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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to ________
Commission file number 1-7006
BRUSH WELLMAN INC.
(Exact name of Registrant as specified in charter)
OHIO 34-0119320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17876 ST. CLAIR AVENUE, CLEVELAND, OHIO 44110
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 216-486-4200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
- - ------------------- -----------------------------------------
COMMON STOCK, PAR VALUE $1 PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of Common Stock, par value $1 per share, held
by non-affiliates of the registrant (based upon the closing sale price on the
New York Stock Exchange) on March 10, 1997 was approximately $277,558,553.
As of March 10, 1997, there were 16,286,119 shares of Common Stock, par
value $1 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the year ended December
31, 1996 are incorporated by reference into Parts I and II.
Portions of the proxy statement for the annual meeting of shareholders to
be held on May 6, 1997 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
- - ----------------
Brush Wellman Inc. ("Company") manufactures and sells engineered
materials for use by manufacturers and others who perform further operations for
eventual incorporation into capital, aerospace/defense or consumer products.
These materials typically comprise a small portion of the final product's cost.
They are generally premium priced and are often developed or customized for the
customer's specific process or product requirements. The Company's product lines
are supported by research and development activities, modern processing
facilities and a global distribution network.
Customers include manufacturers of electrical/electronic
connectors, telecommunication equipment, computers, automobiles, lasers,
satellites, appliances, spacecraft, aircraft, oil field instruments and
equipment, sporting goods, and defense contractors and suppliers to all of
the foregoing industries.
The Company operates in a single business segment with product
lines comprised of beryllium-containing materials and other specialty materials.
The Company is a fully integrated producer of beryllium,
beryllium alloys (primarily copper beryllium), and beryllia ceramic, each of
which exhibits its own unique set of properties. The Company holds extensive
mineral rights and mines the beryllium bearing ore, bertrandite, in central
Utah. Beryllium is extracted from both bertrandite and imported beryl ore. In
1996, 73% of the Company's sales were of products containing the element
beryllium (73% in 1995 and 70% in 1994). Beryllium-containing products are sold
in competitive markets throughout the world through a direct sales organization
and through owned and independent distribution centers. NGK Metals Corporation
of Reading, Pennsylvania and NGK Insulators, Ltd. of Nagoya, Japan compete with
the Company in the beryllium alloys field. Beryllium alloys also compete with
other generally less expensive materials, including phosphor bronze, stainless
steel and other specialty copper and nickel alloys. General Ceramics Inc. is a
domestic competitor in beryllia ceramic. Other competitive materials include
alumina, aluminum nitride and composites. While the Company is the only domestic
producer of the metal beryllium, it competes with other fabricators as well as
with designs utilizing other materials.
Sales of other specialty materials, principally metal systems and
precious metal products, were 27% of total sales in 1996 (27% in 1995 and 30% in
1994). Precious metal products are produced by Williams Advanced Materials Inc.
(hereinafter referred to as "WAM"), a subsidiary of the Company comprised of
businesses acquired in 1986, 1989 and 1994. WAM's major product lines include
sealing lid assemblies, vapor deposition materials, contact ribbon products for
various segments of the semiconductor markets, clad and precious metal preforms,
ultra fine wire and restorative dental products. WAM also specializes in
precious metal refining and recovery.
WAM's principal competitors are Semi-Alloys and Johnson Matthey
in the sealing lid assembly business and Materials Research Corporation in the
vapor deposition materials product line. The products are sold directly from
WAM's facilities in Buffalo, New York and Singapore as well as through sales
representatives.
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Technical Materials, Inc. (hereinafter referred to as "TMI"), a
subsidiary of the Company, produces specialty metal systems, consisting
principally of narrow metal strip, such as copper alloys, nickel alloys and
stainless steels into which strips of precious metal are inlaid. TMI also offers
a number of other narrow metal strip material systems, including electron beam
welded dual metal, contour milling and skiving, thick and thin selective solder
coatings, selective electroplated products and bonded aluminum strips on
nickel-iron alloys for semiconductor leadframes. Divisions of Cookson, Texas
Instruments and Metallon are competitors for the sale of inlaid strip. Strip
with selective electroplating is a competitive alternative as are other design
approaches. The products are sold directly and through sales representatives.
Circuits Processing Technology, Inc. (hereinafter referred to as
"CPT"), a subsidiary of the Company was acquired during 1996. CPT is a producer
of high reliability thick film circuits and other types of complex circuits
supporting all aspects of hybrid circuit requirements for both Defense and the
commercial marketplace. CPT's competition are thin film deposition processors
such as M.I.C.
SALES AND BACKLOG
-----------------
The backlog of unshipped orders as of December 31, 1996, 1995 and
1994 was $94,428,000, $95,718,000 and $95,354,000, respectively. Backlog is
generally represented by purchase orders that may be terminated under certain
conditions. The Company expects that, based on recent experience, substantially
all of its backlog of orders at December 31, 1996 will be filled during 1997.
Sales are made to approximately 5,400 customers. Government
sales, principally subcontracts, accounted for about 1.2% of consolidated sales
in 1996 as compared to 1.3% in 1995 and 3.2% in 1994. Sales outside the United
States, principally to Western Europe, Canada and Japan, accounted for
approximately 29% of sales in 1996, 34% in 1995 and 33% in 1994. Financial
information as to sales, identifiable assets and profitability by geographic
area set forth on page 16 Note M to the consolidated financial statements in the
annual report to shareholders for the year ended December 31, 1996 is
incorporated herein by reference.
