SCHEDULE II
Intercompany Debt
[describe and schedule]
II-1
<PAGE>
EXHIBIT A
FORM OF PROMISSORY NOTE
January 1, 2000 $ ____________
PROMISSORY NOTE
For value received, the undersigned, COORSTEK, INC., a Delaware corporation
and having its principal executive offices in Colorado ("Maker"), hereby
promises to pay to the order of ACX TECHNOLOGIES, INC., a Colorado corporation,
or its assigns (the "Holder"), the principal amount of $______________, with
interest, accruing from the date hereof at __% per annum, payable in full on
January ___, 2000 or earlier upon demand.
This Promissory Note is an assignable, endorsable and transferable note of
Maker.
All payments due under this Promissory Note shall be satisfied in lawful
money of the United States at the offices of Holder's agent located at 4455
Table Mountain Parkway, Golden, Colorado 80403, or at such other place as Holder
may designate. This Promissory Note may be prepaid without premium or penalty,
in whole or in part, at any time and from time to time in each case together
with payment of all accrued, but unpaid interest on the principal amount being
prepaid.
Maker waives presentment, demand, protest and notice thereof or of
dishonor, and waives the right to be released by reason of any extension of time
or change in terms of payment or any change, alteration or release of any
security given for the payment hereof. No waiver of any payment under this
Promissory Note shall operate as a waiver of any other payment. Maker agrees to
pay all reasonable out-of-pocket expenses, including reasonable attorney fees,
incurred by Holder in collecting any amounts due hereunder, by litigation or
otherwise. All principal and interest and any other sums due hereunder can be
made, unless agreed otherwise between the Holder and the Maker, by way of set
off, recoupment or counterclaim.
If any provision of this Promissory Note shall be held invalid, illegal or
unenforceable in any jurisdiction, the validity, legality or enforceability of
any defective provision shall not be in any way be affected or impaired in any
other jurisdiction. In the event that any interest payable hereunder shall
exceed the maximum lawful rate of interest in the State of Colorado, the
applicable interest rate shall be limited to the lesser of such rates (the
"Maximum Rate"), but only for such period as the applicable interest rate
hereunder exceeds the Maximum Rate.
No delay or failure of Holder in the exercise of any available right or
remedy shall be deemed a waiver of such right by Holder, and no exercise of any
right or remedy shall be deemed a waiver of any other right or remedy that
Holder may have.
This Promissory Note is to be governed by and construed according to the
laws of the State of Colorado.
DATED as of the date first set forth above.
COORSTEK, INC.
By:_______________________________________
Name:
Title:
A-1
<PAGE>
EXHIBIT B
FORM OF ENVIRONMENTAL RESPONSIBILITY AGREEMENT
B-1
<PAGE>
EXHIBIT C
FORM OF TRANSITIONAL SERVICES AGREEMENT
C-1
<PAGE>
EXHIBIT D
FORM OF TAX SHARING AGREEMENT
D-1
<PAGE>
COORSTEK, INC.
STOCK OPTION AND INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
1. PURPOSE................................................................. 1
2. DEFINITIONS............................................................. 1
3. ADMINISTRATION OF THE PLAN.............................................. 5
3.1. Board............................................................. 5
3.2. Committee......................................................... 5
3.3. Awards............................................................ 6
3.4. No Liability...................................................... 6
4. STOCK SUBJECT TO THE PLAN............................................... 7
5. EFFECTIVE DATE AND TERM OF THE PLAN..................................... 7
5.1. Effective Date.................................................... 7
5.2. Term.............................................................. 7
6. OPTION GRANTS........................................................... 8
6.1. Company or Subsidiary Employees; Service Providers; Other Persons. 8
6.2. Successive Awards................................................. 8
6.3. Reload Options.................................................... 8
7. LIMITATIONS ON GRANTS................................................... 8
7.1. Limitation on Shares of Stock Subject to Awards and Cash Awards... 8
7.2. Limitations on Incentive Stock Options............................ 9
8. AWARD AGREEMENT......................................................... 9
9. OPTION PRICE............................................................ 9
10. VESTING, TERM AND EXERCISE OF OPTIONS................................... 10
10.1. Vesting and Option Period......................................... 10
10.2. Term.............................................................. 10
10.3. Acceleration...................................................... 10
10.4. Termination of Employment or Other Relationship................... 10
10.5. Rights in the Event of Death...................................... 11
10.6. Rights in the Event of Disability................................. 11
10.7. Rights in the Event of Retirement................................. 12
10.8. Limitations on Exercise of Option................................. 12
10.9. Method of Exercise................................................ 12
10.10.Delivery of Stock Certificates.................................... 13
11. STOCK APPRECIATION RIGHTS............................................... 13
11.1. Right to Payment.................................................. 13
11.2. Other Terms....................................................... 14
12. TRANSFERABILITY OF OPTIONS.............................................. 14
12.1. Transferability of Options........................................ 14
12.2. Family Transfers.................................................. 14
13. RESTRICTED STOCK........................................................ 15
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<PAGE>
13.1. Grant of Restricted Stock or Restricted Stock Units............ 15
13.2. Restrictions................................................... 15
13.3. Restricted Stock Certificates.................................. 15
13.4. Rights of Holders of Restricted Stock.......................... 15
13.5. Rights of Holders of Restricted Stock Units.................... 16
13.6. Termination of Employment or Other Relationship................ 16
13.7. Rights in the Event of Death................................... 16
13.8. Rights in the Event of Disability.............................. 17
13.9. Delivery of Stock and Payment Therefor......................... 17
14. DEFERRED STOCK AWARDS................................................. 17
14.1. Nature of Deferred Stock Awards................................ 17
14.2. Election to Receive Deferred Stock Awards in Lieu of
Compensation................................................... 18
14.3. Rights as a Stockholder........................................ 18
14.4. Restrictions................................................... 18
14.5. Termination.................................................... 18
15. UNRESTRICTED STOCK AWARDS............................................. 18
15.1. Grant or Sale of Unrestricted Stock............................ 18
16. PERFORMANCE STOCK AWARDS.............................................. 19
16.1. Nature of Performance Stock Awards............................. 19
16.2. Rights as a Stockholder........................................ 19
16.3. Termination.................................................... 19
16.4. Acceleration, Waiver, Etc...................................... 19
17. DIVIDEND EQUIVALENT RIGHTS............................................ 20
17.1. Dividend Equivalent Rights..................................... 20
17.2. Interest Equivalents........................................... 20
17.3. Termination.................................................... 20
18. CERTAIN PROVISIONS APPLICABLE TO AWARDS............................... 21
18.1. Stand-Alone, Additional, Tandem, and Substitute Awards......... 21
18.2. Term of Awards................................................. 21
18.3. Form and Timing of Payment Under Awards; Deferrals............. 21
18.4. Performance and Annual Incentive Awards........................ 22
18.4.1. Performance Conditions................................ 22
18.4.2. Performance Awards Granted to Designated Covered
Employees............................................. 22
18.4.3. Annual Incentive Awards Granted to Designated Covered
Employees............................................. 24
18.4.4. Written Determinations................................ 25
18.4.5. Status of Section 18.4.3 and Section 18.4.2 Awards
Under Code Section 162(m)............................. 25
19. PARACHUTE LIMITATIONS................................................. 26
20. REQUIREMENTS OF LAW................................................... 27
20.1. General........................................................ 27
20.2. Rule 16b-3..................................................... 27
21. AMENDMENT AND TERMINATION OF THE PLAN................................. 28
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<PAGE>
22. EFFECT OF CHANGES IN CAPITALIZATION................................... 28
22.1. Changes in Stock............................................... 28
22.2. Reorganization in Which the Company Is the Surviving Entity
and in Which No Change in Control Occurs....................... 29
22.3. Reorganization, Sale of Assets or Sale of Stock Which Involves
a Change in Control............................................ 29
22.4. Adjustments.................................................... 29
22.5. No Limitations on Company...................................... 29
23. POOLING............................................................... 30
24. DISCLAIMER OF RIGHTS.................................................. 30
25. NONEXCLUSIVITY OF THE PLAN............................................ 30
26. WITHHOLDING TAXES..................................................... 31
27. CAPTIONS.............................................................. 31
28. OTHER PROVISIONS...................................................... 31
29. NUMBER AND GENDER..................................................... 31
30. SEVERABILITY.......................................................... 32
31. GOVERNING LAW......................................................... 32
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<PAGE>
COORSTEK, INC.
STOCK OPTION AND INCENTIVE PLAN
CoorsTek, Inc., a Delaware corporation (the "Company"), sets forth herein
the terms of the Company's Stock Option and Incentive Plan (the "Plan") as
follows:
1. PURPOSE
The purpose of the Plan is to enhance the Company's ability to attract,
retain, and compensate highly qualified officers, key employees, and other
persons, and to motivate such officers, key employees, and other persons to
serve the Company and its affiliates (as defined herein) and to expend maximum
effort to improve the business results and earnings of the Company, by providing
to such officers, key employees and other persons an opportunity to acquire or
increase a direct proprietary interest in the operations and future success of
the Company and with other financial incentives. To this end, the Plan provides
for the grant of stock options, stock appreciation rights, restricted stock,
restricted stock units, deferred stock awards, unrestricted stock awards,
performance stock awards, dividend equivalent rights, performance awards and
annual incentive awards in accordance with the terms hereof. Stock options
granted under the Plan may be non-qualified stock options or incentive stock
options, as provided herein.
2. DEFINITIONS
For purposes of interpreting the Plan and related documents (including Award
Agreements), the following definitions shall apply:
2.1 "affiliate" of, or person "affiliated" with, a person means any company
or other trade or business that controls, is controlled by or is under common
control with such person within the meaning of Rule 405 of Regulation C under
the Securities Act.
2.2 "Annual Incentive Award" means a conditional right granted to a Grantee
under Section 18.4.3 hereof to receive a cash payment, Stock or other Award,
unless otherwise determined by the Committee, after the end of a specified
fiscal year.
2.3 "Award" means a grant of an Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Deferred Stock, Unrestricted Stock,
Performance Stock, Dividend Equivalent Rights, Performance or Annual Incentive
Awards under the Plan.
<PAGE>
2.4 "Award Agreement" means the stock option agreement, stock appreciation
rights agreement, restricted stock agreement, restricted stock unit agreement,
deferred stock award agreement, unrestricted stock award agreement, performance
stock award agreement, dividend equivalent rights agreement, performance award
agreement, annual incentive award agreement or other written agreement between
the Company and a Grantee that evidences and sets out the terms and conditions
of an Award.
2.5 "Benefit Arrangement" shall have the meaning set forth in Section 19
hereof.
2.6 "Board" means the Board of Directors of the Company.
2.7 "Change in Control" means any of the following transactions: (i) if
beneficial ownership of 50% or more of either the outstanding shares of the
Company's common stock or the combined voting power of the Company's voting
stock is acquired by persons or entities not related to the Company without
consent of the current Board, (ii) upon the election of individuals constituting
a majority of the Board who were either not members prior to their election or
not recommended to the stockholders by the Board, (iii) upon a merger,
consolidation or sale of all or substantially all of the Company's assets, where
upon (a) at least 50% of the outstanding shares of the Company's common stock
and of the combined voting power of voting securities are not held in the same
proportion, and by the same persons as the beneficial owners prior to such
event, (b) at least 35% of the Company's common stock is held by a person that
did not hold such amount prior to the event and (c) a majority of the current
Board did not survive the event, or (iv) approval by the stockholders of the
Company of a complete liquidation or dissolution of the Company.
2.8 "Code" means the Internal Revenue Code of 1986, as now in effect or as
hereafter amended.
2.9 "Committee" means a committee of, and designated from time to time by
resolution of, the Board, which shall consist of no fewer than two members of
the Board, none of whom shall be an officer or other salaried employee of the
Company or any affiliate of the Company.
2.10 "Company" means CoorsTek, Inc.
2.11 "Covered Employee" means a Grantee who is a Covered Employee within the
meaning of Section 162(m)(3) of the Code.
2.12 "Deferred Stock" means a right, granted to a Grantee under Section 14
hereof, to receive Stock, cash or a combination thereof at the end of a
specified deferral period.
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<PAGE>
2.13 "Dividend Equivalent" means a right, granted to a Grantee under Section
17 hereof, to receive cash, Stock, other Awards or other property equal in value
to dividends paid with respect to a specified number of shares of Stock, or
other periodic payments.
2.14 "Effective Date" means October 21, 1999, the date on which the Plan was
adopted by the Board.
2.15 "Exchange Act" means the Securities Exchange Act of 1934, as now in
effect or as hereafter amended.
2.16 "Family Member" means a person who is a spouse, child, stepchild,
grandchild, parent, stepparent, grandparent, sibling, niece, nephew, mother-in-
law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-
law, including adoptive relationships, of the Grantee, any person sharing the
Grantee's household (other than a tenant or employee), a trust in which these
persons have more than fifty percent of the beneficial interest, a foundation in
which these persons (or the Grantee) control the management of assets, and any
other entity in which these persons (or the Grantee) own more than fifty percent
of the voting interests.
2.17 "Fair Market Value" means the value of a share of Stock, determined as
follows: if on the Grant Date or other determination date the Stock is listed
on an established national or regional stock exchange, is admitted to quotation
on the NASDAQ National Market, or is publicly traded on an established
securities market, the Fair Market Value of a share of Stock shall be the
closing price of the Stock on such exchange or in such market (the highest such
closing price if there is more than one such exchange or market) on the Grant
Date or such other determination date (or if there is no such reported closing
price, the Fair Market Value shall be the mean between the highest bid and
lowest asked prices or between the high and low sale prices on such trading day)
or, if no sale of Stock is reported for such trading day, on the next preceding
day on which any sale shall have been reported. If the Stock is not listed on
such an exchange, quoted on such system or traded on such a market, Fair Market
Value shall be the value of the Stock as determined by the Board in good faith.
2.18 "Grant Date" means, as determined by the Board or authorized Committee,
(i) the date as of which the Board or such Committee approves an Award, (ii) the
date on which the recipient of such Award first became an employee of or
otherwise entered into a relationship with the Company or an affiliate of the
Company or (iii) such other date as may be specified by the Board or such
Committee.
2.19 "Grantee" means a person who receives or holds a grant of an Option,
Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Deferred
Stock, Unrestricted Stock, Performance Stock, Performance or Annual Incentive
Awards, or Dividend Equivalent Rights under the Plan.
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<PAGE>
2.20 "Incentive Stock Option" means an "incentive stock option" within the
meaning of Section 422 of the Code, or the corresponding provision of any
subsequently enacted tax statute, as amended from time to time.
2.21 "Option" means an option to purchase one or more shares of Stock
pursuant to the Plan.
2.22 "Option Period" means the period during which Options may be exercised
as set forth in Section 10 hereof.
2.23 "Option Price" means the purchase price for each share of Stock subject
to an Option.
2.24 "Other Agreement" shall have the meaning set forth in Section 19
hereof.
2.25 "Outside Director" means a member of the Board who is not an officer or
employee of the Company.
2.26 "Performance Stock Award" means Awards granted pursuant to Section 16.
2.27 "Plan" means this CoorsTek, Inc. Stock Option and Incentive Plan.
2.28 "Reporting Person" means a person who is required to file reports under
Section 16(a) of the Exchange Act.
2.29 "Restricted Period" means the period during which Restricted Stock or
Restricted Stock Units are subject to restrictions or conditions pursuant to
Section 13.2 hereof.
2.30 "Restricted Stock" means shares of Stock, awarded to a Grantee pursuant
to Section 13 hereof, that are subject to restrictions and to a risk of
forfeiture.
2.31 "Restricted Stock Unit" means a unit awarded to a Grantee pursuant to
Section 13 hereof, which represents a conditional right to receive a share of
Stock in the future, and which is subject to restrictions and to a risk of
forfeiture.
2.32 "Retirement" means a termination of employment from the Company or an
affiliate under a Company retirement plan.
2.33 "Securities Act" means the Securities Act of 1933, as now in effect or
as hereafter amended.
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<PAGE>
2.34 "Stock" means the common stock, par value $.01 per share, of the
Company.
2.35 "Stock Appreciation Rights" or "SAR" means a right granted to a Grantee
under Section 11 hereof.
2.36 "Subsidiary" means any "subsidiary corporation" of the Company within
the meaning of Section 424(f) of the Code.
2.37 "Termination Date" shall be the date upon which an Option shall
terminate or expire, as set forth in Section 10.2 hereof.
2.38 "Unrestricted Stock Award" means any Award granted pursuant to Section
15.
3. ADMINISTRATION OF THE PLAN
3.1. Board
The Board shall have such powers and authorities related to the
administration of the Plan as are consistent with the Company's certificate of
incorporation and by-laws and applicable law. The Board shall have full power
and authority to take all actions and to make all determinations required or
provided for under the Plan, any Award or any Award Agreement, and shall have
full power and authority to take all such other actions and make all such other
determinations not inconsistent with the specific terms and provisions of the
Plan that the Board deems to be necessary or appropriate to the administration
of the Plan, any Award or any Award Agreement. All such actions and
determinations shall be by the affirmative vote of a majority of the members of
the Board present at a meeting or by unanimous consent of the Board executed in
writing in accordance with the Company's articles of incorporation and by-laws
and applicable law. The interpretation and construction by the Board of any
provision of the Plan, any Award or any Award Agreement shall be final and
conclusive. As permitted by law, the Board may delegate its authority under the
Plan to a member of the Board of Directors or an executive officer of the
Company.
3.2. Committee.
The Board from time to time may delegate to a Committee such powers and
authorities related to the administration and implementation of the Plan, as set
forth in Section 3.1 above and in other applicable provisions, as the Board
shall determine, consistent with the certificate of incorporation and by-laws of
the Corporation and applicable law. In the event that the Plan, any Award or
any Award Agreement entered into hereunder provides for any action to be taken
by or
-5-
<PAGE>
determination to be made by the Board, such action may be taken or such
determination may be made by the Committee if the power and authority to do so
has been delegated to the Committee by the Board as provided for in this
Section. Unless otherwise expressly determined by the Board, any such action or
determination by the Committee shall be final, binding and conclusive. As
permitted by law, the Committee may delegate its authority under the Plan to a
member of the Board of Directors or an executive officer of the Company.