RESEARCH & DEVELOPMENT
----------------------
Active research and development programs seek new product
compositions and designs as well as process innovations. Expenditures for
research and development amounted to $8,309,000 in 1996, $7,814,000 in 1995 and
$8,754,000 in 1994. A staff of 50 scientists, engineers and technicians was
employed in this effort during 1996. Some research and development projects were
externally sponsored and expenditures related to those projects (approximately
$166,000 in 1996, $36,000 in 1995 and $102,000 in 1994) are excluded from the
above totals.
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AVAILABILITY OF RAW MATERIALS
-----------------------------
The more important raw materials used by the Company are
beryllium (extracted from both imported beryl ore and bertrandite mined from the
Company's Utah properties), copper, gold, silver, nickel, platinum and
palladium. The availability of these raw materials, as well as other materials
used by the Company, is adequate and generally not dependent on any one
supplier. Certain items are supplied by a preferred single source, but
alternatives are believed readily available.
PATENTS AND LICENSES
--------------------
The Company owns patents, patent applications and licenses
relating to certain of its products and processes. While the Company's rights
under the patents and licenses are of some importance to its operations, the
Company's businesses are not materially dependent on any one patent or license
or on the patents and licenses as a group.
ENVIRONMENTAL MATTERS
---------------------
The inhalation of airborne beryllium particulate may present a
health hazard to certain individuals. For decades the Company has operated its
beryllium facilities under stringent standards of inplant and outplant
discharge. These standards, which were first established by the Atomic Energy
Commission over forty years ago, were, in general, subsequently adopted by the
United States Environmental Protection Agency and the Occupational Safety and
Health Administration. The Company's experience in sampling, measurement,
personnel training and other aspects of environmental control gained over the
years, and its investment in environmental control equipment, are believed to be
of material importance to the conduct of its business.
EMPLOYEES
---------
As of December 31, 1996 the Company had 1,926 employees.
FORWARD-LOOKING INFORMATION
---------------------------
The portions of narrative set forth in this Item 1 and
elsewhere in this Annual Report on Form 10-K that are not historical in nature
are forward-looking statements. The Company's actual future performance may
differ from that contemplated by the forward-looking statements as a result of a
variety of factors that include, in addition to those mentioned elsewhere
herein, the condition of the markets which the Company serves, the success of
the Company's strategic plans, the timely and successful completion of pending
capital expansions and the conclusion of pending litigation matters in
accordance with the Company's expectation that there will be no materially
adverse effects.
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ITEM 2. PROPERTIES
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The material properties of the Company, all of which are owned in
fee except as otherwise indicated, are as follows:
CLEVELAND, OHIO - A structure containing 110,000 square feet on
an 18 acre site housing corporate and administrative offices, data processing
and research and development facilities.
ELMORE, OHIO - A complex containing approximately 676,000 square
feet of building space on a 385 acre plant site. This facility employs diverse
chemical, metallurgical and metalworking processes in the production of
beryllium, beryllium oxide, beryllium alloys and related products. Beryllium ore
concentrate from the Delta, Utah plant is used in all beryllium-containing
products.
SHOEMAKERSVILLE (READING), PENNSYLVANIA - A 123,000 square foot
plant on a ten acre site that produces thin precision strips of beryllium copper
and other alloys and beryllium copper rod and wire.
NEWBURYPORT, MASSACHUSETTS - A 30,000 square foot manufacturing
facility on a four acre site that produces alumina, beryllia ceramic and direct
bond copper products.
TUCSON, ARIZONA - A 45,000 square foot plant on a ten acre site
for the manufacture of beryllia ceramic parts from beryllium oxide powder
supplied by the Elmore, Ohio facility.
DELTA, UTAH - An ore extraction plant consisting of 86,000 square
feet of buildings and large outdoor facilities situated on a two square mile
site. This plant extracts beryllium from bertrandite ore from the Company's
mines as well as from imported beryl ore.
JUAB COUNTY, UTAH - The Company holds extensive mineral rights in
Juab County, Utah from which the beryllium bearing ore, bertrandite, is mined by
the open pit method. A substantial portion of these rights is held under lease.
Ore reserve data set forth on page 23 of this Form 10-K annual report for the
year ended December 31, 1996 is incorporated herein by reference.
FREMONT, CALIFORNIA - A 16,800 square foot leased facility for
the fabrication of precision electron beam welded, brazed and diffusion bonded
beryllium structures.
THEALE (READING), ENGLAND - A 19,700 square foot leased
facility principally for distribution of beryllium alloys.
STUTTGART, WEST GERMANY - A 24,750 square foot leased facility
principally for distribution of beryllium alloys.
FUKAYA, JAPAN - A 35,500 square foot facility on 1.8 acres of
land in Saitama Prefecture principally for distribution of beryllium alloys.
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LINCOLN, RHODE ISLAND - A manufacturing facility consisting of
124,000 square feet located on seven and one-half acres. This facility produces
metal strip inlaid with precious metals and related metal systems products.
BUFFALO, NEW YORK - A complex of approximately 97,000 square feet
on a 3.8 acre site providing facilities for manufacturing, refining and
laboratory services relating to high purity precious metals.
OCEANSIDE, CALIFORNIA - A 12,000 square foot leased facility
on .75 acres of leased land. Over two-thirds of the facillity is comprised of
clean rooms which meet the Mil. Stds. 209D requirements, for the production of
thick-film circuits and other complex circuits.
SINGAPORE, SINGAPORE - A 4,500 square foot leased facility
for the assembly and sale of precious metal hermetic sealing lids.