3.3. Awards
Subject to the other terms and conditions of the Plan, the Board shall have
full and final authority (i) to designate Grantees, (ii) to determine the type
or types of Awards to be made to a Grantee, (iii) to determine the number of
shares of Stock to be subject to an Award, (iv) to establish the terms and
conditions of each Award (including, but not limited to, the exercise price of
any Option, the nature and duration of any restriction or condition (or
provision for lapse thereof) relating to the vesting, exercise, transfer, or
forfeiture of an Award or the shares of Stock subject thereto, and any terms or
conditions that may be necessary to qualify Options as Incentive Stock Options),
(v) to prescribe the form of each Award Agreement evidencing an Award, and (vi)
to amend, modify, or supplement the terms of any outstanding Award. Such
authority specifically includes the authority, in order to effectuate the
purposes of the Plan but without amending the Plan, to modify Awards to eligible
individuals who are foreign nationals or are individuals who are employed
outside the United States to recognize differences in local law, tax policy, or
custom. As a condition to any subsequent Award, the Board shall have the right,
at its discretion, to require Grantees to return to the Company Awards
previously made under the Plan. Subject to the terms and conditions of the
Plan, any such new Award shall be upon such terms and conditions as are
specified by the Board at the time the new Award is made.
3.4. No Liability.
No member of the Board or of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Award or Award
Agreement.
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<PAGE>
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 22 hereof, the number of shares
of Stock available for issuance under the Plan shall be one million plus the
number of shares of Stock that are subject to Options and Stock Units that are
substituted for options to purchase shares and receive shares of the common
stock of ACX Technologies, Inc. ("ACX") in connection with the distribution by
ACX to its shareholders of all of the Stock held by ACX. No more than ten
percent 10% of the shares of Stock reserved for issuance under the Plan may be
granted pursuant to Awards other than Options. In no event, except as subject
to adjustment as provided in Section 22 shall more than one million shares of
Stock be cumulatively available for issuance pursuant to the exercise of
Incentive Stock Options. Stock issued or to be issued under the Plan shall be
authorized but unissued shares. If any shares covered by an Award are not
purchased or are forfeited, or if an Award otherwise terminates without delivery
of any Stock subject thereto, then the number of shares of Stock counted against
the aggregate number of shares available under the Plan with respect to such
Award shall, to the extent of any such forfeiture or termination, again be
available for making Awards under the Plan.
5. EFFECTIVE DATE AND TERM OF THE PLAN
5.1. Effective Date.
The Plan shall be effective as of the Effective Date, subject to approval of
the Plan within one year of the Effective Date, by a majority of the votes cast
on the proposal at a meeting of stockholders, provided that the total votes cast
represent a majority of all shares entitled to vote. Upon approval of the Plan
by the stockholders of the Company as set forth above, all Awards made under the
Plan on or after the Effective Date shall be fully effective as if the
stockholders of the Company had approved the Plan on the Effective Date. If the
stockholders fail to approve the Plan within one year after the Effective Date,
any Awards made hereunder shall be null and void and of no effect.
5.2. Term.
The Plan has no termination date; however, no Incentive Stock Option may be
granted on or after the tenth anniversary of the Effective Date.
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<PAGE>
6. OPTION GRANTS
6.1. Company or Subsidiary Employees; Other Persons
Subject to Section 7, Awards may be made under the Plan to: (i) any
employee of the Company or of any Subsidiary, including any such employee who is
an officer or director of the Company or of any Subsidiary, as the Board shall
determine and designate from time to time, and (ii) any other individual whose
participation in the Plan is determined to be in the best interests of the
Company by the Board.
6.2. Successive Awards.
An eligible person may receive more than one Award, subject to such
restrictions as are provided herein.
6.3. Reload Options.
At the discretion of the Board and subject to such restrictions, terms and
conditions as the Board may establish, Options granted under the Plan may
include a "reload" feature pursuant to which a Grantee exercising an Option by
the delivery of a number of shares of Stock in accordance with Section 10.9
hereof would automatically be granted an additional Option (with an exercise
price equal to the Fair Market Value of the Stock on the date the additional
Option is granted and with such other terms as the Board may provide) to
purchase that number of shares of Stock equal to the number delivered to
exercise the original Option with an Option term equal to the remainder of the
original Option term unless the Board otherwise determines in the Option Award
Agreement for the original grant.
7. LIMITATIONS ON GRANTS
7.1. Limitation on Shares of Stock Subject to Awards and Cash Awards.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, except as subject to adjustment as
provided in Section 22, the maximum number of shares of Stock subject to Options
that can be awarded under the Plan to any person eligible for an Award under
Section 6 hereof is 600,000 shares per year. During any time when the Company
has a class of equity security registered under Section 12 of the Exchange Act,
except as subject to adjustment as provided in Section 22, the maximum number of
shares that can be awarded under the Plan, other than pursuant to an Option to
any person eligible for an Award under Section 6 hereof is 100,000 per year.
The maximum amount that may be earned as an Annual Incentive Award or other cash
Award in any fiscal year by any one Grantee shall be $1,000,000 and the maximum
amount that may
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be earned as a Performance Award or other cash Award in respect of a performance
period by any one Grantee shall be $1,000,000.
7.2. Limitations on Incentive Stock Options.
An Option shall constitute an Incentive Stock Option only (i) if the Grantee
of such Option is an employee of the Company or any Subsidiary of the Company;
(ii) to the extent specifically provided in the related Award Agreement; and
(iii) to the extent that the aggregate Fair Market Value (determined at the time
the Option is granted) of the shares of Stock with respect to which all
Incentive Stock Options held by such Grantee become exercisable for the first
time during any calendar year (under the Plan and all other plans of the
Grantee's employer and its affiliates) does not exceed $100,000. This
limitation shall be applied by taking Options into account in the order in which
they were granted.
8. AWARD AGREEMENT
Each Award granted pursuant to the Plan shall be evidenced by an Award
Agreement, to be executed by the Company and by the Grantee, in such form or
forms as the Board shall from time to time determine. Award Agreements granted
from time to time or at the same time need not contain similar provisions but
shall be consistent with the terms of the Plan. Each Award Agreement evidencing
an Award of Options shall specify whether such Options are intended to be non-
qualified stock options or Incentive Stock Options, and in the absence of such
specification, such options shall be deemed non-qualified stock options.
9. OPTION PRICE
The Option Price of each Option shall be fixed by the Board and stated in
the Award Agreement evidencing such Option. The Option Price shall be the
aggregate Fair Market Value on the Grant Date of the shares of Stock subject to
the Option; provided, however, that in the event that a Grantee would otherwise
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be ineligible to receive an Incentive Stock Option by reason of the provisions
of Sections 422(b)(6) and 424(d) of the Code (relating to ownership of more than
ten percent of the Company's outstanding Stock), the Option Price of an Option
granted to such Grantee that is intended to be an Incentive Stock Option shall
be not less than the greater of the par value of a share of Stock or 110 percent
of the Fair Market Value of a share of Stock on the Grant Date. In no case
shall the Option Price of any Option be less than the par value of a share of
Stock.
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10. VESTING, TERM AND EXERCISE OF OPTIONS
10.1. Vesting and Option Period.
Subject to Sections 10.2 and 22.3 hereof, each Option granted under the Plan
shall become exercisable at such times and under such conditions as shall be
determined by the Board and stated in the Award Agreement. For purposes of this
Section 10.1, fractional numbers of shares of Stock subject to an Option shall
be rounded down to the next nearest whole number. The period during which any
Option shall be exercisable shall constitute the "Option Period" with respect to
such Option.
10.2. Term.
Each Option granted under the Plan shall terminate, and all rights to
purchase shares of Stock thereunder shall cease, upon the expiration of ten
years from the date such Option is granted, or under such circumstances and on
such date prior thereto as is set forth in the Plan or as may be fixed by the
Board and stated in the Award Agreement relating to such Option (the
"Termination Date"); provided, however, that in the event that the Grantee would
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otherwise be ineligible to receive an Incentive Stock Option by reason of the
provisions of Sections 422(b)(6) and 424(d) of the Code (relating to ownership
of more than ten percent of the outstanding Stock), an Option granted to such
Grantee that is intended to be an Incentive Stock Option shall not be
exercisable after the expiration of five years from its Grant Date.
10.3. Acceleration.
Any limitation on the exercise of an Option contained in any Award Agreement
may be rescinded, modified or waived by the Board, in its sole discretion, at
any time and from time to time after the Grant Date of such Option, so as to
accelerate the time at which the Option may be exercised. Notwithstanding any
other provision of the Plan, no Option shall be exercisable in whole or in part
prior to the date the Plan is approved by the stockholders of the Company as
provided in Section 5.1 hereof.
10.4. Termination of Employment or Other Relationship.
Upon the termination of a Grantee's employment or other relationship with
the Company other than by reason of: (i) death; (ii) or "permanent and total
disability" (within the meaning of Section 22(e)(3) of the Code); or (iii)
Retirement, any Option or portion thereof held by such Grantee that has not
vested in accordance with the provisions of Section 10.1 hereof shall terminate
immediately, and any Option or portion thereof that has vested in accordance
with the provisions of Section 10.1 hereof but has not been exercised shall
terminate at the close of business on the 90th day following the Grantee's
termination of employment or other relationship, unless the Board, in its
discretion, extends the period during which the Option may be exercised (which
period may not be extended beyond the original term of the Option). Upon
termination of an Option or portion thereof, the Grantee shall have no further
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right to purchase shares of Stock pursuant to such Option or portion thereof.
Whether a leave of absence or leave on military or government service shall
constitute a termination of employment or other relationship for purposes of the
Plan shall be determined by the Board, which determination shall be final and
conclusive. For purposes of the Plan, a termination of employment, service or
other relationship shall not be deemed to occur if the Grantee is immediately
thereafter a director of the Company.
If the employment of the Grantee is terminated for cause, as determined by
the Company, any Option whether vested or unvested shall thereafter be void for
all purposes. As used in this subsection, "cause" shall mean, as determined by
the Company, a violation of the Company's established policies and procedures or
a breach of the Grantee's fiduciary duty to the Company.
10.5. Rights in the Event of Death.
If a Grantee dies while employed by or providing services to the Company,
any Option or portion thereof held by such Grantee that has not vested in
accordance with the provisions of Section 10.1 hereof shall terminate
immediately, and any Option or portion thereof that has vested in accordance
with the provisions of Section 10.1 hereof but has not been exercised shall
terminate at the close of business one year following the Grantee's death,
unless the Board, in its discretion, extends the period during which the Option
may be exercised (which period may not be extended beyond the original term of
the Option). Upon termination of an Option or portion thereof, the Grantee
shall have no further right to purchase shares of Stock pursuant to such Option
or portion thereof. The executors or Boards or legatees or distributees of such
Grantee's estate shall have the right, at any time within one year after the
date of such Grantee's death (or such longer period as the Board, in its
discretion, may determine prior to the expiration of such one-year period) and
prior to termination of the Option pursuant to Section 10.2 above, to exercise
any Option held by such Grantee at the date of such Grantee's death.
10.6. Rights in the Event of Disability.
Unless otherwise stated in the applicable Award Agreement, if a Grantee
terminates employment or other relationship with the Company by reason of the
"permanent and total disability" (within the meaning of Section 22(e)(3) of the
Code) of such Grantee, any Option or portion thereof held by such Grantee that
has not vested in accordance with the provisions of Section 10.1 hereof shall
terminate immediately, and any Option or portion thereof that has vested in
accordance with the provisions of Section 10.1 hereof but has not been exercised
shall terminate one year following the Grantee's termination of employment or
service, unless the Board, in its discretion, extends the period during which
the Option may be exercised (which period may not be extended beyond the
original term of the Option). Upon termination of an Option or portion thereof,
the Grantee shall have no further right to purchase shares of Stock pursuant to
such Option or portion thereof. Whether a termination of employment or service
is to be considered by reason of "permanent and
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total disability" for purposes of the Plan shall be determined by the Board,
which determination shall be final and conclusive.
10.7. Rights in the Event of Retirement.
Unless otherwise stated in the applicable Award Agreement, if a Grantee
terminates employment or other relationship with the Company by reason of his or
her Retirement, any Option or portion thereof held by such Grantee that has not
vested in accordance with the provisions of Section 10.1 hereof shall terminate
immediately, and any Option or portion thereof that has vested in accordance
with the provisions of Section 10.1 hereof but has not been exercised shall
terminate one year following the Grantee's termination of employment or other
relationship, unless the Board, in its discretion, extends the period during
which the Option may be exercised (which period may not be extended beyond the
original term of the Option). Upon termination of an Option or portion thereof,
the Grantee shall have no further right to purchase shares of Stock pursuant to
such Option or portion thereof.
10.8. Limitations on Exercise of Option.
Notwithstanding any other provision of the Plan, in no event may any Option
be exercised, in whole or in part, prior to the date the Plan is approved by the
stockholders of the Company as provided herein, or after ten years following the
date upon which the Option is granted, or after the occurrence of an event
referred to in Section 22 hereof which results in termination of the Option.
10.9. Method of Exercise.
An Option that is exercisable may be exercised by the Grantee's delivery to
the Company of written notice of exercise on any business day, at the Company's
principal office, addressed to the attention of the Board. Such notice shall
specify the number of shares of Stock with respect to which the Option is being
exercised and shall be accompanied by payment in full of the Option Price of the
shares for which the Option is being exercised. The minimum number of shares of
Stock with respect to which an Option may be exercised, in whole or in part, at
any time shall be the lesser of (i) 100 shares or such lesser number set forth
in the applicable Award Agreement and (ii) the maximum number of shares
available for purchase under the Option at the time of exercise. Payment of the
Option Price for the shares purchased pursuant to the exercise of an Option
shall be made (i) in cash or in cash equivalents; (ii) through the tender to the
Company of a written statement of attestation, in such form as may be prescribed
for this purpose by the Committee, signed by the Grantee and certifying that the
Grantee is electing to use a specified number of shares of Stock then owned by
the Grantee to pay the purchase price of the Stock purchased pursuant to the
Option and that the Grantee is electing to have issued to him or her the
additional shares of Stock, in excess of the Option Price, to which the Grantee
is entitled as a result of the exercise of the Option; provided, however, that
no shares of Stock owned by a Grantee may be used for this purpose unless such
Stock has been
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held by Grantee for more than six months; for purposes of determining the extent
to which the Option Price has been paid thereby, the shares of Stock shall be
valued at their Fair Market Value on the date of exercise; or (iii) by a
combination of the methods described in (i) and (ii). The Board may provide, by
inclusion of appropriate language in an Award Agreement, that payment in full of
the Option Price need not accompany the written notice of exercise provided that
the notice of exercise directs that the certificate or certificates for the
shares of Stock for which the Option is exercised be delivered to a licensed
broker acceptable to the Company as the agent for the individual exercising the
Option and, at the time such certificate or certificates are delivered, the
broker tenders to the Company cash (or cash equivalents acceptable to the
Company) equal to the Option Price for the shares of Stock purchased pursuant to
the exercise of the Option plus the amount (if any) of federal and/or other
taxes which the Company may in its judgment, be required to withhold with
respect to the exercise of the Option. An attempt to exercise any Option granted
hereunder other than as set forth above shall be invalid and of no force and
effect. Unless otherwise stated in the applicable Award Agreement, an individual
holding or exercising an Option shall have none of the rights of a stockholder
(for example, the right to receive cash or dividend payments or distributions
attributable to the subject shares of Stock or to direct the voting of the
subject shares of Stock ) until the shares of Stock covered thereby are fully
paid and issued to him. Except as provided in Section 22 hereof, no adjustment
shall be made for dividends, distributions or other rights for which the record
date is prior to the date of such issuance.
10.10. Delivery of Stock Certificates.
Promptly after the exercise of an Option by a Grantee and the payment in
full of the Option Price, such Grantee shall be entitled to the issuance of a
stock certificate or certificates evidencing his or her ownership of the shares
of Stock subject to the Option.
11. Stock Appreciation Rights
The Board each is authorized to grant SARs to Grantees on the following
terms and conditions:
11.1. Right to Payment.
A SAR shall confer on the Grantee to whom it is granted a right to receive,
upon exercise thereof, the excess of (A) the Fair Market Value of one share of
Stock on the date of exercise over (B) the grant price of the SAR as determined
by the Board. The grant price of an SAR shall not be less than the Fair Market
Value of a share of Stock on the date of grant except as provided in Section
18.1.
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11.2. Other Terms.
The Board shall determine at the date of grant or thereafter, the time or
times at which and the circumstances under which a SAR may be exercised in whole
or in part (including based on achievement of performance goals and/or future
service requirements), the time or times at which SARs shall cease to be or
become exercisable following termination of employment or upon other conditions,
the method of exercise, method of settlement, form of consideration payable in
settlement, method by or forms in which Stock will be delivered or deemed to be
delivered to Grantees, whether or not a SAR shall be in tandem or in combination
with any other Award, and any other terms and conditions of any SAR. SARs may
be either freestanding or in tandem with other Awards.
12. TRANSFERABILITY OF OPTIONS
12.1. Transferability of Options
Except as provided in Section 12.2, during the lifetime of a Grantee, only
the Grantee (or, in the event of legal incapacity or incompetency, the Grantee's
guardian or legal representative) may exercise an Option. Except as provided in
Section 12.2, no Option shall be assignable or transferable by the Grantee to
whom it is granted, other than by will or the laws of descent and distribution.
12.2. Family Transfers.
If authorized in the applicable Award Agreement, a Grantee may transfer, not
for value, all or part of an Option which is not an Incentive Stock Option to
any Family Member. For the purpose of this Section 12.2, a "not for value"
transfer is a transfer which is (i) a gift, (ii) a transfer under a domestic
relations order in settlement of marital property rights; or (iii) a transfer to
an entity in which more than fifty percent of the voting interests are owned by
Family Members (or the Grantee) in exchange for an interest in that entity.
Following a transfer under this Section 12.2, any such Option shall continue to
be subject to the same terms and conditions as were applicable immediately prior
to transfer. Subsequent transfers of transferred Options are prohibited except
to Family Members of the original Grantee in accordance with this Section 12.2
or by will or the laws of descent and distribution. The events of termination of
employment or other relationship of Section 10.4 hereof shall continue to be
applied with respect to the original Grantee, following which the Option shall
be exercisable by the transferee only to the extent, and for the periods
specified in Sections 10.4, 10.5, or 10.6.
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13. RESTRICTED STOCK
13.1. Grant of Restricted Stock or Restricted Stock Units.
The Board may from time to time grant Restricted Stock or Restricted Stock
Units to persons eligible to receive Awards under Section 6 hereof, subject to
such restrictions, conditions and other terms as the Board may determine.
13.2. Restrictions.
At the time a grant of Restricted Stock or Restricted Stock Units is made,
the Board shall establish a period of time (the "Restricted Period") applicable
to such Restricted Stock or Restricted Stock Units. Each Award of Restricted
Stock or Restricted Stock Units may be subject to a different Restricted Period.
The Board may, in its sole discretion, at the time a grant of Restricted Stock
or Restricted Stock Units is made, prescribe restrictions in addition to or
other than the expiration of the Restricted Period, including the satisfaction
of corporate or individual performance objectives, which may be applicable to
all or any portion of the Restricted Stock or Restricted Stock Units in
accordance with Section 18.4.1 and 18.4.2. Neither Restricted Stock nor
Restricted Stock Units may be sold, transferred, assigned, pledged or otherwise
encumbered or disposed of during the Restricted Period or prior to the
satisfaction of any other restrictions prescribed by the Board with respect to
such Restricted Stock or Restricted Stock Units.
13.3. Restricted Stock Certificates.
The Company shall issue, in the name of each Grantee to whom Restricted
Stock has been granted, stock certificates representing the total number of
shares of Restricted Stock granted to the Grantee, as soon as reasonably
practicable after the Grant Date. The Board may provide in an Award Agreement
that either (i) the Secretary of the Company shall hold such certificates for
the Grantee's benefit until such time as the Restricted Stock is forfeited to
the Company or the restrictions lapse, or (ii) such certificates shall be
delivered to the Grantee, provided, however, that such certificates shall bear a
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legend or legends that complies with the applicable securities laws and
regulations and makes appropriate reference to the restrictions imposed under
the Plan and the Award Agreement.
13.4. Rights of Holders of Restricted Stock.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock shall have the right to vote such Stock and the right to
receive any dividends declared or paid with respect to such Stock. The Board
may provide that any dividends paid on Restricted Stock must be reinvested in
shares of Stock, which may or may not be subject to the same vesting conditions
and restrictions applicable to such Restricted Stock. All distributions, if
any, received by a Grantee with respect to Restricted Stock as a result of any
stock split, stock dividend, combination of
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shares, or other similar transaction shall be subject to the restrictions
applicable to the original Grant.
13.5. Rights of Holders of Restricted Stock Units.
Unless the Board otherwise provides in an Award Agreement, holders of
Restricted Stock Units shall have no rights as stockholders of the Company. The
Board may provide in an Award Agreement evidencing a grant of Restricted Stock
Units that the holder of such Restricted Stock Units shall be entitled to
receive, upon the Company's payment of a cash dividend on its outstanding Stock,
a cash payment for each Restricted Stock Unit held equal to the per-share
dividend paid on the Stock. Such Award Agreement may also provide that such
cash payment will be deemed reinvested in additional Restricted Stock Units at a
price per unit equal to the Fair Market Value of a share of Stock on the date
that such dividend is paid.
13.6. Termination of Employment or Other Relationship.
Upon the termination of a Grantee's employment or other relationship with
the Company other than by reason of death or "permanent and total disability"
(within the meaning of Section 22(e)(3) of the Code), any Restricted Stock or
Restricted Stock Units held by such Grantee that has not vested, or with respect
to which all applicable restrictions and conditions have not lapsed, shall
immediately be deemed forfeited, unless the Board, in its discretion, determines
otherwise. Upon forfeiture of Restricted Stock or Restricted Stock Units, the
Grantee shall have no further rights with respect to such Grant, including but
not limited to any right to vote Restricted Stock or any right to receive
dividends with respect to shares of Restricted Stock or Restricted Stock Units.
Whether a leave of absence or leave on military or government service shall
constitute a termination of employment or other relationship for purposes of the
Plan shall be determined by the Board, which determination shall be final and
conclusive. For purposes of the Plan, a termination of employment, service or
other relationship shall not be deemed to occur if the Grantee is immediately
thereafter a director of the Company.
13.7. Rights in the Event of Death.
Unless otherwise provided in the Award Agreement, if a Grantee dies while
employed by the Company, any Restricted Stock or Restricted Stock Units held by
such Grantee that has not vested, or with respect to which all applicable
restrictions and conditions have not lapsed, shall immediately be deemed
forfeited, unless the Board, in its discretion, determines otherwise. Upon
forfeiture of Restricted Stock or Restricted Stock Units, the Grantee shall have
no further rights with respect to such Grant, including but not limited to any
right to vote Restricted Stock or any right to receive dividends with respect to
shares of Restricted Stock or Restricted Stock Units. Restricted Stock or
Restricted Stock Units granted to such Grantee which are fully vest on the date
of death, and the shares of Stock represented thereby shall be deliverable in
accordance with the terms of the Plan to the executors, administrators, legatees
or distributees of the Grantee's estate.
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13.8. Rights in the Event of Disability.
Unless otherwise provided in the Award Agreement, if a Grantee terminates
employment or other relationship with the Company by reason of the "permanent
and total disability" (within the meaning of Section 22(e)(3) of the Code) of
such Grantee, any Restricted Stock or Restricted Stock Units held by such
Grantee that has not vested, or with respect to which all applicable
restrictions and conditions have not lapsed, shall immediately be deemed
forfeited, unless the Board, in its discretion, determines otherwise. Upon
forfeiture of Restricted Stock or Restricted Stock Units, the Grantee shall have
no further rights with respect to such Grant, including but not limited to any
right to vote Restricted Stock or any right to receive dividends with respect to
shares of Restricted Stock or Restricted Stock Units. Whether a termination of
employment or service is to be considered by reason of "permanent and total
disability" for purposes of the Plan shall be determined by the Board, which
determination shall be final and conclusive.
13.9. Delivery of Stock and Payment Therefor.
Upon the expiration or termination of the Restricted Period and the
satisfaction of any other conditions prescribed by the Board, the restrictions
applicable to shares of Restricted Stock or Restricted Stock Units shall lapse,
and, unless otherwise provided in the Award Agreement, upon payment by the
Grantee to the Company, in cash or by check, of the aggregate par value of the
shares of Stock represented by such Restricted Stock or Restricted Stock Units
(or such other higher purchase price determined by the Board), a stock
certificate for such shares shall be delivered, free of all such restrictions,
to the Grantee or the Grantee's beneficiary or estate, as the case may be.
14. DEFERRED STOCK AWARDS
14.1. Nature of Deferred Stock Awards.
A Deferred Stock Award is an Award of phantom stock units to a Grantee,
subject to restrictions and conditions as the Board may determine at the time of
grant. Conditions may be based on continuing employment (or other business
relationship) and/or achievement of pre-established performance goals and
objectives. The grant of a Deferred Stock Award is contingent on the Grantee
executing the Deferred Stock Award Agreement. The terms and conditions of each
such agreement shall be determined by the Board, and such terms and conditions
may differ among individual Awards and Grantees. At the end of the deferral
period, the Deferred Stock Award, to the extent vested, shall be paid to the
Grantee in the form of shares of Stock.
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14.2. Election to Receive Deferred Stock Awards in Lieu of Compensation.
The Board may, in its sole discretion, permit a Grantee to elect to receive
a portion of the cash compensation or Restricted Stock Award otherwise due to
such Grantee in the form of a Deferred Stock Award. Any such election shall be
made in writing and shall be delivered to the Company no later than the date
specified by the Board and in accordance with rules and procedures established
by the Board. The Board shall have the sole right to determine whether and under
what circumstances to permit such elections and to impose such limitations and
other terms and conditions thereon as the Board deems appropriate.
14.3. Rights as a Stockholder.
During the deferral period, a Grantee shall have no rights as a Stockholder;
provided, however, that the Grantee may be credited with Dividend Equivalent
Rights with respect to the phantom Stock units underlying his Deferred Stock
Award, subject to such terms and conditions as the Board may determine.
14.4. Restrictions.
A Deferred Stock Award may not be sold, assigned, transferred, pledged or
otherwise encumbered or disposed of during the deferral period.
14.5. Termination.
Except as may otherwise be provided by the Board either in the Award
Agreement or, in writing after the Award Agreement is issued, a Grantee's right
in all Deferred Stock Awards that have not vested shall automatically terminate
upon the Grantee's termination of employment or other relationship with the
Company for any reason.
15. UNRESTRICTED STOCK AWARDS
15.1. Grant or Sale of Unrestricted Stock.
The Board may, in its sole discretion, grant (or sell at par value or such
other higher purchase price determined by the Board) an Unrestricted Stock Award
to any Grantee pursuant to which such Grantee may receive shares of Stock free
of any restrictions ("Unrestricted Stock") under the Plan. Unrestricted Stock
Awards may be granted or sold as described in the preceding sentence in respect
of past services or other valid consideration, or in lieu of any cash
compensation due to such Grantee.
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16. PERFORMANCE Stock AWARDS
16.1. Nature of Performance Stock Awards.
A Performance Stock Award is an Award entitling the recipient to acquire
shares of Stock upon the attainment of specified performance goals. The Board
may make Performance Stock Awards independent of or in connection with the
granting of any other Award under the Plan. The Board in its sole discretion
shall determine whether and to whom Performance Stock Awards shall be made, the
performance goals applicable under each such Award, the periods during which
performance is to be measured, and all other limitations and conditions
applicable to the awarded Performance Stock; provided, however, that the Board
may rely on the performance goals and other standards applicable to other
performance unit plans of the Company in setting the standards for Performance
Stock Awards under the Plan.
16.2. Rights as a Stockholder.
A Grantee receiving a Performance Stock Award shall have the rights of a
Stockholder only as to shares actually received by the Grantee under the Plan
and not with respect to shares subject to the Award but not actually received by
the Grantee. A Grantee shall be entitled to receive a Stock certificate
evidencing the acquisition of Stock under a Performance Stock Award only upon
satisfaction of all conditions specified in the written instrument evidencing
the Performance Stock Award (or in a performance plan adopted by the Board).
16.3. Termination.
Except as may otherwise be provided by the Board either in the Award
Agreement in writing after the Award Agreement is issued, a Grantee's rights in
all Performance Stock Awards shall automatically terminate upon the Grantee's
termination of employment or other relationship with the Company and its
Subsidiaries for any reason.
16.4. Acceleration, Waiver, Etc.
At any time prior to the Grantee's termination of employment (or other
business relationship) by the Company and its Subsidiaries, the Board may in its
sole discretion accelerate, waive or amend any or all of the goals, restrictions
or conditions imposed under any Performance Stock Award.
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17. DIVIDEND EQUIVALENT RIGHTS
17.1. Dividend Equivalent Rights.
A Dividend Equivalent Right is an Award entitling the recipient to receive
credits based on cash distributions that would have been paid on the shares of
Stock specified in the Dividend Equivalent Right (or other award to which it
relates) if such shares had been issued to and held by the recipient. A Dividend
Equivalent Right may be granted hereunder to any Grantee as a component of
another Award or as a freestanding award. The terms and conditions of Dividend
Equivalent Rights shall be specified in the grant. Dividend Equivalents credited
to the holder of a Dividend Equivalent Right may be paid currently or may be
deemed to be reinvested in additional shares of Stock, which may thereafter
accrue additional equivalents. Any such reinvestment shall be at Fair Market
Value on the date of reinvestment. Dividend Equivalent Rights may be settled in
cash or Stock or a combination thereof, in a single installment or installments,
all determined in the sole discretion of the Board. A Dividend Equivalent Right
granted as a component of another Award may provide that such Dividend
Equivalent Right shall be settled upon exercise, settlement, or payment of, or
lapse of restrictions on, such other award, and that such Dividend Equivalent
Right shall expire or be forfeited or annulled under the same conditions as such
other award. A Dividend Equivalent Right granted as a component of another Award
may also contain terms and conditions different from such other award.
17.2. Interest Equivalents.
Any Award under this Plan that is settled in whole or in part in cash on a
deferred basis may provide in the grant for interest equivalents to be credited
with respect to such cash payment. Interest equivalents may be compounded and
shall be paid upon such terms and conditions as may be specified by the grant.
17.3. Termination.
Except as may otherwise be provided by the Board either in the Award
Agreement or in writing after the Award Agreement is issued, a Grantee's rights
in all Dividend Equivalent Rights or interest equivalents shall automatically
terminate upon the Grantee's termination of employment or other relationship
with the Company and its Subsidiaries for any reason.
<PAGE>
18. CERTAIN PROVISIONS APPLICABLE TO AWARDS
18.1. Stand-Alone, Additional, Tandem, and Substitute Awards
Awards granted under the Plan may, in the discretion of the Board, be
granted either alone or in addition to, in tandem with, or in substitution or
exchange for, any other Award or any award granted under another plan of the
Company, any Subsidiary, or any business entity to be acquired by the Company or
a Subsidiary, or any other right of a Grantee to receive payment from the
Company or any Subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award, the Board shall require the surrender of such other
Award in consideration for the grant of the new Award. In addition, Awards may
be granted in lieu of cash compensation, including in lieu of cash amounts
payable under other plans of the Company or any Subsidiary, in which the value
of Stock subject to the Award is equivalent in value to the cash compensation
(for example, Deferred Stock or Restricted Stock), or in which the exercise
price, grant price or purchase price of the Award in the nature of a right that
may be exercised is equal to the Fair Market Value of the underlying Stock minus
the value of the cash compensation surrendered (for example, Options granted
with an exercise price "discounted" by the amount of the cash compensation
surrendered).
18.2. Term of Awards
The term of each Award shall be for such period as may be determined by the
Board; provided that in no event shall the term of any Option or SAR exceed a
period of ten years (or such shorter term as may be required in respect of an
ISO under Section 422 of the Code).
18.3. Form and Timing of Payment Under Awards; Deferrals
Subject to the terms of the Plan and any applicable Award Agreement,
payments to be made by the Company or a Subsidiary upon the exercise of an
Option or other Award or settlement of an Award may be made in such forms as the
Board shall determine, including, without limitation, cash, Stock, other Awards
or other property, and may be made in a single payment or transfer, in
installments, or on a deferred basis. The settlement of any Award may be
accelerated, and cash paid in lieu of Stock in connection with such settlement,
in the discretion of the Board or upon occurrence of one or more specified
events. Installment or deferred payments may be required by the Board or
permitted at the election of the Grantee on terms and conditions established by
the Board. Payments may include, without limitation, provisions for the payment
or crediting of a reasonable interest rate on installment or deferred payments
or the grant or crediting of Dividend Equivalents
<PAGE>
or other amounts in respect of installment or deferred payments denominated in
Stock.
18.4. Performance and Annual Incentive Awards
18.4.1. Performance Conditions
The right of a Grantee to exercise or receive a grant or settlement
of any Award, and the timing thereof, may be subject to such performance
conditions as may be specified by the Board. The Board may use such business
criteria and other measures of performance as it may deem appropriate in
establishing any performance conditions, and may exercise its discretion to
reduce the amounts payable under any Award subject to performance conditions,
except as limited under Sections 18.4.2 and 18.4.3 hereof in the case of a
Performance Award or Annual Incentive Award intended to qualify under Code
Section 162(m). If and to the extent required under Code Section 162(m), any
power or authority relating to a Performance Award or Annual Incentive Award
intended to qualify under Code Section 162(m), shall be exercised by the
Committee and not the Board.
18.4.2. Performance Awards Granted to Designated Covered Employees
If and to the extent that the Committee determines that a
Performance Award to be granted to a Grantee who is designated by the Committee
as likely to be a Covered Employee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the grant, exercise and/or
settlement of such Performance Award shall be contingent upon achievement of
preestablished performance goals and other terms set forth in this Section
18.4.2.
(i) Performance Goals Generally. The performance goals for
such Performance Awards shall consist of one or more business
criteria and a targeted level or levels of performance with respect
to each of such criteria, as specified by the Committee consistent
with this Section 18.4.2. Performance goals shall be objective and
shall otherwise meet the requirements of Code Section 162(m) and
regulations thereunder including the requirement that the level or
levels of performance targeted by the Committee result in the
achievement of performance goals being "substantially uncertain."
The Committee may determine that such Performance Awards shall be
granted, exercised and/or settled upon achievement of any one
performance goal or that two or more of the performance goals must
be achieved as a condition to grant, exercise and/or settlement of
such Performance Awards. Performance goals may differ for
Performance Awards granted to any one Grantee or to different
Grantees.
<PAGE>
(ii) Business Criteria. One or more of the following
business criteria for the Company, on a consolidated basis, and/or
specified subsidiaries or business units of the Company (except with
respect to the total stockholder return and earnings per share
criteria), shall be used exclusively by the Committee in
establishing performance goals for such Performance Awards: (1)
total stockholder return; (2) such total stockholder return as
compared to total return (on a comparable basis) of a publicly
available index such as, but not limited to, the Standard & Poor's
500 Stock Index; (3) net income; (4) pretax earnings; (5) earnings
before interest expense, taxes, depreciation and amortization; (6)
pretax operating earnings after interest expense and before bonuses,
service fees, and extraordinary or special items; (7) operating
margin; (8) earnings per share; (9) return on equity; (10) return on
capital; (11) return on investment; (12) operating earnings; (13)
working capital; (14) growth in revenue; (15) growth in sales; (16)
return on net assets employed; (17) net operating profit after taxes
less the cost of capital; (18) cash flow; and (19) ratio of debt to
stockholders' equity. One or more of the foregoing business criteria
shall also be exclusively used in establishing performance goals for
Annual Incentive Awards granted to a Covered Employee under Section
18.4.3 hereof that are intended to qualify as "performance-based
compensation" under Code Section 162(m).
(iii) Performance Period; Timing For Establishing
Performance Goals. Achievement of performance goals in respect of
such Performance Awards shall be measured over a performance period
of up to ten years, as specified by the Committee. Performance goals
shall be established not later than 90 days after the beginning of
any performance period applicable to such Performance Awards, or at
such other date as may be required or permitted for "performance-
based compensation" under Code Section 162(m).
(iv) Performance Award Pool. The Committee may
establish a Performance Award pool, which shall be an unfunded pool,
for purposes of measuring Company performance in connection with
Performance Awards. The amount of such Performance Award pool shall
be based upon the achievement of a performance goal or goals based
on one or more of the business criteria set forth in Section
18.4.2(ii) hereof during the given performance period, as specified
by the Committee in accordance with Section 18.4.2(iii) hereof. The
Committee may specify the amount of the Performance Award pool as a
percentage of any of such business criteria, a percentage thereof in
excess of a threshold amount, or as another amount which need not
bear a strictly mathematical relationship to such business criteria.
<PAGE>
(v) Settlement of Performance Awards; Other Terms.