Production capacity is believed to be adequate to fill the
Company's backlog of orders and to meet the current level of demand. However,
the Company is currently re-evaluating production capacity in light of
anticipated sales increases from development of new applications for the
Company's products and expanding international presence. In May 1996, the Board
of Directors approved a plan for a major expansion and upgrading of alloy strip
capabilities involving the investment of $110 million at the Company's Elmore ,
Ohio facility. The goal of this investment is to increase strip production
capacity, reduce production costs, improve quality, reduce delivery lead times,
and optimize working capital utilization.
ITEM 3. LEGAL PROCEEDINGS
- - --------------------------
(a) ENVIRONMENTAL PROCEEDINGS.
--------------------------
PENDING CLAIMS. The Company received a complaint on July 26,
1994, service of which was waived on September 29, 1994, in GLIDDEN COMPANY ET
AL. V. AMERICAN COLOR AND CHEMICAL ET AL., No. 94-C-3970, filed in the United
States District Court for the Eastern District of Pennsylvania. The plaintiffs
are five companies which, pursuant to orders issued by the U.S. Environmental
Protection Agency (the "U.S. EPA") under the Comprehensive, Environmental,
Response Compensation and Liability Act ("CERCLA"), have been spending funds to
secure, maintain and conduct an investigation of the Berks Landfill in Sinking
Springs, Pennsylvania ("Berks Site"). The plaintiffs are alleged to have
disposed of wastes at the Berks Site, which operated from 1950 through October
1, 1986. The 22 defendants (4 of which were added in 1997) consist of former
owners or operators of the Berks Site and alleged transporters and/or generators
of waste disposed of at the Berks Site. It is believed that hundreds of other
entities disposed of waste at the Berks Site during its long period of
operation. The plaintiffs seek to recover their past and future costs pursuant
to rights of contribution under CERCLA and the Pennsylvania Hazardous Sites
Cleanup Act. Plaintiffs allege that, as of September 1994, they had spent
$335,000 to secure and maintain the Berks Site and that they expected to spend
$1.7 million for a remedial investigation/feasibility study and a risk
assessment. The remedial investigation and risk assessment have been submitted
to the U.S. EPA and approved. A draft feasibility study was prepared, submitted
to the U.S.
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EPA and revised in response to the U.S. EPA's comments. Although no
final remedy has been proposed, the revised feasibility study presents eight
alternative remedies with estimated present worth costs ranging from zero (no
action alternative) up to $14.7 million. The Company's remediation expenses at
the Berks Site will be affected by a number of uncertainties, including the
method and extent of remediation, the percentage of waste disposed of at the
Berks Site attributable to the Company relative to that attributable to other
parties, and the financial capabilities of the other Potentially Responsible
Persons ("PRPs"). Discovery is proceeding pursuant to a case management order.
On or about September 25, 1992, the Company was served with a
third-party complaint, filed in the United States District Court for the Eastern
District of Pennsylvania, alleging that the Company, along with 159 other
third-party defendants, is jointly and severally liable under CERCLA, 42 U.S.C.
Sections 9607(a) and 9613(b), for response costs incurred in connection with the
clean-up of hazardous substances in soil and groundwater at the Douglassville
Site ("Douglassville Site") located in Berks County, Pennsylvania: UNITED STATES
OF AMERICA V. BERKS ASSOCIATES INC. ET AL. V. AAMCO TRANSMISSIONS ET AL., Case
No. 91-4868. Third-party complaints adding further parties were filed
subsequently. Prior to the commencement of litigation, the Company had responded
to a request for information from the U.S. EPA by denying that it arranged to
send any substances to the Douglassville Site. Although the Company has no
documents in its own files relating to the shipment of any waste to the
Douglassville Site, documents maintained by third-party plaintiffs suggest that
8,344 gallons of waste oil from the Company may have been taken there. According
to a consultant retained by third-party plaintiffs, approximately 153 million
gallons of waste were sent to the Douglassville Site. The Company denies
liability. The Company participated in court-ordered settlement proceedings,
which resulted in a DE MINIMIS settlement offer by the United States. The
Company has accepted that offer and is awaiting notice from the government
showing the final settlement calculation.
The Company was identified as one of the potentially
responsible parties under CERCLA at the Spectron Superfund Site in Elkton,
Maryland ("Elkton Site"). The Company reached a settlement with the U.S. EPA
resolving the Company's liability under the Administrative Orders by Consent
dated August 21, 1989 and October 1, 1991. Compliance with the terms of these
Orders costs approximately $8,480,000, of which the Company's proportionate
share was $20,461. On September 29, 1995, the U.S. EPA sent a "Special Notice
for Negotiations for Remedial Investigation/Feasibility Study" to approximately
700 PRPs including the Company. The U.S. EPA estimates that the final remedy for
the Elkton Site will cost in the aggregate approximately $45 million. In October
1995, the terms of several proposed DE MINIMIS settlement/buyout options
designed to resolve all remaining liability with respect to the Elkton Site were
circulated among a group of PRPs including the Company. The Company indicated
its willingness to pursue resolution of its liability through a DE MINIMIS
settlement/buyout. No litigation has been initiated by the U.S. EPA with respect
to this matter.
CLAIMS CONCLUDED SINCE THE END OF THIRD QUARTER 1996. The
Company had learned in April 1993 that the Ohio Environmental Protection Agency
had referred to the Ohio Attorney General's Office (the "OAG") for consideration
the initiation of enforcement proceedings against the Company respecting alleged
violations of various environmental laws at its facility in Elmore, Ohio. On
October 19, 1994, the Court of Common Pleas for Ottawa County, Ohio entered a
consent decree resolving alleged violations relating to air emission standards.