Settlement of such Performance Awards shall be in cash, Stock, other
Awards or other property, in the discretion of the Committee. The
Committee may, in its discretion, reduce the amount of a settlement
otherwise to be made in connection with such Performance Awards. The
Committee shall specify the circumstances in which such Performance
Awards shall be paid or forfeited in the event of termination of
employment by the Grantee prior to the end of a performance period
or settlement of Performance Awards.
18.4.3. Annual Incentive Awards Granted to Designated Covered
Employees.
If and to the extent that the Committee determines that an Annual
Incentive Award to be granted to a Grantee who is designated by the Committee as
likely to be a Covered Employee should qualify as "performance-based
compensation" for purposes of Code Section 162(m), the grant, exercise and/or
settlement of such Annual Incentive Award shall be contingent upon achievement
of preestablished performance goals and other terms set forth in this Section
18.4.3.
(i) Annual Incentive Award Pool. The Committee may
establish an Annual Incentive Award pool, which shall be an unfunded
pool, for purposes of measuring Company performance in connection
with Annual Incentive Awards. The amount of such Annual Incentive
Award pool shall be based upon the achievement of a performance goal
or goals based on one or more of the business criteria set forth in
18.4.2(ii) hereof during the given performance period, as specified
by the Committee in accordance with 18.4.2(iii) hereof. The
Committee may specify the amount of the Annual Incentive Award pool
as a percentage of any such business criteria, a percentage thereof
in excess of a threshold amount, or as another amount which need not
bear a strictly mathematical relationship to such business criteria.
(ii) Potential Annual Incentive Awards. Not later than
the end of the 90th day of each fiscal year, or at such other date
as may be required or permitted in the case of Awards intended to be
"performance-based compensation" under Code Section 162(m), the
Committee shall determine the Eligible Persons who will potentially
receive Annual Incentive Awards, and the amounts potentially payable
thereunder, for that fiscal year, either out of an Annual Incentive
Award pool established by such date under Section 18.4.3(i) hereof
or as individual Annual Incentive Awards. In the case of individual
Annual Incentive Awards intended to qualify under Code Section
162(m), the amount potentially payable shall be based upon the
<PAGE>
achievement of a performance goal or goals based on one or more of
the business criteria set forth in Section 18.4.2(ii) hereof in the
given performance year, as specified by the Committee; in other
cases, such amount shall be based on such criteria as shall be
established by the Committee. In all cases, the maximum Annual
Incentive Award of any Grantee shall be subject to the limitation
set forth in Section 7.1 hereof.
(iii) Payout of Annual Incentive Awards. After the end
of each fiscal year, the Committee shall determine the amount, if
any, of (A) the Annual Incentive Award pool, and the maximum amount
of potential Annual Incentive Award payable to each Grantee in the
Annual Incentive Award pool, or (B) the amount of potential Annual
Incentive Award otherwise payable to each Grantee. The Committee
may, in its discretion, determine that the amount payable to any
Grantee as an Annual Incentive Award shall be reduced from the
amount of his or her potential Annual Incentive Award, including a
determination to make no Award whatsoever. The Committee shall
specify the circumstances in which an Annual Incentive Award shall
be paid or forfeited in the event of termination of employment by
the Grantee prior to the end of a fiscal year or settlement of such
Annual Incentive Award.
18.4.4. Written Determinations.
All determinations by the Committee as to the establishment of
performance goals, the amount of any Performance Award pool or potential
individual Performance Awards and as to the achievement of performance goals
relating to Performance Awards under Section 18.4.2, and the amount of any
Annual Incentive Award pool or potential individual Annual Incentive Awards and
the amount of final Annual Incentive Awards under Section 18.4.3, shall be made
in writing in the case of any Award intended to qualify under Code Section
162(m). To the extent required to comply with Code Section 162(m), the
Committee may delegate any responsibility relating to such Performance Awards or
Annual Incentive Awards.
18.4.5. Status of Section 18.4.3 and Section 18.4.2 Awards
Under Code Section 162(m)
It is the intent of the Company that Performance Awards and Annual
Incentive Awards under Section 18.4.2 and Section 18.4.3 hereof granted to
persons who are designated by the Committee as likely to be Covered Employees
within the meaning of Code Section 162(m) and regulations thereunder shall, if
so designated by the Committee, constitute "qualified performance-based
compensation" within the meaning of Code Section 162(m) and regulations
<PAGE>
thereunder. Accordingly, the terms of Section 18.4.2 and Section 18.4.3,
including the definitions of Covered Employee and other terms used therein,
shall be interpreted in a manner consistent with Code Section 162(m) and
regulations thereunder. The foregoing notwithstanding, because the Committee
cannot determine with certainty whether a given Grantee will be a Covered
Employee with respect to a fiscal year that has not yet been completed, the term
Covered Employee as used herein shall mean only a person designated by the
Committee, at the time of grant of Performance Awards or an Annual Incentive
Award, as likely to be a Covered Employee with respect to that fiscal year. If
any provision of the Plan or any agreement relating to such Performance Awards
or Annual Incentive Awards does not comply or is inconsistent with the
requirements of Code Section 162(m) or regulations thereunder, such provision
shall be construed or deemed amended to the extent necessary to conform to such
requirements.
19. PARACHUTE LIMITATIONS
Notwithstanding any other provision of this Plan or of any other agreement,
contract, or understanding heretofore or hereafter entered into by a Grantee
with the Company or any Subsidiary, except an agreement, contract, or
understanding hereafter entered into that expressly modifies or excludes
application of this paragraph (an "Other Agreement"), and notwithstanding any
formal or informal plan or other arrangement for the direct or indirect
provision of compensation to the Grantee (including groups or classes of
Grantees or beneficiaries of which the Grantee is a member), whether or not such
compensation is deferred, is in cash, or is in the form of a benefit to or for
the Grantee (a "Benefit Arrangement"), if the Grantee is a "disqualified
individual," as defined in Section 280G(c) of the Code, any Option, Restricted
Stock or Restricted Stock Unit held by that Grantee and any right to receive any
payment or other benefit under this Plan shall not become exercisable or vested
(i) to the extent that such right to exercise, vesting, payment, or benefit,
taking into account all other rights, payments, or benefits to or for the
Grantee under this Plan, all Other Agreements, and all Benefit Arrangements,
would cause any payment or benefit to the Grantee under this Plan to be
considered a "parachute payment" within the meaning of Section 280G(b)(2) of the
Code as then in effect (a "Parachute Payment") and (ii) if, as a result of
receiving a Parachute Payment, the aggregate after-tax amounts received by the
Grantee from the Company under this Plan, all Other Agreements, and all Benefit
Arrangements would be less than the maximum after-tax amount that could be
received by the Grantee without causing any such payment or benefit to be
considered a Parachute Payment. In the event that the receipt of any such right
to exercise, vesting, payment, or benefit under this Plan, in conjunction with
all other rights, payments, or benefits to or for the Grantee under any Other
Agreement or any Benefit Arrangement would cause the Grantee to be considered to
have received a Parachute Payment under this Plan that would have the effect of
decreasing the after-tax amount received by the Grantee as described in clause
(ii) of the preceding sentence, then the Grantee shall have the right, in the
<PAGE>
Grantee's sole discretion, to designate those rights, payments, or benefits
under this Plan, any Other Agreements, and any Benefit Arrangements that should
be reduced or eliminated so as to avoid having the payment or benefit to the
Grantee under this Plan be deemed to be a Parachute Payment.
20. REQUIREMENTS OF LAW
20.1. General.
The Company shall not be required to sell or issue any shares of Stock
under any Award if the sale or issuance of such shares would constitute a
violation by the Grantee, any other individual exercising an Option, or the
Company of any provision of any law or regulation of any governmental authority,
including without limitation any federal or state securities laws or
regulations. If at any time the Company shall determine, in its discretion, that
the listing, registration or qualification of any shares subject to an Award
upon any securities exchange or under any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the issuance or
purchase of shares hereunder, no shares of Stock may be issued or sold to the
Grantee or any other individual exercising an Option pursuant to such Award
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the Company,
and any delay caused thereby shall in no way affect the date of termination of
the Award. Specifically, in connection with the Securities Act, upon the
exercise of any Option or the delivery of any shares of Stock underlying an
Award, unless a registration statement under such Act is in effect with respect
to the shares of Stock covered by such Award, the Company shall not be required
to sell or issue such shares unless the Board has received evidence satisfactory
to it that the Grantee or any other individual exercising an Option may acquire
such shares pursuant to an exemption from registration under the Securities Act.
Any determination in this connection by the Board shall be final, binding, and
conclusive. The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Securities Act. The Company shall not
be obligated to take any affirmative action in order to cause the exercise of an
Option or the issuance of shares of Stock pursuant to the Plan to comply with
any law or regulation of any governmental authority. As to any jurisdiction that
expressly imposes the requirement that an Option shall not be exercisable until
the shares of Stock covered by such Option are registered or are exempt from
registration, the exercise of such Option (under circumstances in which the laws
of such jurisdiction apply) shall be deemed conditioned upon the effectiveness
of such registration or the availability of such an exemption.
20.2. Rule 16b-3.
During any time when the Company has a class of equity security registered
under Section 12 of the Exchange Act, it is the intent of the Company that
Awards pursuant to the Plan and the exercise of Options granted hereunder will
qualify for
<PAGE>
the exemption provided by Rule 16b-3 under the Exchange Act. To the extent that
any provision of the Plan or action by the Board does not comply with the
requirements of Rule 16b-3, it shall be deemed inoperative to the extent
permitted by law and deemed advisable by the Board, and shall not affect the
validity of the Plan. In the event that Rule 16b-3 is revised or replaced, the
Board may exercise its discretion to modify this Plan in any respect necessary
to satisfy the requirements of, or to take advantage of any features of, the
revised exemption or its replacement.
21. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend, or
terminate the Plan as to any shares of Stock as to which Awards have not been
made; provided, however, that the Board shall not, without approval of the
-------- -------
Company's stockholders, amend the Plan such that it does not comply with the
Code. The Company may retain the right in an Award Agreement to cause a
forfeiture of the gain realized by a Grantee on account of the Grantee taking
actions in "competition with the Company," as defined in the applicable Award
Agreement. Furthermore, the Company may annul an Award if the Grantee is an
employee of the Company or an affiliate and is terminated "for cause" as defined
in the applicable Award Agreement. Except as permitted under this Section 21 or
Section 22 hereof, no amendment, suspension, or termination of the Plan shall,
without the consent of the Grantee, alter or impair rights or obligations under
any Award theretofore awarded under the Plan.
22. EFFECT OF CHANGES IN CAPITALIZATION
22.1. Changes in Stock.
If the number of outstanding shares of Stock is increased or decreased or
the shares of Stock are changed into or exchanged for a different number or kind
of shares or other securities of the Company on account of any recapitalization,
reclassification, stock split, reverse split, combination of shares, exchange of
shares, stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration by
the Company occurring after the Effective Date, the number and kinds of shares
for which grants of Options and other Awards may be made under the Plan shall be
adjusted proportionately and accordingly by the Company. In addition, the number
and kind of shares for which Awards are outstanding shall be adjusted
proportionately and accordingly so that the proportionate interest of the
Grantee immediately following such event shall, to the extent practicable, be
the same as immediately before such event. Any such adjustment in outstanding
Options shall not change the aggregate Option Price payable with respect to
shares that are subject to the unexercised portion of an Option outstanding but
shall include a corresponding proportionate adjustment in the Option Price per
share.
<PAGE>
22.2. Reorganization in Which the Company Is the Surviving Entity and in
Which No Change in Control Occurs.
Subject to Section 22.3 hereof, if the Company shall be the surviving
entity in any reorganization, merger, or consolidation of the Company with one
or more other entities in which no Change in Control Occurs, any Option
theretofore granted pursuant to the Plan shall pertain to and apply to the
securities to which a holder of the number of shares of Stock subject to such
Option would have been entitled immediately following such reorganization,
merger, or consolidation, with a corresponding proportionate adjustment of the
Option Price per share so that the aggregate Option Price thereafter shall be
the same as the aggregate Option Price of the shares remaining subject to the
Option immediately prior to such reorganization, merger, or consolidation.
Subject to any contrary language in an Award Agreement evidencing an Award, any
restrictions applicable to such Award shall apply as well to any replacement
shares received by the Grantee as a result of the reorganization, merger or
consolidation.
22.3. Reorganization, Sale of Assets or Sale of Stock Which Involves a
Change in Control.
Upon the dissolution or liquidation of the Company or upon any transaction
approved by the Board that results in a Change in Control, and unless otherwise
provided by the Board in an Award Agreement, upon consummation of any such
event, the Plan and all outstanding but unexercised Options shall terminate,
except to the extent provision is made in writing in connection with such
transaction for the continuation of the Plan or the assumption of such Options
theretofore granted, or for the substitution for such Options of new options
covering the stock of a successor entity, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kinds of shares or units and
exercise prices, in which event the Plan and Options theretofore granted shall
continue in the manner and under the terms so provided. The Board shall send
written notice of an event that will result in such a termination to all
individuals who hold Options not later than the time at which the Company gives
notice thereof to its stockholders.
22.4. Adjustments.
Adjustments under this Section 22 related to shares of Stock or securities
of the Company shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. No fractional shares or other
securities shall be issued pursuant to any such adjustment, and any fractions
resulting from any such adjustment shall be eliminated in each case by rounding
downward to the nearest whole share.
22.5. No Limitations on Company.
The making of Awards pursuant to the Plan shall not affect or limit in any
way the right or power of the Company to make adjustments, reclassifications,
<PAGE>
reorganizations, or changes of its capital or business structure or to merge,
consolidate, dissolve, or liquidate, or to sell or transfer all or any part of
its business or assets.
23. Pooling
In the event any provision of the Plan or the Award Agreement would prevent
the use of pooling of interests accounting in a corporate transaction involving
the Company and such transaction is contingent upon pooling of interests
accounting, then that provision shall be deemed amended or revoked to the extent
required to preserve such pooling of interests. The Company may require in an
Award Agreement that a Grantee who receives an Award under the Plan shall, upon
advice from the Company, take (or refrain from taking, as appropriate) all
actions necessary or desirable to ensure that pooling of interests accounting is
available.
24. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Award or Award Agreement shall be
construed to confer upon any individual the right to remain in the employ or
service of the Company or any affiliate, or to interfere in any way with any
contractual or other right or authority of the Company either to increase or
decrease the compensation or other payments to any individual at any time, or to
terminate any employment or other relationship between any individual and the
Company. In addition, notwithstanding anything contained in the Plan to the
contrary, unless otherwise stated in the applicable Award Agreement, no Award
granted under the Plan shall be affected by any change of duties or position of
the Grantee, so long as such Grantee continues to be a director, officer,
consultant or employee of the Company. The obligation of the Company to pay any
benefits pursuant to this Plan shall be interpreted as a contractual obligation
to pay only those amounts described herein, in the manner and under the
conditions prescribed herein. The Plan shall in no way be interpreted to
require the Company to transfer any amounts to a third party trustee or
otherwise hold any amounts in trust or escrow for payment to any Grantee or
beneficiary under the terms of the Plan. No Grantee shall have any of the
rights of a stockholder with respect to the shares of Stock subject to an Option
except to the extent the certificates for such shares of Stock shall have been
issued upon the exercise of the Option.
25. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the
stockholders of the Company for approval shall be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or
<PAGE>
particular individuals) as the Board in its discretion determines
desirable, including, without limitation, the granting of stock options
otherwise than under the Plan.
26. WITHHOLDING TAXES
The Company or a Subsidiary, as the case may be, shall have the right to
deduct from payments of any kind otherwise due to a Grantee any Federal, state,
or local taxes of any kind required by law to be withheld with respect to the
vesting of or other lapse of restrictions applicable to an Award or upon the
issuance of any shares of Stock upon the exercise of an Option or pursuant to an
Award. At the time of such vesting, lapse, or exercise, the Grantee shall pay
to the Company or the Subsidiary, as the case may be, any amount that the
Company or the Subsidiary may reasonably determine to be necessary to satisfy
such withholding obligation. Subject to the prior approval of the Company or
the Subsidiary, which may be withheld by the Company or the Subsidiary, as the
case may be, in its sole discretion, the Grantee may elect to satisfy such
obligations, in whole or in part, (i) by causing the Company or the Subsidiary
to withhold shares of Stock otherwise issuable to the Grantee or (ii) by
delivering to the Company or the Subsidiary shares of Stock already owned by the
Grantee. The shares of Stock so delivered or withheld shall have an aggregate
Fair Market Value equal to such withholding obligations, however in no event
shall such aggregate Fair Market Value exceed the statutory withholding rate.
The Fair Market Value of the shares of Stock used to satisfy such withholding
obligation shall be determined by the Company or the Subsidiary as of the date
that the amount of tax to be withheld is to be determined. A Grantee who has
made an election pursuant to this Section 26 may satisfy his or her withholding
obligation only with shares of Stock that are not subject to any repurchase,
forfeiture, unfulfilled vesting, or other similar requirements.
27. CAPTIONS
The use of captions in this Plan or any Award Agreement is for the
convenience of reference only and shall not affect the meaning of any provision
of the Plan or such Award Agreement.
28. OTHER PROVISIONS
Each Award granted under the Plan may contain such other terms and
conditions not inconsistent with the Plan as may be determined by the Board, in
its sole discretion.
29. NUMBER AND GENDER
With respect to words used in this Plan, the singular form shall include the
plural form, the masculine gender shall include the feminine gender, etc., as
the context requires.
<PAGE>
30. SEVERABILITY
If any provision of the Plan or any Award Agreement shall be determined to
be illegal or unenforceable by any court of law in any jurisdiction, the
remaining provisions hereof and thereof shall be severable and enforceable in
accordance with their terms, and all provisions shall remain enforceable in any
other jurisdiction.
31. GOVERNING LAW
The validity and construction of this Plan and the instruments evidencing
the Awards granted hereunder shall be governed by the laws of the State of
Delaware (without giving effect to the choice of law provisions thereof).
<PAGE>
The Plan was duly adopted and approved by the Board of Directors of the
Company as of the __ day of _____, 1999.
-----------------------------------------
[ ]
Secretary
The Plan was duly approved by the stockholders of the Company on the 21st
day of October, 1999.
-----------------------------------------
[ ]
Secretary
<PAGE>
TAX SHARING AGREEMENT
---------------------
This Agreement is entered into as of the 1st day of December, 1999 between
ACX Technologies, Inc. ("ACX"), a Colorado corporation, and CoorsTek, Inc.