Negotiations between the OAG and the Company regarding alleged hazardous
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waste and solid waste violations, including matters discovered during the course
of such negotiations, resulted in a preliminary agreement pursuant to which the
Company was required to pay a total of $227,000 and undertake a specific
pollution prevention project in lieu of paying additional penalties. This
agreement was finalized in a consent decree entered by the Court of Common Pleas
for Ottawa County on November 12, 1996: STATE OF OHIO V. BRUSH WELLMAN INC. The
Company has made the required payments and currently is implementing the
pollution prevention project in accordance with a schedule set out in the
Consent Decree.
(b) BERYLLIUM EXPOSURE CLAIMS.
--------------------------
The inhalation of excessive amounts of airborne beryllium
particulate may present a health hazard to certain individuals. For decades the
Company has operated its beryllium facilities under stringent standards of
inplant and outplant discharge. These standards, which were first developed by
the Atomic Energy Commission over forty years ago, were, in general,
substantially adopted by the U.S. EPA and the Occupational Safety and Health
Administration (OSHA). The Government has continued to review these standards,
and governmental agencies continue to debate their adequacy. For example, the
Department of Energy has recently concluded that, in its opinion, current
beryllium standards may not be adequate to protect its own workers, and has
commenced gathering data, views and other relevant information to develop a
possible revised standard for occupational exposure to beryllium at Department
of Energy facilities. Moreover, some of the private litigants mentioned below
have made similar claims. In contrast, the American Conference of Governmental
Industrial Hygienists, a professional organization devoted to the administrative
and technical aspects of occupational and environmental health, has proposed
retention of the current occupational exposure standards and addition of a new
standard to limit high short-term exposures.
There were a number of new cases filed against the Company in
1996. Many of these cases were brought by present or former employees of the
Company who were found to have asymptomatic or subclinical forms of chronic
beryllium disease after participating in a blood-testing program voluntarily
initiated by the Company for all of its employees.
PENDING CLAIMS. The Company is currently a defendant in the
following eleven product liability cases in which the plaintiffs allege injury
resulting from exposure to beryllium and beryllium-containing materials, other
than as employees of the Company, and are claiming recovery based on various
legal theories. Nine of these cases were previously reported in the Company's
annual report on Form 10-K for the year ended December 31, 1995. Two cases were
filed after the end of third quarter 1996: BALLINGER ET AL. V. BRUSH WELLMAN
INC., filed in the U.S. District Court of Colorado on November 7, 1996; and GARY
FOSTER ET AL. V. BRUSH WELLMAN INC. ET AL., filed in the U.S. District Court,
Eastern District of Tennessee, on February 19, 1997. The Company believes that
resolution of these cases will not have a material adverse effect on the
Company. Defense for each of the cases identified in the table below is being
conducted by counsel selected by the Company and retained, with reservations of
rights, by the Company's insurance carriers.
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<TABLE>
<CAPTION>
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NAME OF PLAINTIFF DATE LAWSUIT FORUM RELIEF REQUESTED
INSTITUTED
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Richard Neiman and Spouse November 1990 Court of Common Pleas, Damages in excess of $20,000 for personal
Montgomery County, injury and in excess of $20,000 for loss of
Pennsylvania consortium
- - -------------------------------------------------------------------------------------------------------------------
Geraldine G. Ruffin, September New Jersey Superior Compensatory and punitive damages of an
individually and as 1991; notice Court -- Appellate unspecified amount
executrix of appeal Division (appeal from
filed by trial court summary
plaintiffs judgment entered in
May 1995 favor of the Company on
March 31, 1995)
- - -------------------------------------------------------------------------------------------------------------------
McKinley Houk October 1992 United States District Compensatory damages of $5 million and
Court, Eastern District punitive damages of $3 million
of Tennessee
- - -------------------------------------------------------------------------------------------------------------------
William Ray Vance and October 1992 United States District Compensatory damages of $3 million for
Spouse Court, Eastern District personal injury, $1 million for loss of
of Tennessee consortium and combined punitive damages of
$5 million
- - -------------------------------------------------------------------------------------------------------------------
David Taggart and Spouse October 1992 Court of Common Pleas, Compensatory damages in excess of $25,000
Chester County, each for personal injury and loss of
Pennsylvania consortium against Williams Advanced
Materials, Inc., a subsidiary of the Company
- - -------------------------------------------------------------------------------------------------------------------
Harry Robbins and Spouse June 1993 Court of Common Pleas, Both plaintiffs individually seek
Montgomery County, compensatory damages in excess of $50,000.
Pennsylvania Mr. Robbins also seeks punitive damages in
excess of $50,000
- - -------------------------------------------------------------------------------------------------------------------
Troy Murphy Morgan, June 1994 United States District Aggregate claims, including compensatory and
Corky Dean McCarter and Court, Eastern District punitive damages, in the amount of $19
Spouse, Richard Emory of Tennessee million
Myers, Sr. and Spouse
and Kathlene Beatty
- - -------------------------------------------------------------------------------------------------------------------
George F. Faccio and July 1995 United States District Compensatory and punitive damages of an
Spouse Court, District of unspecified amount
Arizona
- - -------------------------------------------------------------------------------------------------------------------
Robert Gallo and Spouse August 1995 Court of Common Pleas, Both plaintiffs seek compensatory damages in
Berks County, unspecified amounts. Mr. Gallo also seeks
Pennsylvania punitive damages of an unspecified amount
- - -------------------------------------------------------------------------------------------------------------------
Ballinger et al. November 1996 United States District Compensatory damages of an unspecified
Court, Colorado amount and punitive damages of an
unspecified amount.