("CTI"), a Delaware corporation.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, ACX and CTI have entered into a Distribution Agreement dated
October [], 1999 (the "Distribution Agreement"), providing for the distribution
by ACX to its shareholders of all of the common stock of CTI (the
"Distribution");
WHEREAS, ACX and CTI desire to set forth their agreement on the rights and
obligations of ACX, CTI and their respective Affiliates with respect to various
Tax matters and the handling and allocation of Federal, state, local and foreign
Taxes incurred in Taxable periods beginning prior to the Effective Date;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties agree as follows:
1. Definitions
-----------
(a) As used in this Agreement:
"ACX Consolidated Group" shall mean, with respect to any Taxable
period, the corporations which are members of the affiliated group of
corporations of which ACX or its successor is the common parent (within the
meaning of Section 1504 of the Code).
"ACX Group" shall mean the corporations which are members of the ACX
Consolidated Group during any Taxable period, excluding the corporations which
are the members of the CTI Group.
"CTI Group" shall mean the corporations which are members of the
affiliated group of corporations of which CTI is the common parent (within the
meaning of Section 1504 of the Code) immediately after the Distribution Date and
any predecessors or successors thereto (and to the extent applicable, a
corporation, sold prior to the Distribution, that was a subsidiary of a member
of the CTI Group).
"Affiliate" (and the correlative meaning, "Affiliation") of any
person shall mean any individual, corporation, partnership or other entity
directly or indirectly controlling, controlled by or under common control with
such person. Notwithstanding the foregoing, (i) a member of the CTI Group and a
member of the ACX Group shall not be Affiliates, and (ii) neither Adolph Coors
Company nor any of its subsidiaries shall be an Affiliate of any member of the
ACX Group or any member of the CTI Group.
"After-Tax Amount" shall mean an amount that, on an "After-tax
basis", is equal to the obligation amount hereunder. "After-tax basis" shall
reflect the hypothetical Tax consequences resulting from (i) receipt or accrual
of the required payment by the recipient
<PAGE>
hereunder and (ii) any deduction for the payment or accrual of the item giving
rise to the obligation. References to "after-Tax basis" and "hypothetical Tax
consequences" refer to calculations of Tax at the maximum statutory rate (or
rates, in the case of an item that affects more than one Tax) to the extent
applicable for the relevant year.
"Code" shall mean the Internal Revenue Code of 1986, as amended, or
any successor thereto.
"Consolidated State Tax" shall mean any income, franchise or similar
Tax (based on income) payable to any state or local government as to which CTI
or any of its Affiliates is or may be liable for such Tax on a consolidated,
combined or unitary basis with ACX or any of its Affiliates. This term shall
specifically exclude any combined state Tax Returns filed with CTI or any member
of the CTI Group as the common parent. Such combined state Tax Returns shall be
treated similar to separate company state Returns with responsibility being
exclusive to the filing entity.
"Distribution Date" shall mean the date on which ACX distributes to
its shareholders all of the common stock of CTI.
"Effective Date" shall mean ________.
"Federal Tax" shall mean any United States Federal income,
environmental, alternative or add-on minimum Tax.
"Final Determination" shall mean (i) with respect to Federal Taxes,
(A) a "determination" as defined in Section 1313(a) of the Code, or (B) the date
of acceptance by or on behalf of the Internal Revenue Service of Form 870-AD (or
any successor form thereto), as a final resolution of Tax liability for any
Taxable period, except that a Form 870-AD (or successor form thereto) that
reserves the right of the taxpayer to file a claim for refund and/or the right
of the Internal Revenue Service to assert a further deficiency shall not
constitute a Final Determination with respect to the item or items so reserved;
(ii) with respect to Taxes other than Federal Taxes, any final determination of
liability in respect of a Tax provided for under applicable law; (iii) any final
disposition by reason of the expiration of the applicable statute of
limitations; and (iv) the payment of Tax by ACX, CTI, or any Affiliate of ACX or
CTI, whichever is responsible for payment of such Tax under applicable law, with
respect to any item
2
<PAGE>
disallowed or adjusted by a Taxing Authority, provided that the provisions of
Section 8 hereof have been complied with, or, if such section is inapplicable,
that the party responsible under the terms of this Agreement for such Tax is
notified by the party paying such Tax that it has determined that no action
should be taken to recoup such disallowed item, and the other party agrees with
such determination.
"Other Taxes," are defined in Section 4.
"Post-Effective Period" shall mean any Taxable period beginning
after the Effective Date.
"Pre-Effective Period" shall mean any Taxable period ending on or
before the Effective Date.
"Pre-Effective Tax Liability" shall mean (i) the Federal Tax
liability of ACX and each corporation included in the ACX Consolidated Group for
any period as to which a consolidated Federal Tax Return is filed by ACX for
such group for all Pre-Effective Periods, and (ii) the Consolidated State Tax
liability for such group for all Pre-Effective Periods and for the portions (up
to the Effective Date) of any Taxable periods including but not ending on the
Effective Date, regardless of whether any such liability has been previously
assessed in whole or in part or is assessed in whole or in part after the date
hereof, or whether such liability is or was imposed on the ACX Consolidated
Group or on any corporation included within any such Group separately.
"Prime" shall mean the rate of interest announced from time to time
as "prime" by the Bank of America, N.A.
"Referee" is defined in Section 16.
3
<PAGE>
"Return" shall mean any Tax Return, statement, report or form
(including estimated Tax Returns and reports and information Returns and
reports) required to be filed with any Taxing Authority.
"Tax" (and the correlative meaning, "Taxes," "Taxing" and "Taxable")
shall mean (A) any net income, alternative or add-on minimum, gross income,
gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, transfer, recording, severance, stamp,
occupation, premium, property, environmental, custom duty, or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest and any penalty, addition to tax or additional amount
imposed by a Taxing Authority; (B) any liability of ACX, CTI or any Affiliate of
ACX or CTI (or, in each case, any successor in interest thereto by merger or
otherwise), as the case may be, for the payment of any amounts of the type
described in clause (A) for any Taxable period resulting from the application of
Treasury Regulation Section 1.1502-6 or, in the case of any Consolidated State
Tax, any similar provision applicable under state law; and (C) any liability of
ACX, CTI or any Affiliate of ACX or CTI (or, in each case, any successor in
interest thereto by merger or otherwise) for the payment of any amounts
described in clause (A) as a result of any express or implied obligation to
indemnify any other party.
"Tax Asset" shall mean any net operating loss, net capital loss,
investment Tax credit, foreign Tax credit, charitable deduction or any other
credit or Tax attribute, including additions to basis of property, which could
reduce Federal Taxes or Consolidated State Taxes, as the case may be, including,
without limitation, deductions or credits related to alternative minimum Taxes.
"Taxing Authority" shall mean any governmental authority
responsible for the imposition of any Tax.
4
<PAGE>
(b) Any term used in this Agreement which is not defined in this
Agreement shall, to the extent the context requires, have the meaning assigned
to it in the Code or the applicable Treasury regulations thereunder.
2. Federal Taxes and Consolidated State Taxes--Administrative and
--------------------------------------------------------------
Compliance Matters.
- ------------------
(a) Sole Tax Sharing Agreement. The parties acknowledge that there
--------------------------
has not been a Final Determination of the Pre-Effective Tax Liability, that the
members of the CTI Group are includible in the ACX Consolidated Group, and may
be found to be includible in certain State Consolidated Groups through the
Effective Date, that pursuant hereto any and all existing Tax sharing agreements
or arrangements, written or unwritten, between the ACX Group and the CTI Group
shall be terminated as of the Effective Date, and that after the Effective Date
this Agreement shall constitute the sole Tax sharing agreement between the ACX
Group and the CTI Group. Any tax sharing agreements between Adolph Coors Company
and ACX will still be legally binding and applicable to both ACX Group and CTI
Group.
(b) Intent. Treasury regulations designate ACX as the sole agent
------
of all members of the ACX Consolidated Group with respect to virtually all
Federal Tax matters. Certain states have corresponding provisions.
Notwithstanding Section 2(d) hereof, if the Internal Revenue Service District
Director (or a corresponding state official) deals directly with any member of
the CTI Group in respect of its Tax liability for a Pre-Effective Period (as is
the District Director's right), such member of the CTI Group shall have full
authority to act, provided, however, that such actions do not cause a material
detriment to the ACX Group. It is the intent of ACX and CTI, as common parents
of their respective groups for Post-Effective Periods, that, since each group is
ultimately responsible for Federal Tax and Consolidated State Tax liabilities
allocable thereto hereunder, each group, through its common parent, shall have
the
5
<PAGE>
authority to negotiate, resolve and settle its own Tax matters to the extent
such actions do not cause a material detriment to the other group or are
otherwise inconsistent with the specific provisions of this Agreement.
(c) Designation of Agent. CTI and each member of the CTI Group
--------------------
hereby irrevocably designate ACX as its agent, coordinator, and administrator
for the purpose of taking any and all actions (including the execution of
waivers of applicable statutes of limitation) necessary or incidental to the
filing of any Federal or Consolidated State Tax Return, any amended Federal or
Consolidated State Tax Return or any claim for refund (even where an item or Tax
Asset giving rise to an amended Return or refund claim arises in a
Post-Effective Period), credit or offset of Tax or any other proceedings
relating to any Pre-Effective Period. ACX, as agent, shall be responsible to see
that all such administrative matters relating thereto shall be handled promptly
and appropriately. ACX shall be CTI's agent with respect to making payments to,
or collecting Refunds from, any Taxing Authority with respect to Pre-Effective
Tax Liabilities. CTI will then reimburse ACX, or ACX will reimburse CTI, as the
case may be, for the CTI share of the total pursuant to such agency. ACX shall
inform and consult with CTI prior to taking any action on behalf of, or which
will have any material impact on, any member of the CTI Group, including,
without limitation, strategies relating to waivers of any statute of
limitations.
(d) 1999 Returns. ACX will prepare and file the consolidated
------------
Federal Tax Return and each Consolidated State Tax Return for the taxable years
ending on the Effective Date. ACX will provide CTI with "packets" at a time and
in a form similar to prior years for CTI and each of its Affiliates for which
data is necessary for the Federal and Consolidated State Returns, and CTI will
complete and return such packets with respect to each member of the CTI Group or
relevant CTI Affiliate, pursuant to a schedule mutually agreed upon by ACX and
CTI,
6
<PAGE>
but in no event later than June 1, 2000. CTI will have sole responsibility for
the technical propriety and accuracy of the packets relating to members of the
CTI Group and CTI Affiliates.
(e) Tax Assets. Tax Assets from any Pre-Effective Period shall be
----------
computed and agreed upon by ACX and CTI after the completion of the last ACX
Consolidated Group Return which includes CTI or any member of the CTI Group.
3. Federal Taxes and Consolidated State Taxes--Allocation of Taxes.
--------------------------------------------------------------
(a) 1999 Federal and Consolidated State Income Taxes. In its
------------------------------------------------
capacity as agent, ACX shall pay all Federal Taxes and Consolidated State Taxes
due in connection with the filing of its 1999 Returns or with any request for
extension of time within which to file any such Return. Within 20 days of filing
of any such Returns, ACX shall send a statement to CTI showing the amount of the
unpaid or overpaid portion of the CTI Group's allocated share of the total
Federal Tax liability or Consolidated State Tax liability as shown on such
Returns as filed.
(b) Carrybacks. ACX agrees to pay CTI the actual benefits received
----------
by ACX from the use in any Pre-Effective Period of any Tax Asset of CTI, a
member of the CTI Group or a CTI Affiliate arising in a Post-Effective Period.
Such benefit shall be considered equal to the excess of the actual amount of
Federal Taxes or Consolidated State Taxes that would have been payable by the
ACX Consolidated Group in the absence of such carryback over the amount of
Federal Taxes or Consolidated State Taxes actually payable by the ACX
Consolidated Group as a result of such carryback or subsequent increase to such
carryback. Payment of the amount of such benefit shall be made within 30 days of
(i) receipt of the refund or (ii) the end of the Taxable year during which ACX
or the relevant ACX Affiliate receives the credit or other offset attributable
thereto.
(c) Subsequent Adjustments to Carrybacks. If, subsequent to the
------------------------------------
payment by ACX to CTI of any amount referred to in Section 3(b) above, there
shall be
7
<PAGE>
(i) a Final Determination under applicable law of a
deficiency of Federal Taxes or Consolidated State Taxes of the ACX Consolidated
Group or the relevant State Consolidated Group on the grounds that the Tax Asset
giving rise to such payment was in fact not available in whole or in part,
(ii) a Final Determination resulting from an audit of any
member of the CTI Group or any CTI Affiliate which results in a reduction of any
Tax Asset so carried back, or
(iii) the filing of a subsequent Return reflecting a
recapture by the ACX Consolidated Group or the relevant State Consolidated Group
of any Tax Asset so carried back, then within 20 days of such event, ACX shall
send a statement to CTI setting forth an amount reflecting the amount which
would not have been payable to CTI pursuant to this Section 3 had the amount of
the benefit been determined in light of such event. In addition, CTI shall hold
ACX and each of its Affiliates harmless by paying an amount for any penalty or
interest paid by ACX or any such Affiliate as a result of any such decrease.
(d) Amended Returns with Amounts Due by CTI. If ACX files an
---------------------------------------
amended Return on behalf of the ACX Consolidated Group or a State Consolidated
Group for any Pre-Effective Period and such Return results in an increase in the
Pre-Effective Tax Liability attributable to any member of the CTI Group or any
CTI Affiliate for such period, CTI shall pay to ACX the amount of such increase,
plus any applicable interest and penalties.
(e) Amended Returns with Refunds Due to CTI.
---------------------------------------
(i) CTI may request that ACX file an amended Return or
assert a claim for refund. ACX shall assert a claim for refund or file an
amended Return within 60 days of such request, provided, however, that ACX shall
have no obligation to file such an amended Return or assert such a claim for a
refund if ACX reasonably determines in good faith after
8
<PAGE>
consulting with CTI that the benefit of filing such Return or asserting such
claim to the members of the CTI Group or CTI Affiliates is outweighed by the
detriment to it or the members (or former members) of the ACX Group. If CTI
believes that ACX's determination is unreasonable, the dispute shall be subject
to the procedures set forth in Section 16.
(ii) If ACX files an amended Return on behalf of the ACX
Consolidated Group for any Pre-Effective Period that results in a decrease in
the Pre-Effective Tax Liability attributable to any member of the CTI Group or
any CTI Affiliate for such period, or if ACX asserts a claim for a refund of
Federal Taxes or Consolidated State Taxes which would be attributable to any
member of the CTI Group or any CTI Affiliate in any audit or other proceeding,
then ACX shall pay to CTI the amount of any refund received resulting from such
decrease or claim for refund, plus any interest received by ACX attributable
thereto.
(f) Calculation and Payments of Amounts Due.
---------------------------------------
(i) Responsible Party. Calculations required to be made
-----------------
pursuant to this Section 3 and the relevant portion of Section 6(c) shall be
made by ACX. Upon receipt of such calculations, CTI shall have 10 days to review
the computations and to notify ACX of any disagreements. During CTI's review and
in the event that CTI has notified ACX of a disagreement, for an additional 10
days both CTI and ACX shall make reasonable efforts to resolve any questions or
disputes. In the event the parties cannot agree, their disputes will be resolved
pursuant to Section 16.
(ii) Method of Calculation. Except as otherwise provided,
---------------------
CTI's share of any Federal Tax, or Consolidated State Tax shall be calculated
pursuant to the method described in Exhibit A hereto.
9
<PAGE>
(iii) Payments Due. Except as otherwise provided, all
------------
payments required by this Section 3 and the relevant portions of Section 6(c)
will be due 30 days after the fixing of liability or the resolution of a dispute
(as provided for in 3(f)(i)).
(iv) Interest. Any amount not paid when due under Section
--------
3(f)(iii) shall bear interest at Prime plus 3%, except that any amount not paid
because of any good faith dispute under Section 16 shall bear interest at Prime.
(v) After-Tax Amounts. ACX and CTI shall discharge their
-----------------
obligations under this Section 3 and the relevant portions of Section 6(c),
other than payments required under Section 3(b), by paying After-Tax Amounts.
(vi) Duplicative Payments Not Required. Notwithstanding the
---------------------------------
foregoing, no payment shall be required under any provision of this Agreement to
the extent it is duplicative of any payment required by any other provision of
this Agreement.
(g) In the event that the Treasury Department promulgates
regulations under the Code that provide a method for the allocation of a
consolidated group's "minimum tax credit" (within the meaning of Section 53 of
the Code) among a group's members, and, as a result of such regulations'
mandatory application, the ACX Consolidated Group is required to allocate the
maximum tax credit carried forward to any Post-Effective Period from any federal
income Tax Return for any Pre-Effective Period, so that the amount originally
allocated to members of the CTI Group (the "Original CTI Allocation") is
different from the amount that is allocated under such regulations (the
"Adjusted CTI Allocation"), then, ACX shall pay CTI an amount equal to the
excess of the Original CTI Allocation over the Adjusted CTI Allocation, or, if
applicable, CTI shall pay ACX an amount equal to the excess of the Adjusted CTI
Allocation over the Original CTI Allocation. Within 20 days of the effective
date of such regulations, ACX shall send a statement to CTI showing the amount
of the Adjusted CTI Allocation.
10
<PAGE>
4. Other Taxes.
-----------
(a) Liability for all Taxes other than Federal Taxes and
Consolidated State Taxes ("Other Taxes"), attributable to any member of the CTI
Group, and the responsibility for filing of all Returns relating to such other
Taxes, shall be the sole responsibility of the CTI Group. Liability for all
Other Taxes, attributable to any member of the ACX Group and the responsibility
for filing all Returns relating to such Other Taxes, shall be the sole
responsibility of the ACX Group. Each party agrees to indemnify and hold the
other harmless in accordance with the undertakings contained in this Section
4(a).
(b) The CTI Group shall be entitled to all refunds and credits of
Other Taxes attributable to any member of the CTI Group, and the ACX Group shall
be entitled to all refunds and credits of Other Taxes attributable to any member
of the ACX Group.
5. Certain Representations and Covenants.
-------------------------------------
(a) (I) CTI Representations. CTI represents and agrees that,
-------------------
as of the date hereof, and covenants that on the Distribution Date:
(i) There is no plan or intention (A) to liquidate
CTI or to merge or consolidate CTI with any other person subsequent to the
Distribution or (B) to sell or otherwise dispose of any asset of CTI subsequent
to the Distribution, except in the ordinary course of business.