- - -------------------------------------------------------------------------------------------------------------------
Foster et al. February 1997 United States District There are several defendants. Gary Foster
Court, Eastern District seeks compensatory damages from each
of Tennessee corporate defendant of $5 million. His
spouse seeks compensatory damages from each
defendant of $1 million. Both plaintiffs seek
punitive damages from each defendant of $10
million.
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
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During the fourth quarter of 1996, settlement agreements were
reached in the HOUK and VANCE cases, but the settlements have not yet been
finalized. A substantial portion of the settlement payments for both these cases
will be paid by insurance.
Nine Company employees and their spouses had filed law suits
against the Company and certain of its employees in the Superior Court of Pima
County, Arizona: COLE ET AL. V. BRUSH WELLMAN INC. ET AL.; CRUZ ET AL. V. BRUSH
WELLMAN INC. ET AL.; HAYNES-KERN ET AL. V. BRUSH WELLMAN INC. ET AL.; MATULIN ET
AL. V. BRUSH WELLMAN INC. ET AL.; FIMBRES ET AL. V. BRUSH WELLMAN INC. ET AL.;
FLORES ET AL. V. BRUSH WELLMAN INC. ET AL.; KOFIRA ET AL. V. BRUSH WELLMAN INC.
ET AL.; MALDONADO ET AL. V. BRUSH WELLMAN INC. ET AL.; and STOECKER ET AL. V.
BRUSH WELLMAN INC. ET AL. Six of these suits were instituted on June 10, 1994;
one was instituted on December 13, 1994; and two were instituted on February 28,
1995. The plaintiffs claimed that, during their employment with the Company,
they contracted chronic beryllium disease as a result of exposure to beryllium
and beryllium-containing products. The plaintiffs sought compensatory and
punitive damages of an unspecified amount based on allegations that the Company
intentionally misrepresented the potential danger of exposure to beryllium and
breached an agreement to pay certain benefits should the plaintiffs contract
chronic beryllium disease. On July 5, 1996, Rudy Gamez, an employee of the
Company, filed a suit in the Superior Court of Pima County, Arizona (GAMEZ ET
AL. V. BRUSH WELLMAN INC. ET AL.), based upon similar claims and seeking similar
relief. The first nine cases noted above were dismissed by the trial court and
currently are on appeal following a summary judgment entered in favor of the
Company on August 26, 1996. However, the Company's motion for summary judgment
did not cover the GAMEZ case, which was filed after the Company had filed its
summary judgment motion. The GAMEZ case remains pending at the trial court.
Defense of all of these cases is being conducted by counsel retained by the
Company. The Company believes that resolution of these cases will not have a
material adverse effect on the Company.
In August 1994 and April 1995, the Company notified the State
Compensation Fund, a workers' compensation fund in the State of Arizona, of the
filing of certain of the above-mentioned employee suits and requested that the
State Compensation Fund defend such suits pursuant to the Company's State
Compensation Fund policies. The State Compensation Fund denied coverage and
defense of such suits, but, after discussion, indicated that it would defend
some of the employee lawsuits under a reservation of rights. Pursuant to that
commitment, the State Compensation Fund has reimbursed the Company for a
substantial portion of the costs incurred by the Company in defending the first
nine employee lawsuits noted above at the trial court level.
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In view of the dispute with respect to coverage, however, the
State Compensation Fund filed a declaratory judgment action against the Company
and certain of its employees in the Superior Court of Pima County, Arizona, for
which service of process occurred on August 21, 1995: STATE COMPENSATION FUND V.
BRUSH WELLMAN INC. ET AL. The Company filed an answer and counterclaim to the
effect that, INTER ALIA, the State Compensation Fund had a duty to defend and
indemnify the Company. The Company sought an award of not only the costs of
defending the underlying actions, but also the costs incurred with respect to
the coverage litigation and punitive damages. On May 13, 1996, the Court entered
an order granting the State Compensation Fund's motions for partial summary
judgment, which, among other things, sought a declaration of no duty to defend
or indemnify the Company against claims for breach of contract and claims for
intentional tort. These rulings did not completely dispose of the State
Compensation Fund's claims and did not address the Company's counterclaim. As of
September 1, 1996, the State Compensation Fund refused to reimburse the Company
for any further defense costs that the Company might incur. The State
Compensation Fund has also indicated that it plans to seek reimbursement of
defense costs already paid. Further proceedings in this action have been stayed
pending a ruling on the employees' appeals from the dismissal of their lawsuits
by the Superior Court of Pima County, Arizona, in the underlying cases noted
above.
In September 1995 and January 1996, the Company notified the
Argonaut Insurance Company that it was requesting the defense of two of the
aforementioned employee lawsuits. Argonaut denied coverage, and, in April 1996,
it filed a declaratory judgment action against the Company and certain of its
employees in the Superior Court of Pima County, Arizona: ARGONAUT INSURANCE
COMPANIES V. BRUSH WELLMAN INC. ET AL. Subsequently, in September 1996, Argonaut
and the Company agreed that Argonaut would dismiss its declaratory judgment
action (with the right to refile it later), that they would not litigate any
coverage issues between themselves until the State Compensation Fund's
declaratory judgment action has been completely resolved and that both parties
would be bound by the resolution of the coverage issues in the State
Compensation Fund's declaratory judgment action.
The Company was a defendant in three cases brought by three of
the Company's current employees and filed in the Court of Common Pleas for
Cuyahoga County, Ohio: WATT ET AL. V. BRUSH WELLMAN INC., filed August 1, 1995;
SLEEK ET AL. V. BRUSH WELLMAN INC., filed November 1, 1995; and DAMRON ET AL. V.
BRUSH WELLMAN INC., filed July 12, 1996. The plaintiffs in all three cases
alleged that they contracted chronic beryllium disease as a result of exposure
to beryllium or beryllium dust. The complaints included claims by the employees
for employer intentional tort, fraud and misrepresentation and claims by family
members for loss of consortium. The plaintiffs sought compensatory damages in
excess of $25,000 and punitive damages in excess of $25,000. Pursuant to an
interim arrangement between the Company and certain insurance carriers,
approximately one-half of the Company's defense costs are payable by the
carriers, subject to a full reservation of rights.
10
<PAGE> 12
On October 4, 1996, the plaintiffs in the WATT, SLEEK and
DAMRON cases voluntarily dismissed their claims. On January 22, 1997, the
plaintiffs in these three cases refiled a suit against the Company in the Court
of Common Pleas of Cuyahoga County, Ohio, along with four other current and
former employees of the Company and their family members: MIA JOHNSON, EXECUTRIX
OF ESTATE OF ETHEL JONES, ET AL. V. BRUSH WELLMAN INC. The plaintiffs allege
that they contracted chronic beryllium disease as a result of exposure to
beryllium or beryllium dust. The complaints include claims by the employees for
employer intentional tort and claims by family members for loss of consortium.
Each plaintiff seeks compensatory damages in excess of $25,000 and punitive
damages in excess of $25,000.
The Company is also a defendant in separate suits filed by
five current employees and two former employees of the Company and, in some of
the cases, their family members in the Court of Common Pleas for Cuyahoga
County, Ohio: WHITAKER ET AL. V. BRUSH WELLMAN INC., filed August 23, 1996;
MUSSER ET AL. V. BRUSH WELLMAN INC., filed October 25, 1996; JACOBS ET AL. V.
BRUSH WELLMAN INC., filed December 31, 1996; STARIN V. BRUSH WELLMAN INC., filed
December 31, 1996; BERLIN V. BRUSH WELLMAN INC., filed January 24, 1997; and
KNEPPER ET AL. V. BRUSH WELLMAN INC., filed January 23, 1997. The WHITAKER case
is a putative class action filed by two current employees of the Company and
their spouses, on behalf of all current and former employees of the Company from
1949 to date of the suit and their family members. The complaints in all of
these cases allege that the employees contracted chronic beryllium disease at
the workplace and include claims by the employees for employer intentional tort
and, except in the STARIN and BERLIN cases, claims by family members. The
plaintiffs in the WHITAKER case seek compensatory damages in the amount of $100
million and punitive damages in the amount of $200 million together with certain
injunctive relief. The plaintiffs in the JACOBS and STARIN cases seek
compensatory damages in excess of $25,000 and punitive damages in excess of
$25,000. The plaintiffs in the KNEPPER case seek damages in the amount of $5
million. The plaintiff in the BERLIN case seeks compensatory damages in excess
of $25,000 and punitive damages in the amount of $1 million. The plaintiffs in
the MUSSER case seek compensatory damages in excess of $25,000 and punitive
damages in excess of $25,000.
On October 4, 1996, the Company moved for the dismissal of the
entire complaint in the WHITAKER case or partial summary judgment disposing of
the claims of one of the plaintiffs. On January 7, 1997, the court denied these
motions. The Company has filed a motion for judgment on the pleadings in the
MUSSER case and a motion to dismiss in the KNEPPER case, and these motions are
pending before the court. On February 18, 1997, the plaintiffs in the WHITAKER,
MIA JOHNSON, MUSSER, JACOBS, STARIN and BERLIN cases submitted a motion to the
Court of Common Pleas for Cuyahoga County, Ohio, to consolidate the cases. On
March 20, 1997, the court ordered the consolidation of the WHITAKER and MIA
JOHNSON cases.
11
<PAGE> 13
The Company has sought reimbursement of defense costs incurred
to date on the MIA JOHNSON, WHITAKER, MUSSER, JACOBS and KNEPPER cases pursuant
to the interim arrangement with certain insurance carriers mentioned above. The
Company believes that the insurance carriers will pay approximately one-half of
the defense costs in the MUSSER case. The Company is awaiting a response from
these insurance carriers on the costs submitted for the defense of the remaining
claims brought by its Ohio employees and their families.
An action was filed by the Arizona State Compensation Fund
against the Company on December 11, 1996 in the Superior Court of Pima County,
Arizona, seeking a declaratory judgment that the Fund is not required to defend
or indemnify the Company against claims made in the WHITAKER putative class
action, despite the fact that the WHITAKER putative class action purports to
include the Company's employees in Arizona and their families: STATE
COMPENSATION FUND V. BRUSH WELLMAN INC. The parties have agreed not to initiate
any motion or other proceedings in the case until April 10, 1997.
CLAIMS CONCLUDED SINCE THE END OF THIRD QUARTER 1996. In
a suit brought by an employee of the Company against a number of defendants,
including a customer of the Company, for personal injury resulting from exposure
to beryllium-containing materials, the customer filed a third-party complaint
against the Company on December 12, 1996 in the Superior Court of New Jersey,
Hunterdon County, seeking indemnification: MICHAEL LINDSTEDT V. NATIONAL
BERYLLIUM CORP. ET AL., SPECTRA-PHYSICS, INC. V. BRUSH WELLMAN INC. The
third-party complaint was dismissed on February 21, 1997.