(ii) CTI will not take any action inconsistent with
the information and representations furnished to the IRS in connection with the
request for a private letter ruling with respect to the spin-off, regardless of
whether such information and representations were included in the ruling or
pronouncement issued by the IRS.
(iii) CTI will not enter into any negotiation,
agreements or arrangements with respect to transactions or events (including
stock issuances, pursuant to the
11
<PAGE>
exercise of options or otherwise, option grants, the adoption of, or
authorization of shares under, a stock option plan, capital contributions, or
acquisitions, but not including the spin-off) which may cause the spin-off to
(a) be treated as part of a plan pursuant to which one or more persons acquire
directly or indirectly CTI stock representing a "50-percent or greater interest"
within the meaning of Section 355(d)(4) or the Code, or (b) violate the
"continuity of interest requirement" set forth in Treasury Regulation 1.355-
2(c).
(II) CTI and ACX Representations. CTI and ACX each
---------------------------
represents that, as of the date hereof, and covenants that on the Distribution
Date:
(i) To the best of ACX's and CTI's knowledge (as
applicable), payments made in connection with all continuing non-transitional
transactions between any member of the CTI Group and any member of the ACX Group
occurring after the Distribution will be for fair market value based on terms
and conditions arrived at by the parties bargaining at arm's length and payments
made in connection with certain transitional services also will be provided for
fair market value.
(ii) Neither CTI nor ACX (as applicable) is aware
of any plan or intention by the shareholders of ACX to sell, exchange, transfer
by gift, or otherwise dispose of any of their stock in, or securities of, ACX or
CTI subsequent to the Distribution, except for any dispositions of ACX stock or
CTI stock through the 401(k) plans of ACX and CTI, respectively.
(b) CTI Covenants. CTI covenants to ACX and agrees that during the
-------------
two-year period following the Distribution Date:
(i) It will not liquidate, merge or consolidate with any
other person, or sell, exchange, distribute or otherwise dispose of its assets
other than in the ordinary course of
12
<PAGE>
business, redeem or otherwise reacquire any of its capital stock, other than
through stock purchases meeting the requirements of Section 4.05(1)(b) of Rev.
Proc. 96-30.
(ii) CTI Group will continue the active conduct of the
historic business conducted by CTI Group throughout the five year period prior
to the spin-off.
(iii) CTI will not, nor will it permit any member of the CTI
Group to, take any action inconsistent with the information and representations
furnished to the IRS in connection with the request for a private letter ruling
with respect to the spin-off, regardless of whether such information and
representations were included in the ruling or pronouncement issued by the IRS.
(iv) During the applicable period provided in Section
355(e)(2)(B) of the Code with respect to the spin-off, CTI will not enter into
any transaction or make any change in its equity structure (including stock
issuances, pursuant to the exercise of options or otherwise, option grants, the
adoption of, or authorization of shares under, a stock option plan, capital
contributions, or acquisitions, but not including the spin-off) which may cause
the spin-off to (a) be treated as part of a plan pursuant to which one or more
persons acquire directly or indirectly CTI stock representing a "50-percent or
greater interest" within the meaning of Section 355(d)(4) of the Code, or (b)
violate the "continuity of interest requirement" set forth in Treasury
Regulation 1.355-2(c).
(v) CTI will covenant that in the one-year period after
the spin-off, it will make the borrowings and acquisitions described in the
materials submitted to the IRS with respect to the business purpose of the spin-
off.
(c) Exceptions. Notwithstanding the foregoing, CTI may take
----------
actions inconsistent with the covenants contained in Section 5(b) above if:
13
<PAGE>
(i) CTI obtains a ruling from the Internal Revenue Service
to the effect that such actions will not cause either ACX or its shareholders to
recognize Taxable income by virtue of the Distribution; or
(ii) CTI obtains an opinion, acceptable to ACX, from
recognized counsel acceptable to ACX to the same effect as in Section 5(c)(i).
6. Indemnities.
-----------
(a) CTI Indemnity. CTI and each member of the CTI Group will
-------------
jointly and severally indemnify ACX and each member of the ACX Group against and
hold them harmless from
(i) any Pre-Effective Tax Liability assessed after the
Distribution Date pursuant to a Final Determination, which is attributable to
any item of income, loss, credit, deduction or other Tax attribute of any member
of the CTI Group, or a CTI Affiliate,
(ii) any liability (including any and all Taxes) relating
to the Distribution, in the event the Distribution is Taxable due to a breach by
CTI or any member of the CTI Group of any agreement, representation or covenant
made by CTI herein; provided, however, that if the Distribution is Taxable as a
result, in part, of ACX's action, then CTI shall be liable only for the
proportionate amount of the liability attributed to CTI's action, and
(iii) all liability for fees, costs and expenses (including
reasonable attorneys' fees) arising out of or incident to any proceedings before
any Taxing Authority, or any judicial authority, with respect to any amount
indemnifiable under this Section 6(a).
(b) ACX Indemnity. ACX and each member of the ACX Group will
-------------
jointly and severally indemnify CTI and each member of the CTI Group against and
hold them harmless from
14
<PAGE>
(i) any Pre-Effective Tax Liability, or Tax liability
resulting from the Distribution, other than any such liabilities described in
Sections 6(a)(i) and (ii) hereof,
(ii) any liability resulting from a breach by ACX or any
member of the ACX Group after the Distribution Date of any covenant made by ACX
herein, and
(iii) all liability for fees, costs and expenses (including
reasonable attorneys' fees) arising out of or incident to any proceedings before
any Taxing Authority, or any judicial authority, with respect to any amount
indemnifiable under this Section 6(b).
15
<PAGE>
(c) Discharge of Indemnity. CTI and each member of the CTI Group,
----------------------
and ACX and each member of the ACX Group, shall discharge their obligations
under Sections 6(a)(ii), 6(a)(iii), 6(b)(i), 6(b)(ii) and 6(b)(iii) hereof,
respectively, by paying an After-Tax Amount within 30 days of demand therefore.
Within 20 days of a Final Determination of an obligation of CTI and each member
of the CTI Group under Section 6(a)(i) ACX shall send a statement to CTI showing
the amount due thereunder. Calculation and payment mechanics relating to items
described in Section 6(a)(i) are set forth in Section 3(f). Notwithstanding the
foregoing, if either CTI or ACX disputes in good faith the fact or the amount of
its obligation under Section 6(a) or Section 6(b) (including, without
limitation, any After-Tax Amount), then no payment of the amount in dispute
shall be required until any such good faith dispute is resolved in accordance
with Section 16 hereof; provided, however, that any amount not paid within 30
days of demand therefore shall bear interest as provided in Section 3(f)(iv).
Notwithstanding anything to the contrary herein, any Final Determination
relating to the applicability, determination or calculation of the gross-up
required to achieve an After-Tax Amount under this Agreement shall be subject to
indemnity as if an indemnifiable Tax relating to a Pre-Effective Period.
(d) Method of Calculation. Except as otherwise provided, the amount
---------------------
of CTI's liability under Section 6(a)(i) and ACX's liability under Section
6(b)(i), including the calculation of any party's share of any Federal Tax or
Consolidated State Tax, shall be calculated pursuant to the method described in
Exhibit A hereto.
16
<PAGE>
(e) Joint and Several Liability. The joint and several liabilities
---------------------------
of the members of the CTI Group under Section 6(a) shall become several
liabilities (and not joint) with respect to any member upon a disposition,
causing a break in Affiliation from the CTI Group, of such member to a third
party for fair value. The several liability responsibility of such member shall
equal the portion of the total liability multiplied by a fraction, the numerator
of which is the fair market value of the member and the denominator of which is
the fair market value of the CTI Group immediately prior to the disposition.
7. Communication and Cooperation.
-----------------------------
(a) Consult and Cooperate. CTI and ACX shall consult and cooperate
---------------------
(and shall cause each of their Affiliates to cooperate) fully at such time and
to the extent reasonably requested by the other party in connection with all
matters subject to this Agreement. Such cooperation shall include, without
limitation,
(i) the retention and provision on reasonable request of
any and all information including all books, records, documentation or other
information, any necessary explanations of information, and access to personnel,
until the expiration of the applicable statute of limitation (giving effect to
any extension, waiver, or mitigation thereof),
(ii) the execution of any document that may be necessary or
helpful in connection of any required Return or in connection with any audit,
proceeding, suit or action, and
(iii) the use of the parties' best efforts to obtain any
documentation from a governmental authority or a third party that may be
necessary or helpful in connection with the foregoing.
(b) Provide Information. ACX and CTI shall keep each other fully
-------------------
informed with respect to any development relating to all matters subject to this
Agreement.
17
<PAGE>
(c) Tax Attribute Matters. ACX and CTI shall advise and consult
---------------------
with each other with respect to any proposed Tax adjustment relating to the ACX
Consolidated Group or any State Consolidated Group which are the subject of an
Internal Revenue Service or State Taxing Authority audit or investigation, or
are the subject of any proceeding or litigation, and which may affect any Tax
attribute of ACX, CTI or any Affiliate of ACX or CTI (including, but not limited
to, basis in an asset or the amount of earnings and profits).
8. Audits and Contests.
-------------------
(a) Notice. ACX shall promptly notify CTI in writing of any
------
inquiries from the Internal Revenue Service or any other Taxing Authority which
relate or may relate to matters described in Section 3(c) or 6(a). CTI shall
promptly notify ACX in writing of any inquiries from the Internal Revenue
Service or other Taxing Authority which relate or may relate to matters
described in Section 3(c) or 6(b). Each party shall forward to the other party
relevant portions of any reports or other communications which relate to such
matters.
(b) Settlement of Issues. No settlement of any audit, examination,
--------------------
action, suit or other judicial or administrative proceeding relating to matters
described in Section 6(a) for any Pre-Effective Period (or with respect to
matters relating to Section 6(a)(ii) for any Taxable period) shall be accepted
or entered into by or on behalf of the ACX Consolidated Group or State
Consolidated Group unless CTI has consented thereto in writing (which consent
shall not be unreasonably withheld); provided, however, that in the event that
CTI does not consent and ACX believes that the withholding of consent was
unreasonable, the parties shall resolve their disagreement under the procedures
provided in Section 16. In the process of resolving such a disagreement, the
Referee (or other applicable arbiter) shall consider the magnitude and size of
the item in question, the impact of the resolution on other CTI Taxable periods
and the likelihood of CTI's position ultimately prevailing.
18
<PAGE>
(c) Venue. In the event that a notice of deficiency (or similar
-----
notice) is received from the Internal Revenue Service or other Taxing Authority
by the ACX Consolidated Group or State Consolidated Group for a Pre-Effective
Period (or, with respect to a notice of deficiency relating to an item described
in Section 6(a)(ii), for any Taxable period) and such notice relates in whole or
in part to a matter described in Section 6(a), then
(i) ACX, upon receiving a written request from CTI, which
shall be given no later than a date reasonably required to permit timely filing
of a petition in the United States Tax Court, (or, if applicable, similar State
venue) for redetermination of the deficiency, shall timely file such petition;
provided, however, that, notwithstanding such request, after consultation with
CTI, ACX shall have the option, if the notice also relates to matters described
in Section 6(b), to pay the amount of the deficiency, to file a claim for the
refund thereof, and, if the claim is denied, to bring an action in a court of
competent jurisdiction seeking the refund of such Tax. If a Final Determination
does not provide for a refund of any amount covered by Section 6(a) and
contested under this Section, CTI shall pay ACX such amount plus interest from
the time ACX's payment of the deficiency at a rate equal to Prime; or
(ii) If (A) CTI does not request ACX to file a petition in the
United States Tax Court (or, if applicable, similar State venue) for
redetermination of the deficiency pursuant to Section 8(c)(i), (B) ACX does not,
on its own initiative, timely file such a petition, and (C) CTI requests that
ACX file a claim for refund, then ACX shall pay the deficiency, file a claim for
refund thereof, and, if the claim is denied, bring an action in a court of
competent jurisdiction seeking such refund; provided that, in such case, CTI
shall pay to ACX, on or before the date on which the deficiency is paid by ACX,
the amount as if the notice of deficiency were a Final Determination (that CTI
would otherwise be responsible for with respect to matters described in Section
6(a)) and any such payment shall be credited against the payment required
19
<PAGE>
with appropriate adjustment to be made promptly upon a Final Determination with
respect to such proceedings for refund. Notwithstanding anything to the contrary
herein, if as a result of a Final Determination the amount due by CTI (the
"Final Liability") is less than the amount previously paid by CTI pursuant
hereto (the "Prepaid Amount"), ACX shall pay to CTI within 30 days after such
Final Determination an amount based upon an amount equal to the excess or the
Prepaid Amount over the Final Liability, together with interest attributable to
such excess (reduced by the excess of any tax imposed on the receipt of such
interest over the amount of any Tax savings realized by ACX upon any payment
made to CTI pursuant to this sentence). Notwithstanding the foregoing, no
payment shall be required under this provision to the extent it is duplicative
of any payment required by any other provision of this Agreement.
(d) Judicial Appeals. In the event that a judgment of the United
----------------
States Tax Court or other court of competent jurisdiction results in an adverse
determination with respect to a matter described in Section 6(a) then:
(i) In the case an appeal of the adverse determination
involves no material issues other than matters described in Section 6(a), CTI
shall have the right to cause ACX to appeal from such adverse determination if
CTI delivers to ACX an opinion from an independent tax counsel selected by CTI
and reasonably acceptable to ACX that such appeal has a reasonable chance of
success.
(ii) In the case of an appeal of any other adverse
determination which involves material issues other than those described in
Section 6(a), CTI shall have the right to cause ACX to appeal from such adverse
determination if CTI delivers to ACX an opinion from an independent tax counsel
selected by CTI and reasonably acceptable to ACX that it is more likely than not
that such appeal will succeed.
20
<PAGE>
(iii) In the case of an adverse determination which involves
matters described in Section 6(b) and within such determination material matters
described in Section 6(a) were favorably disposed, CTI shall have the right to
prevent ACX from appealing from such adverse determination, unless ACX delivers
to CTI an opinion from an independent tax counsel selected by ACX and reasonably
acceptable to CTI that it is more likely than not that such appeal will succeed.
(e) Participation and Closing. (i) CTI and its representatives, at
-------------------------
CTI's expense, shall be entitled to participate in all conferences, meetings, or
proceedings with any Taxing Authority, the subject matter of which is or
includes matters described in Section 6(a); provided, however, that if (A) less
than $200,000 of the amount of the total of annual proposed adjustment is
attributable to matters described in Section 6(a) and the proposed adjustments
do not cause significant prejudice to the CTI Group in other Taxable periods,
and (B) ACX, in good faith and in its sole discretion, determines that the
commencement or continuance of any such discussions or submissions by CTI would
extend the audit or review of the Tax Return of the ACX Consolidated Group or
State Consolidated Group for such Taxable year beyond the period such audit or
review would require but for the commencement or continuance of such discussions
or submissions, then, upon receipt of notice by CTI from ACX to such effect, CTI
shall have no further right to commence or continue such discussions or
submissions with respect to the audit or review for such Taxable year, and ACX
shall have the right to compromise such issues and cause such audit or review to
be closed.
(ii) If ACX suspends CTI's rights to commence or continue
discussions or submissions with respect to a Taxable year under Section 8(e)(i)
and compromises the proposed adjustments thereunder, ACX will not be entitled to
indemnity under Section 6(a) for any such items if it is more likely than not
that any such item would have prevailed in a court
21
<PAGE>
of competent jurisdiction. If ACX believes it is entitled to an indemnity for
such an item under Section 6(a) and CTI disagrees (on the grounds that CTI
believes that the item is more likely than not to prevail) the parties shall
resolve the disagreement provided in Section 16.
(iii) CTI and its representatives, at CTI's expense,
shall be entitled to participate in all appearances before any court, the
subject matter of which includes matter described in Section 6(a).
(iv) The participation referred to in Sections 8(e)(i)
and (iii) shall include the right to control the submission and content of
documentation, protests, memoranda of fact and law and briefs, the conduct of
oral arguments or presentations, the selection of witnesses and the negotiation
of stipulations of fact, all as may be deemed appropriate by CTI, but solely
with respect to a matter described in Section 6(a).
(f) Taxability of the Distribution. Notwithstanding anything
------------------------------
to the contrary herein, to the extent any issue is based on a theory which
would, if true, result in CTI being liable under Section 6(a)(ii) of this
Agreement for any Tax that might result from an adverse determination of such
issue, then ACX shall provide CTI with such notice and information as would be
required under Section 8(a) hereof, and CTI shall have the right to be involved,
at its own expense, in the development and execution of strategy for the
response to, preparation of and defense of any contest relating to such issue.
In the case of any such issue which is based solely on such a theory, ACX shall
not settle such issue in a manner which would be impermissible under Section
8(b).
9. Payments.
--------
All payments to be made hereunder shall be made in immediately available
funds. Payments shall be deemed made when received.
10. Notices.
-------
22
<PAGE>
Any notice, demand, claim, or other communication under this Agreement
shall be in writing and shall be deemed to have been given upon the delivery or
mailing thereof, as the case may be, if delivered personally or sent by
certified mail, Return receipt requested, postage prepaid, to the parties at the
following addresses (or at such other address as a party may specify by notice
to the other):
If to ACX, to:
ACX Technologies, Inc.
4455 Table Mountain Parkway
Golden, CO 80403
Attn: Tax Director, ACX Technologies, Inc.
If to CTI, to:
CoorsTek, Inc.
16000 Table Mountain Parkway
Golden, CO 80403
Attn: Tax Manager, CoorsTek, Inc.
11. Costs and Expenses.
------------------
Except as expressly set forth in this Agreement, each party shall bear
its own costs and expenses incurred pursuant to this Agreement.
12. Effectiveness; Termination and Survival.
---------------------------------------
This Agreement shall become effective upon the consummation of the
Distribution, provided, however, that this Agreement will only become effective
if consummation of the Distribution occurs prior to the close of business on
March 1, 2000. Notwithstanding anything in this Agreement to the contrary, this
Agreement shall remain in effect and its provisions shall survive for the full
period of all applicable statutes of limitation (giving effect to any extension,
waiver or mitigation thereof).
13. Section Headings.
----------------
The headings contained in this Agreement are inserted for convenience
only and shall not constitute a part hereof or in any way affect the meaning or
interpretation of this Agreement.