The Company was also a defendant in a product liability case
filed on December 23, 1994 in the Superior Court of Orange County, California by
Mr. Roberts, an employee of a customer of the Company, and his spouse: ROBERTS
ET AL. V. BRUSH WELLMAN INC. In the complaint, Mr. Roberts alleged injury
resulting from exposure to beryllium and beryllium-containing materials. Both
plaintiffs sought compensatory damages of unspecified amounts and Mr. Roberts
also sought punitive damages of an unspecified amount. This case was settled for
a non-material amount, over 90% of which was paid by insurance. The case was
dismissed by the court on March 19, 1997.
12
<PAGE> 14
(c) ASBESTOS EXPOSURE CLAIMS.
-------------------------
A subsidiary of the Company (the "Subsidiary") is a
co-defendant in twenty-nine cases making claims for asbestos-induced illness
allegedly relating to the former operations of the Subsidiary, then known as The
S.K. Wellman Corp. Twenty-eight of these cases have been reported in prior
filings with the S.E.C. In all but a small portion of these cases, the
Subsidiary is one of a large number of defendants in each case. The plaintiffs
seek compensatory and punitive damages, in most cases of unspecified sums. Each
case has been referred for defense pursuant to liability insurance coverage and
has been accepted for defense without admission or denial of carrier liability.
Two hundred thirty-two similar cases previously reported have been dismissed or
disposed of by pretrial judgment, one by jury verdict of no liability and twelve
others by settlement for nominal sums. In one pending case, a Delaware
subsidiary of the Subsidiary, formerly known as The S.K. Wellman Company, is a
defendant along with several other defendants. The Company believes that
resolution of the pending cases referred to in this paragraph will not have a
material effect upon the Company.
The Subsidiary is a party to an agreement with the predecessor
owner of its operating assets, Pneumo Abex Corporation (formerly Abex
Corporation), and five insurers, regarding the handling of these cases. Under
the agreement, the insurers share expenses of defense, and the Subsidiary,
Pneumo Abex Corporation and the insurers share payment of settlements and/or
judgments. In certain of the pending cases, both expenses of defense and payment
of settlements and/or judgements are subject to a limited, separate
reimbursement agreement with MLX Corp., the parent of the company that purchased
the Subsidiary's operating assets in 1986.
(d) OTHER MISCELLANEOUS CLAIMS.
---------------------------
PENDING CLAIMS. The Company is also a defendant in a
personal injury case filed in the Court of Common Pleas for Ottawa County, Ohio,
by an employee of the Company and his spouse: MATHIAS ET AL. V. BRUSH WELLMAN
INC., filed January 24, 1997. The plaintiffs seek compensatory damages in excess
of $25,000 and punitive damages in excess of $25,000 for an alleged acid spill.
CLAIMS CONCLUDED SINCE THE END OF THIRD QUARTER 1996. A
subsidiary of the Company, Williams Advanced Materials, Inc., settled for a
non-material amount a lawsuit filed on December 6, 1994 in the Circuit Court of
Dade County, Florida, and subsequently removed to the United States District
Court for the Southern District of Florida, Dade County, Florida: JACOBSEN V.
CERAMCO, INC., ET AL.. Williams Advanced Materials, Inc. was a co-defendant in
the law suit along with eight other defendants. In his complaint, the plaintiff
alleged that he had contracted silicosis from being exposed to silicon dental
products and sought damages in excess of $15,000. The case was dismissed on
October 15, 1996.
13
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------- ---------------------------------------------------
Not Applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
- - ------------------------------------
<TABLE>
<CAPTION>
The following table provides information as to the executive
officers of the Company.
NAME AGE POSITIONS AND OFFICES
---- --- ---------------------
<S> <C> <C>
Gordon D. Harnett 54 Chairman of the Board, President,
Chief Executive Officer and Director
Michael D. Anderson 45 Vice President Beryllium Products
Carl Cramer 48 Vice President Finance, Chief
Financial Officer
Stephen Freeman 50 Vice President Alloy Products
Craig B. Harlan 59 Vice President International - Europe
Alfonso T. Lubrano 47 President - Technical Materials, Inc.
John J. Paschall 59 President - Williams Advanced Materials Inc.
Robert H. Rozek 62 Senior Vice President International
Andrew J. Sandor 57 Vice President Alloy Technology
Daniel A. Skoch 47 Vice President Administration and Human Resources
</TABLE>
MR. HARNETT was elected Chairman of the Board, President, Chief
Executive Officer and Director of the Company effective January 22, 1991. He had
served as a Senior Vice President of The B. F. Goodrich Company from November,
1988.
MR. ANDERSON was elected Vice President Beryllium Products
effective March 5, 1996. He had served as Director Sales and Marketing-Beryllium
Products since November, 1994, Director of Marketing-Ceramics since February,
1994 and Director of Marketing since April, 1989.
MR. CRAMER was elected Vice President - Finance and Chief
Financial Officer in December 1994. Prior to that, he served as President of
U.S. Operations and Director for the Americas and Australasia for the Swedish
multinational, Esselte Meto.
14
<PAGE> 16
MR. FREEMAN was elected Vice President Alloy Products effective
February 7, 1995. He had served as Vice President Sales and Marketing since
August 3, 1993. He had served as Vice President Sales and Marketing-Alloy
Products since July, 1992. Prior to that, he had served as Management Consultant
for Adastra, Inc.
MR. HARLAN was elected Vice President International-Europe
effective June 7, 1994. He had served as Vice President Business Development
since August, 1993. He had served as Senior Vice President, Sales and Marketing
since October, 1991. He had served as Vice President/General Manager, Alloy
Division since January 1, 1987.
MR. LUBRANO was elected President - Technical Materials, Inc.
effective Apirl, 1995 and Vice President and General Manager effective March,
1992. Prior to that, he served as Vice President and Business Director of
Engelhard Corporation from 1987.