14. Entire Agreement; Amendments and Waivers
----------------------------------------
(a) Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties hereto with respect to the subject matter contained
herein. No alteration, amendment,
23
<PAGE>
modification, or waiver of any of the terms of this Agreement shall be valid
unless made by an instrument signed by an authorized officer of ACX and CTI, or
in the case of a waiver, by the party against whom the waiver is to be
effective.
(b) Waiver. No failure or delay by any party in exercising any
------
right, power or privilege hereunder shall operate as a waiver hereof nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any right, power or privilege.
15. Governing Law and Interpretation. This Agreement has been made in
--------------------------------
and shall be construed and enforced in accordance with the laws of the State of
Colorado.
16. Dispute Resolution.
------------------
(a) CEO's. If the parties hereto are unable to resolve any
-----
disagreement or dispute, either party may refer the matter to the Chief
Executive Officers (CEOs) of the parties by giving the other party written
notice ("Notice"). Within 20 days after delivery of Notice, the CEOs of both
parties shall meet at a mutually acceptable time and place to exchange relevant
information and attempt to resolve the dispute within 45 days after delivery of
Notice. All negotiations pursuant to this Section 16(a) shall be confidential
and shall be treated as compromise and settlement negotiations for purposes of
the Federal Rules of Evidence and State Rules of Evidence.
(b) Referees. Except for disagreements relating to Section
--------
6(a)(ii), any disagreement not resolved by mutual agreement of the parties or
under Section 16(a) shall be resolved by an independent referee that is mutually
acceptable to the parties hereto (a "Referee"). In the event the parties cannot
agree on a Referee, each party shall select an independent nationally recognized
law firm or accounting firm expert in tax matters and such firms shall jointly
choose the Referee. A Referee so chosen shall resolve any such disagreement
within 30 days of appointment pursuant to such procedures as it may deem
advisable. Any such resolution shall be binding on the parties hereto without
further recourse.
(c) Costs. The costs of any Referee shall be apportioned between
-----
ACX and CTI as determined by such Referee in such manner as the Referee deems
reasonable taking into account the circumstances of the dispute, the conduct of
the parties and the result of the dispute.
17. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
18. Assignments; Third Party Beneficiaries.
--------------------------------------
24
<PAGE>
This Agreement shall be binding upon and shall inure only to the benefit
of the parties hereto and their respective successors and assigns. This
Agreement is not intended to benefit any person other than the parties hereto
and such successors and assigns, and no such other person shall be a third party
beneficiary hereof.
25
<PAGE>
EXHIBIT A
Allocated on a stand alone basis, consistent with prior years with the exception
of any 1999 pension plan contributions which will be allocated to ACX.
26
<PAGE>
The undersigned hereby irrevocably appoints ACX Technologies, Inc. as its agent
and true and lawful attorney in fact in the name of the undersigned to execute
on behalf of the undersigned and bind it to a Tax Sharing Agreement (the "TSA")
that ACX and its Affiliates will enter into with CoorsTek, Inc. and its
Affiliates in order to enable ACX to effect the contemplated Distribution of the
shares of CTI to the shareholders of ACX. The TSA sets forth the rights and
obligations of the parties (including the undersigned) with respect to certain
Tax matters and sets forth indemnification obligations of all parties (on a
joint and several basis).
ACX Technologies, Inc.
By /s/ Jill B. W. Sisson
--------------------------------------
Title: General Counsel and Secretary
----------------------------------
27
<PAGE>
The undersigned hereby irrevocably appoints CoorsTek, Inc. as its agent and true
and lawful attorney in fact in the name of the undersigned to execute on behalf
of the undersigned and bind it to a Tax Sharing Agreement (the "TSA") that CTI
and its Affiliates will enter into with ACX Technologies, Inc. and its
Affiliates in order to enable ACX to effect the contemplated Distribution of the
shares of CTI to the shareholders of ACX. The TSA sets forth the rights and
obligations of the parties (including the undersigned) with respect to certain
Tax matters and sets forth indemnification obligations of all parties (on a
joint and several basis).
CoorsTek, Inc.
By /s/ Katherine A. Resler
-------------------------------
Title: General Counsel and Secretary
------------------------------
28
<PAGE>
ENVIRONMENTAL RESPONSIBILITY AGREEMENT
This ENVIRONMENTAL RESPONSIBILITY AGREEMENT ("Agreement") is made as of
December 1, 1999, by and among ACX Technologies, Inc. ("ACX"), and its
Affiliates, and CoorsTek, Inc. ("CTI"), and its Affiliates, hereinafter
collectively referred to as the "Parties."
RECITALS
As part of this Agreement, the Parties recite certain background
information, so that persons who may subsequently read, interpret, and apply
this Agreement may understand the motives and intent of the Parties and be
better able to interpret and apply its provisions.
A. The Parties recognize that their historical operations may give rise to
certain environmental liabilities.
B. The Parties recognize that future situations may involve both ACX
Parties and CTI Parties as a result of geographic proximity of operations and
past inter-company transactions and arrangements.
C. The Parties intend that each of them will be and remain responsible for
their own respective actions, practices, operations, and wastes, including those
that pre-date this Agreement.
D. The Parties further recognize that providing for the handling and
resolution of environmental conditions involving ACX Parties and CTI Parties is
in their common interests.
E. In furtherance of their common interests, the Parties may desire to
exchange documents (as that term is used in Fed. Rule Civ. P. 34) and/or
information that may be privileged work product or subject to federal and/or
state privileges, including, but not limited, to the attorney-client privilege.
F. By distributing any documents or information among themselves under the
terms and conditions as set forth herein, the Parties intend to fully preserve
and not to waive any privilege or other protection that may be available with
respect to such documents or information.
G. In no event shall entering into this Agreement, or any subsequent
agreement relating to allocation of costs associated with any Liability, be
construed or used in any manner as an admission of any responsibility or
liability or any share thereof by any Party, or as a waiver by any Party of any
defenses or claims relating to any Liability, except as expressly set forth
herein.
1. Definitions. Capitalized terms used and not otherwise defined herein
-----------
will have the definitions set forth in the Distribution Agreement dated as of
October __, 1999, between ACX and CTI ("Distribution Agreement"). Other terms
capitalized herein shall have the following meanings:
<PAGE>
"ACX" shall mean ACX and its successors and assigns.
"ACX Parties" shall mean ACX and its Affiliates.
"CTI" shall mean CTI and its successors and assigns.
"CTI Parties" shall mean CTI and its Affiliates.
"Environmental Liability(ies)" shall mean any demand, claim, proceeding,
cause of action, obligation, or liability which arises, or allegedly arises,
from a Party's use, storage, generation, transportation, release, discharge,
emission or disposal of any material, waste, pollutant or contaminant at any
time, including all times prior to the effective date of this Agreement.
"Parties(ies)" shall mean CTI Parties and ACX Parties.
"Shared Information" shall mean mental impressions, client confidences,
expert opinions, data bases, opinions, work product, information, memoranda,
reports, and other documents shared by the Parties under this Agreement that are
considered confidential and/or privileged.
2. Term of Agreement. The Agreement shall be effective commencing on
-----------------
January 1, 2000, and shall remain in effect for fifty (50) years thereafter.
3. Indemnification.
---------------
(a) Each ACX Party shall severally indemnify, defend and hold harmless
each CTI Party and each of their respective directors, officers, employees and
agents from and against any and all Environmental Liabilities incurred or
suffered by such CTI Party in connection with or arising out of or due to,
directly or indirectly, (i) any past, present or future actions, practices, or
operations of such ACX Party, or (ii) any failure to perform, or violation of,
any provision of this Agreement that is to be performed or complied with by such
ACX Party.
(b) Each CTI Party shall severally indemnify, defend and hold harmless
each ACX Party and each of their respective directors, officers, employees and
agents from and against any and all Environmental Liabilities incurred or
suffered by such ACX Party in connection with or arising out of or due to,
directly or indirectly, (i) any past, present or future actions, practices, or
operations of such CTI Party, or (ii) any failure to perform, or violation of,
any provision of this Agreement that is to be performed or complied with by such
CTI Party.
4. Duty to Notify. If any ACX Party or CTI Party becomes aware of (a) any
--------------
potential or actual Environmental Liability with respect to which the other is
or could be named or (b) a reasonable likelihood that Environmental Liabilities
may be asserted against such other Party, it shall promptly so notify such
Party.
2
<PAGE>
5. Duty to Cooperate. The Party giving such notice and the Party that has
-----------------
been so notified shall cooperate with each other to coordinate the exchange of
information (including access to knowledgeable employees) related to the
investigation, defense or settlement of any Environmental Liability.
6. Confidentiality and Use of Information.
--------------------------------------
(a) Confidentiality of Shared Information. By distributing any
documents or information among themselves under the terms and conditions of this
Agreement, the Parties expressly agree not to waive, and intend to fully
preserve, any privilege or other protection that may be available with respect
to such documents or information. Each Party agrees that all Shared Information
received from any other Party or its counsel pursuant to this Agreement shall be
held in strict confidence by the receiving Party and that such information shall
be used only in connection with any Liability. The Shared Information may, but
need not, be marked "Confidential" or with a similar legend. Distribution of
Shared Information among the Parties shall not constitute a waiver of the
attorney-client or attorney-work product privileges. Any Party receiving Shared
Information pursuant to this Agreement agrees to distribute the information only
in a manner consistent with the privileges protecting such information. Each
Party shall take all necessary and appropriate measures to ensure that any
person who is granted access to any Shared Information or who in any manner
participates in joint projects, or who otherwise assists any counsel in
connection with the performance of this Agreement, is familiar with the terms of
this Agreement and complies with such terms as they relate to the duties of such
person.
(b) Intent, Duration, and Scope of Confidentiality Provisions. The
Parties intend to protect from disclosure all Shared Information exchanged
pursuant to this Agreement to the greatest extent permitted by law regardless of
whether the information is marked "Confidential." The provisions of this
Agreement shall not apply to information that is now or hereafter becomes public
knowledge without violation of this Agreement or which is sought and attained
from a Party pursuant to discovery procedures and not otherwise protected from
disclosure. The confidentiality obligations of the Parties shall survive the
termination of this Agreement and the resolution or settlement of any Liability.
(c) Notification of Proposed Disclosure. If any Party is subpoenaed or
becomes the subject of any process that will require or result in the disclosure
of any confidential information, that Party will promptly notify the other
Parties.
7. Enforcement of Agreement/Dispute Resolution. If the Parties are unable
-------------------------------------------
to resolve any disagreement or dispute arising out of matters within the scope
of this Agreement, then the provisions in Article IX of the Distribution
Agreement shall apply. All negotiations pursuant to this clause are
confidential and shall be treated as compromise and settlement negotiations for
purposes of the federal and state rules of evidence.
8. Rights of Contribution. In circumstances in which the indemnification
----------------------
provisions of this Agreement apply, such provisions are in lieu of federal and
state statutory and common
3
<PAGE>
law rights of contribution. The rights created by the Agreement are stipulated
to be contractual in nature.
9. Reservation of Rights. Except as provided in Section 8, the Parties
---------------------
reserve any and all rights they may have under other agreements or under any
federal or state statutory or common law.
10. Joint Defense Agreements. Except as otherwise provided in the
------------------------
Distribution Agreement, for any Third Party Claim in which both one or more ACX
Parties and one or more CTI Parties share an actual or potential material
interest, the Parties affected thereby shall enter into a Joint Defense
Agreement. Unless an Indemnifying Party is the sole indemnifying party or the
parties otherwise specifically agree in writing in a Joint Defense Agreement,
each party shall pay its proportionate share (as provided in the Joint Defense
Agreement) of all costs and expenses reasonably incurred in connection with the
defense of such Third Party Claim.
11. Miscellaneous.
-------------
(a) Amendment. This Agreement may be amended at any time by agreement
of ACX and CTI. All amendments shall be in writing and executed by ACX and CTI.
(b) No Admission. Nothing in this Agreement is intended as, shall
constitute, or shall be interpreted, construed, or used as evidence of any
admission by a Party of any wrongdoing, liability, or fault (including
comparative or proportional fault or liability), a waiver of any defense, an
estoppel, or an admission as to any matter of law or fact, either as among the
Parties or with respect to any person or entity not a Party to this Agreement;
provided, however, that any Party shall be entitled to use this Agreement as may
become necessary to enforce its terms.
(c) Entire Agreement. This Agreement constitutes the entire Agreement
and understanding among the Parties with respect to the subject matter hereof
and supersedes all prior and/or contemporaneous written or oral agreements or
understandings relating to the subject matter of this Agreement.
(d) Counterparts. This Agreement may be executed in multiple
counterparts.
(e) Successors, Assigns and Additional Parties. This Agreement shall
be binding upon, inure to the benefit of, and be enforceable by the successors
and assigns of any of the Parties. ACX and CTI shall cause their respective new
Affiliates to be bound by this Agreement.
(f) Partial Invalidity. If any portion of this Agreement is declared
invalid or unenforceable, the remainder of this Agreement shall continue in full
force and effect.
(g) No Other Beneficiaries. Except to the extent expressly provided
otherwise herein, this Agreement shall not inure to the benefit of any third
party or parties and shall not relieve any insurer or other third party who
would otherwise be obligated to pay any claim of the
4
<PAGE>
responsibility with respect thereto or, solely by virtue of the indemnification
provisions hereof, provide any subrogation rights with respect thereto, and each
party agrees to waive such rights against the other to the fullest extent
permitted.
(h) Governing Law. This Agreement shall be governed by and shall be
construed and enforced in accordance with the laws of the State of Colorado,
except for any conflict of laws provisions in said laws of the State of Colorado
that might otherwise require the application of the laws of a jurisdiction other
than the State of Colorado.
(i) Headings. The headings contained in this Agreement are for
convenience only and are not intended to limit the scope or affect the
interpretation of any provision of this Agreement.
(j) Joint Negotiation. The Parties acknowledge that this Agreement is
the result of joint negotiations among the Parties and agree that neither this
agreement nor any amendment to the Agreement shall be construed or interpreted
against any Party on the grounds of sole or primary authorship.
(k) Relationship of Parties. Each Party reserves the right to select
and retain or employ its own legal counsel to represent such Party in connection
with this Agreement. Nothing contained in this Agreement shall be deemed to
create a partnership, joint venture, agency, or other similar relationship
between or among any Parties.
Effective as of the 1st day of January, 2000.
ACX TECHNOLOGIES, INC. COORSTEK, INC.
By: /s/ Jill B.W. Sisson By: /s/ Katherine A. Resler
----------------------------- --------------------------------
Name: Jill B.W. Sisson Name: Katherine A. Resler
----------------------------- --------------------------------
Title: General Counsel and Secretary Title: General Counsel and Secretary
----------------------------- --------------------------------
5
<PAGE>
MASTER TRANSITION MATERIALS AND SERVICES AGREEMENT
This Agreement is made as of December 1, 1999, by and among ACX
Technologies, Inc. ("ACX"), and its Affiliates, and CoorsTek, Inc.,
("CoorsTek"), and its Affiliates, hereinafter collectively referred to as the
"Parties."
1. Purpose. The purpose of this Agreement is to set forth the terms and
-------
conditions pursuant to which ACX shall provide materials and perform services
for each other as described in Attachment A, attached hereto and by this
reference made a part hereof.
2. Term. This Agreement shall be effective commencing on January 1, 2000,
----
and shall remain in effect for one (1) year thereafter.
3. Independent Contractor. The parties expressly understand and agree
----------------------
that ACX and CoorsTek, respectively are acting as independents contractors
unrelated to each other or any of their respective subsidiaries or affiliated
companies. Nothing in this Agreement is intended to create a relationship,
express or implied, of employer-employee, principal-agent, or joint venture
between CoorsTek and ACX.
4. Consideration/Billing.
---------------------
(a) Invoices for services will be sent to the addresses designated on
Attachment B. Best efforts will be made to bill in a timely manner. The year-
end invoice shall be sent within 60 days after the close of the accounting year
books with an additional 30 days to be set aside for any dispute resolution
regarding billing.
(b) Remittance for services will be in the form of a check and mailed to
the party providing the service (the "Provider") at the address set forth in
Attachment B:
(c) Backup documentation for charges less than $50.00 may not be available.
(d) Additional requested services not listed in the "Description of Service
Provided" (Attachment A) will be charged to the party receiving the material or
service ("Receiving Party").
5. Limitation of Liability. In no event shall either party be responsible for
-----------------------
incidental or consequential damages, including lost profits, incurred by the
other party in connection with this Agreement, regardless of legal theory
(including, without limitation, contract, negligence, strict liability, tort or
warranty of any kind), even if advised of the possibility of such damage.
In the event of a loss or claim resulting from work performed pursuant to
this Agreement, the Receiving Party shall be responsible for responding to the
loss or claim on behalf of both parties to this Agreement until such time as
legal liability is
<PAGE>
established, at which time each party shall pay its pro rata share of costs,
expenses and judgments.
The Provider shall have the right to participate in the response to the
loss or claim and shall have the right to approve any settlement provided,
however, that such approval shall not be unreasonably withheld.
6. Warranty. Each Party represents and warrants to the other party that
--------
all materials provided and services performed by each party hereunder will meet
the other party's specifications as set forth in Attachment A. THE PARTIES
AGREE THAT THE WARRANTY SET FORTH IN THIS PARAGRAPH 6 IS THE SOLE AND EXCLUSIVE
WARRANTY PROVIDED AND THAT THERE IS NO OTHER WARRANTY OF ANY KIND WHATSOEVER,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ALL SUCH OTHER WARRANTIES
ARE EXPRESSLY AND SPECIFICALLY DISCLAIMED. IT IS EXPRESSLY UNDERSTOOD AND
AGREED THAT NEITHER PARTY ACCEPTS RESPONSIBILITY OR LIABILITY FOR THE USE OF THE
SERVICES PERFORMED OR MATERIALS PROVIDED HEREUNDER.
7. Designated Representative. The Designated Representatives as set forth
-------------------------
in Attachment A are responsible for authorizing and coordinating the work under
this Agreement. All matters of a technical coordinating or project
authorization nature shall be directed to the Designated Representative. All
matters of an administrative or contractual nature, including but not limited to
the issuance of notices, amendments, time extensions, request for changes,
submission of Insurance Certificates and any other contractual correspondence,
including exchange of signed copies of this Agreement, shall be directed to the
designated Purchasing Representative.
8. Miscellaneous.
-------------
(a) Amendment. This Agreement may not be amended except in writing
properly executed by the parties hereto.
(b) Assignment and Subcontracting. Neither party shall have the right
or power to assign or subcontract its rights or obligations hereunder without
the express written consent of the other party. Any attempt to do so without
such consent shall be null and void and shall give the other party the right to
cancel and terminate this Agreement.
(c) Waiver. Any express waiver of a term of this Agreement shall not
be binding and effective unless made in writing and properly executed.
(d) Severability. Any invalid or unenforceable provision shall be
deemed severed from this Agreement to the extent of its invalidity or
unenforceability, and this Agreement shall be construed and enforced as if the
Agreement did not contain that particular provision to the extent of its
invalidity or unenforceability.
2
<PAGE>
(e) Governing Law. The laws of the State of Colorado shall govern any
interpretations or constructions of this Agreement. Any action pertaining to
this Agreement shall be commenced and prosecuted in the courts of Jefferson
County, Colorado, and each party submits to the jurisdiction of said courts and
waives the right to change venue.
(f) Entire Agreement. There are no understandings between the parties
hereto as to the subject matter of this Agreement other than as set forth herein
and in the documents specifically incorporated herein.
BY SIGNING BELOW, both parties hereto accept this Agreement.
ACX TECHNOLOGIES, INC. COORSTEK, INC.
By: /s/ Jill B.W. Sisson By: /s/ Katherine A. Resler
----------------------------- -----------------------------
Name: Jill B.W. Sisson Name: Katherine A. Resler
----------------------------- -----------------------------
Title: General Counsel and Secretary Title: General Counsel and Secretary
----------------------------- -----------------------------
3
<PAGE>
ATTACHMENT A
Transitional Services:
Liability/Property Insurance
Telecommunication Services
Courier and Transportation Services
4
<PAGE>
EMPLOYMENT AGREEMENT
This agreement is between CoorsTek, Inc. ("Coors" or "CTI") and Joseph
Coors, Jr. ("Executive"), and shall be effective as of September 1, 1999 (the
"Effective Date").
1. Appointment. Executive shall serve as CTI's Chief Executive Officer or in
- -- -----------
such position(s) as CTI's Board of Directors (the "Board") shall in their sole
discretion designate from time to time. Executive shall at all times faithfully
and to the best of his abilities and experience, and in accordance with the
standards and ethics of the business in which CTI is engaged, perform all duties
that may be required of him by this agreement, CTI's policies and procedures,
and the directives of CTI's Board.
2. Compensation.
- -- ------------
a. Salary and Salary Review. Executive's base salary shall be $510,000
per year, payable in equal installments in accordance with Coor's standard
payroll practice, less customary or legally required withholdings and any
setoffs necessary to satisfy any debt owed by Executive to CTI.
a. Annual Bonus. Executive shall participate in such bonus programs as Coors
may from time to time make available to its executive employees.
b. Stock Options. Executive shall participate in such equity plans
as CTI may from time to time make available to its executive employees.
3. Fringe benefits.
- -- ---------------
a. Insurance. Executive and his dependents shall be eligible for
coverage under the group insurance plans made available from time to time to
CTI's executive and management employees. The premiums for the coverage of
Executive and his dependents under that plan shall be paid pursuant to the
formula in place for other executive and management employees covered by CTI's
group insurance plans.
b. Vehicle Allowance and Miscellaneous Benefits. Coors shall
provide Executive with an allowance of $18,000 per year, payable in equal
installments at the same time Executive's salary installments are paid, and
shall receive any additional fringe benefits that other CTI executive or
management employees may from time to time receive.
c. Expenses. Subject to CTI's policies and procedures for the
reimbursement of business expenses incurred by its executive and management
employees, CTI shall reimburse Executive for all reasonable and necessary
expenses incurred by Executive in connection with his performance of his duties
under this agreement.
4. Paid Leave. During each year of Executive's continuous, full-time
-- ----------
employment, he shall earn 25 days of paid vacation time per year.
This paid leave shall be subject to the terms and conditions of any
Coors' vacation plan or policy that may from time to time apply to
CTI's executive employees.
<PAGE>
5. Conflicting Activities. During the term of this agreement, Executive
-- ----------------------
shall not engage in any activity that conflicts with, appears to conflict with,
or is detrimental or appears to be detrimental to Coor's best interests, as
determined by CTI in its sole discretion.
6. Source of Payments. All payments to be made to Executive under this
-- ------------------
agreement shall be paid from Coor's general funds. No special or separate fund
shall be established and no other segregation of assets shall be made to assure
payment. Neither this agreement nor any action taken hereunder shall be
construed to create a trust of any kind. To the extent that any person has any
right to receive payments from CTI under this agreement, that right shall be no
greater that the right of any unsecured creditor of Coors.
7. Relationship Between this Agreement and Other Coors Publications. In
- -- ----------------------------------------------------------------
the event of any conflict between any term of this agreement and any CTI
contract, policy, procedure, guideline or other publication, the terms of this
agreement shall control.
8. Term and Termination.
- -- --------------------
a. Term. The term of this agreement shall be 3 years.
b. Termination by Consent. This agreement may be terminated at any
time by the parties' mutual agreement, expressed in writing.
c. Termination Without Cause.
i. CTI may in its sole discretion terminate this agreement at
any time without cause. If CTI does so, after Executive executes a legal
release in the form attached to this agreement, as that legal release may be
modified or amended from time to time to ensure a final, complete and
enforceable release of all claims that Executive has or may have against CTI
relating to or arising in any way from Executive's employment with CTI, and
provided that Executive does not thereafter revoke that legal release as
permitted by its terms, CTI shall pay Executive severance compensation equal to
the greater of the amount that would be payable to Executive pursuant to
paragraph 2 for the remainder of the term of this Agreement OR 12 months of
Executive's base salary under paragraph 2, above, in a lump-sum, less legally
required withholdings, no later than thirty days after the termination date. In
addition, CTI shall pay Executive up to $25,000 in outplacement services
provided to Executive by a third-party outplacement consultant or consulting
service. Executive shall reasonably select the outplacement provider and
contract for outplacement services, and shall forward invoices for outplacement
services to CTI, which shall promptly pay the invoiced amount directly to the
outplacement provider.
ii. If CTI terminates this agreement at any time without cause
under this subparagraph, pays Executive all salary and vacation compensation
earned and unpaid as of the termination date, and offers to pay Executive
severance compensation in the amount and on the terms specified above, Coor's
acts in doing so shall be in complete accord and satisfaction of any claim that
Executive has or may at any time have for compensation or payments of any kind
from CTI arising from or relating in whole or part to Executive's employment
with CTI and/or this agreement.
<PAGE>
a. d. Termination for Cause. CTI may terminate this agreement
effective immediately, with Coor's only obligation being the payment of salary
and accrued, unused vacation compensation earned as of the date of termination
and without liability for severance compensation of any kind, if Executive
violates any term of this agreement or commits a material violation of any CTI
policy, procedure or guideline, of which Executive had prior written notice, or
engages in any of the following forms of misconduct: conviction of any felony or
of any misdemeanor involving dishonesty or moral turpitude; theft or misuse of
CTI's property or time; use of alcohol or controlled substances on CTI's
premises or appearing on such premises while intoxicated or under the influence
of drugs not prescribed by a physician, or after having abused prescribed
medications; illegal use of any controlled substance; discriminatory or
harassing behavior, whether or not illegal under federal, state or local law;
willful misconduct; or falsifying any document or making any false or misleading
statement relating to Executive's employment by CTI.
e. Termination for Change of Control. In the event that Executive's
employment is terminated other than for cause, or Executive's total compensation
package and/or responsibilities are substantially reduced, within one year of a
Change of Control as defined in CoorsTek, Inc.'s Stock Option and Incentive
Plan, as that Plan may be amended from time to time, after Executive executes a
legal release in the form attached to this agreement, as that legal release may
be modified or amended from time to time to ensure a final, complete and
enforceable release of all claims that Executive has or may have against CTI
relating to or arising in any way from Executive's employment with CTI, and
provided that Executive does not thereafter revoke that legal release as
permitted by its terms, CTI shall pay Executive severance compensation equal to
24 months of Executive's current base salary, in a lump-sum, less legally
required withholdings, no later than thirty days after the termination date. In
addition, CTI shall pay Executive up to $25,000 in outplacement services
provided to Executive by a third-party outplacement consultant or consulting
service. Executive shall reasonably select the outplacement provider and
contract for outplacement services, and shall forward invoices for outplacement
services to CTI, which shall promptly pay the invoiced amount directly to the
outplacement provider.
9. Successors and Assigns. CTI, its successors and assigns may in their
- -- ---------- --- -------
sole discretion assign this agreement to any person or entity, with or without
Executive's consent. This agreement thereafter shall bind, and inure to the
benefit of, CTI's successor or assign. Executive shall not assign either this
agreement or any right or obligation arising thereunder.
10. Miscellaneous.
- --- -------------
a. Governing Law. This agreement, and all other disputes or issues
arising from or relating in any way to CTI's relationship with Executive, shall
be governed by the internal laws of the State of Colorado, irrespective of the
choice of law rules of any jurisdiction.
b. Severability. If any court of competent jurisdiction declares any
provision of this agreement invalid or
unenforceable, the remainder of the
agreement shall remain fully enforceable. To the extent that any court
concludes that any provision of this agreement is void or voidable, the court
shall reform such provision(s) to render the
<PAGE>
provision(s) enforceable, but only
to the extent absolutely necessary to render the provision(s) enforceable.
c. Integration. This agreement constitutes the entire agreement of
the parties and a complete merger of prior negotiations and agreements and,
except as provided in the preceding subparagraph, shall not be modified by word
or deed, except in a writing signed by Executive and CTI's Board of Directors.
d. Waiver. No provision of this agreement shall be deemed waived,
nor shall there be an estoppel against the enforcement of any such provision,
except by a writing signed by the party charged with the waiver or estoppel.
No waiver shall be deemed continuing unless specifically stated therein, and the
written waiver shall operate only as to the specific term or condition waived,
and not for the future or as to any act other than that specifically waived.
e. Construction. Headings in this agreement are for convenience
only and shall not control the meaning of this agreement. Whenever applicable,
masculine and neutral pronouns shall equally apply to the feminine genders; the
singular shall include the plural and the plural shall include the singular.
The parties have reviewed and understand this agreement, and each has had a
full opportunity to negotiate the agreement's terms and to consult with counsel
of their own choosing. Therefore, the parties expressly waive all applicable
common law and statutory rules of construction that any provision of this
agreement should be construed against the agreement's drafter, and agree that
this agreement and all amendments thereto shall be construed as a whole,
according to the fair meaning of the language used.
f. Disputes. Any action arising from or relating any way to this
agreement, or otherwise arising from or relating to Executive's employment with
CTI, shall be tried only in the state or federal courts situated in Denver,
Colorado. The parties consent to jurisdiction and venue in those courts to the
greatest extent possible under law.
EXECUTIVE COORSTEK, INC.
________________________________ By: /s/ John K. Coors
Joseph Coors, Jr. ----------------------------
John K. Coors
As its: President
Date: _____________________ Date: _____________________
<PAGE>
LEGAL RELEASE
This Legal Release ("Agreement") is between Joseph Coors, Jr. ("Executive")
and CoorsTek, Inc., its subsidiaries, affiliates and predecessors, and their
respective officers, directors, employees, agents, representatives and insurers
(collectively "CTI").
1. Executive acknowledges that CTI has offered to provide Executive the
severance compensation (the "Benefit") specified by the employment contract
between CTI and Executive (the "Employment Contract"), in part in order to
resolve all claims that Executive has or may have against CTI, and that
Executive understands the terms and conditions of the Benefit.
2. Executive agrees that he wishes to receive the Benefit, that his decision
to do so is entirely voluntary, that he has not been pressured into accepting
the Benefit, and that he has enough information about the Benefit to decide
whether to sign this Agreement. If, for any reason, Executive believes that the
his acceptance of the Benefit is not entirely voluntary, or if he believes that
he does not have enough information, then he should not sign this Agreement.
3. Executive agrees that by signing this Agreement he will give up his right
to bring any legal claim against CTI of any nature, including all claims
relating in any way, directly or indirectly, to Executive's employment
relationship with CTI, including his separation from employment. Executive
agrees that this Agreement is intended to be interpreted in the broadest
possible manner in favor of CTI, including all actual or potential legal claims
that Executive has or may have against CTI, except as specifically provided
otherwise in this Agreement. Specifically, Executive agrees that he fully and
forever releases all of his legal rights and claims against CTI, whether or not
presently known to him, including future legal rights and claims, if based in
whole or part on acts or omissions occurring before Executive delivers this
signed Agreement to CTI, in any way relating to Executive's employment with CTI,
including his separation from employment, except for his right to the Benefit,
his vested rights, if any, in any CTI-sponsored pension plan, and his rights
under COBRA, if any, to continued participation, at his expense, in certain
employee benefit plans sponsored by CTI. Executive agrees that the legal rights
and claims that he is giving up include, but are not limited to, his rights, if
any, under all federal, state and local statutes, rules and regulations that
prohibit discrimination on the basis of gender, race, national origin, religion,
disability and age, such as the Age Discrimination in Employment Act of 1987,
Title VII of the Civil Rights Act of 1964, as amended ("Title VII"), the
Rehabilitation Act of 1973, the Americans With Disabilities Act, the Family and
Medical Leave Act, the Equal Pay Act, and any other federal, state or local
civil rights statute or ordinance that applies or may apply to Executive or CTI,
as well as all common law rights and claims, such as breach of contract, express
or implied, tort, whether negligent or intentional, wrongful discharge,
defamation, infliction of emotional distress, and any claim for fraud, omission
or misrepresentation concerning the Benefit. Executive also states and agrees
that he has not experienced any illness, injury, or disability relating to or
arising in whole or part from his employment with CTI that is or may be
compensable under the worker's compensation laws of any state, and that he will
not file a worker's compensation claim asserting the existence of any such
illness, injury, or disability.
1
<PAGE>
4. Executive agrees that the Benefit that he is accepting by signing this
Agreement has value to him, that he would not be entitled to the Benefit without
signing this Agreement, that he will receive the Benefit in exchange for the
benefit that will accrue to CTI from Executive's execution of this Agreement,
and that when CTI pays him the Benefit, CTI will withhold all applicable
federal, state and local taxes.
5. Executive agrees that the only benefit that he is to receive by signing
this Agreement is the Benefit, and that in signing this Agreement he did not
rely on any information, oral or written, from anyone other than the information
set forth in this Agreement and the Employment Contract, and the advice, if any,
of Executive's counsel.
6. Executive agrees that, if he brings any kind of legal claim against CTI
that he has given up by signing this Agreement, then he will be violating this
Agreement and therefore must pay all legal fees, other costs and expenses
incurred by CTI in defending against all such claims.
7. Executive represents that he has not previously assigned or transferred any
of the legal rights and claims that he has given up by signing this Agreement,
and agrees that this Agreement also binds all persons who might assert a legal
right or claim on his behalf, such as his heirs, personal representatives and
assigns, now and in the future.
8. Executive agrees that CTI will not provide him with recall rights or any
other right to future employment at CTI or any affiliate, and that Executive
will not be given any preference or priority with respect to any future job
openings that may arise. Executive also agrees that if he later is rehired by
CTI, CTI may in its sole discretion require Executive to return to CTI all or a
portion of the Benefit as a condition of the rehiring.
9. Executive understands and agrees that by signing this Agreement he is
giving up the right to sue CTI for age discrimination. Executive has up to
twenty-one days after he receives this Agreement to consider whether to sign
this Agreement. During that time Executive understands that he should consider
whether he wishes to sign this Agreement, and may wish to review the terms of
the Benefit set forth above and in the Employment Contract. Executive agrees
that, after he has signed and delivered this Agreement to CTI, this Agreement
will not be effective or enforceable until the end of a seven (7) day revocation
period beginning the day that Executive delivers this Agreement to CTI, and that
he will not receive the Benefit until that seven-day period has expired. During
that seven-day period, Executive may revoke this Agreement, without reason and
in his sole judgment, but he may do so only by delivering a written statement of
revocation to CTI. If CTI does not receive such a written statement of
revocation by the end of the revocation period, then this Agreement will become
legally enforceable and Executive may not thereafter revoke this Agreement.
10. Executive agrees that: (a) this Agreement and the Employment Contract
constitute the entire agreement between Executive and CTI concerning severance
compensation and the other subjects raised therein, without regard to any other
oral or written information that Executive may have received about this
Agreement; (b) if any part of this Agreement is declared to be unenforceable,
all other provisions of this Agreement shall remain enforceable; and (c) this
Agreement shall be governed by federal law and by the internal law of the State
of Colorado, irrespective of the choice of law rules of any jurisdiction.
2
<PAGE>
Acknowledgment
Executive's signature below acknowledges that he has read this document fully,
that he understands and agrees to its contents, that he understands that it is a
legally binding document, and that he has been advised to consult a lawyer of
his choosing before signing this Agreement, and has had a full and fair
opportunity to do so.
Signed: /s/ Joseph Coors, Jr.
-------------------------
Joseph Coors, Jr.
Date:
<PAGE>
Exhibit 21
CoorsTek, Inc.
List of Subsidiaries
State/Country
Name of Company of Incorporation
- --------------- ----------------
Alumina Ceramics, Inc. Arkansas
Coors Ceramics Electronics, Ltd. Scotland
Coors Ceramicon Designs, Ltd., d/b/a Colorado
Coors Teirafluor
Coors Technial Ceramics Company Tennessee
Coors Wear Products, Inc. Colorado
Edwards Enterprises California
Wilbanks International, Inc Oregon
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 50,868 0
<ALLOWANCES> 0 0
<INVENTORY> 67,861 0
<CURRENT-ASSETS> 131,622 0
<PP&E> 138,070 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 320,609 0
<CURRENT-LIABILITIES> 58,015 0
<BONDS> 0 0
0 0
0 0
<COMMON> 10,000 0
<OTHER-SE> 174,087 0
<TOTAL-LIABILITY-AND-EQUITY> 320,609 0
<SALES> 266,936 230,390
<TOTAL-REVENUES> 266,936 230,390
<CGS> 200,455 173,291
<TOTAL-COSTS> 200,455 173,291
<OTHER-EXPENSES> 0 0
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<INTEREST-EXPENSE> 3,693 2,943
<INCOME-PRETAX> 26,893 13,863
<INCOME-TAX> 10,101 5,117
<INCOME-CONTINUING> 16,792 8,746
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<EPS-BASIC> 2.36 1.23
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