MR. PASCHALL was elected President - Williams Advanced Materials
Inc. effective November, 1991. He had served as Vice President Operations -
Williams Advanced Materials Inc. since April, 1989.
MR. ROZEK was elected Senior Vice President International
effective March 5, 1996. He had served as Senior Vice President International
and Beryllium Products since March 7, 1995. Prior to that, he has served as Vice
President International effective October 1991 and Vice President Corporate
Development effective February 27, 1990.
MR. SANDOR was elected Vice President Alloy Technology effective
March 5, 1996. He had served as Vice President Operations since October, 1991.
He had served as Senior Vice President since September, 1989.
MR. SKOCH was elected Vice President Administration and Human
Resources effective March 5, 1996. He had served as Vice President Human
Resources since July, 1991. Prior to that he was Corporate Director - Personnel.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
- - ------- ----------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The Company's Common Stock is traded on the New York Stock
Exchange. As of March 10, 1997 there were 2,507 shareholders of record.
Information as to stock price and dividends declared set forth on page 17 in
Note N to the consolidated financial statements in the annual report to
shareholders for the year ended December 31, 1996 is incorporated herein by
reference. The Company's ability to pay dividends is generally unrestricted,
except that it is obligated to maintain a specified level of tangible net worth
pursuant to an existing credit facility.
As previously stated on page 2 of this annual report on Form
10-K, the Company acquired Circuits Processing Technology, Inc. ("CPT") on
October 2, 1996 pursuant to an Agreement and Plan of Merger dated October 2,
1996 (the "Merger Agreement") by and among the Company, CPT Acquisition, Inc. a
California corporation and a direct wholly owned subsidiary of the Company
("Merger Sub"), and CPT, a California corporation. Pursuant to the Merger
Agreement, as consideration for the merger of Merger Sub with and into CPT (the
"Merger"), the Company issued and sold 368,421 shares of the Company's Common
Stock, par value $1 per share (the "Merger Shares"), to four individuals, who
were the holders of all of the issued and outstanding shares of common stock of
CPT (the "CPT Holders") immediately prior to the effective time of the Merger.
At the effective time of the Merger, Merger Sub was merged
into CPT (with CPT as the surviving corporation), the separate corporate
existence of Merger Sub ceased and each share of common stock of Merger Sub
issued and outstanding immediately prior to the effective time of the Merger, by
virtue of the Merger and without any action on the part of the holders thereof,
was converted into and became one fully-paid and non-assessable share of common
stock of CPT. As a result of the Merger, CPT became a wholly owned subsidiary of
the Company.
The Merger Shares were issued and sold by the Company to the
CPT Holders pursuant to an exemption from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"), provided by Section
4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder.
The Company relied upon the representations of the four CPT Holders that they
were acquiring the Merger Shares solely for their own account, for investment
purposes and without any intention or view towards the distribution of such
shares in violation of the Securities Act. In addition, the Company relied upon
the representations of the CPT Holders that each such holder was an "accredited
investor", as such term is defined in Rule 501(a) of Regulation D under the
Securities Act. The Merger Agreement gives the CPT Holders rights to register
the Merger Shares in certain circumstances specified therein.
16
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA
- - -------------------------------
Selected Financial Data on page 23 of the annual report to
shareholders for the year ended December 31, 1996 is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- - -------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
1996 TO 1995 COMPARISON
- - -----------------------
Worldwide sales in 1996 were a record $376.3 million surpassing the previous
record of $369.6 million achieved in 1995. The revenue growth came primarily
from domestic beryllium alloy products and specialty metal systems. The
resulting profits grew faster than sales, as earnings per share were $1.52 in
1996, an improvement of 21% over last year.
Worldwide sales of beryllium alloys increased in 1996 over 1995. Domestically,
sales of beryllium copper precision strip, rod and wire were higher as shipments
to the automotive electronics and telecommunications markets grew. In electronic
applications, these alloys frequently offer a superior combination of
reliability, conductivity and formability over competitive materials. In other
applications, depending upon their composition, beryllium alloys' performance
characteristics include good thermal conductivity, strong wear resistance and
high strength and hardness. Sales of bulk products (bar, tube, plate, custom
fabricated parts) also increased in 1996, capitalizing on these characteristics
to further penetrate the aerospace, plastic tooling and various industrial
markets. The recreation and leisure market emerged as a potentially large
application for bulk products; however, with a limited customer base, sales into
this market may be seasonal and inconsistent from year to year.
International sales of beryllium alloys declined in 1996 compared to 1995 as a
result of softening economic conditions in Germany and other portions of western
Europe. The sales growth in Japan and the Pacific rim slowed down from recent
years, but modest improvements were still recorded. The strong dollar in 1996
also contributed to the reported international sales decline, as foreign
currency sales are translated into fewer dollars compared to 1995. The domestic
beryllium alloy growth more than offset the international decline.
In 1996, the Company embarked upon a $110 million project to modernize and
expand its beryllium alloy production capabilities at its Elmore, Ohio facility.
A three-year project, its objectives are to improve quality and turnaround time,
lower costs, increase capacity and provide an even safer work environment. While
the automotive market potential for the Company's precision strip products is
the main impetus behind the project, virtually all beryllium alloy products and
markets served should benefit upon the project's completion.
17
<PAGE> 19
Sales of specialty metal systems grew in 1996 over 1995. The gains came
primarily from the telecommunications market, with some additional contribution
from the automotive market as well. Semiconductor shipments were quite strong in
the first part of the year, but a major market slow down, which continued
through year end, adversely affected second half sales.
Precious metal sales were down in 1996 from last year's levels, but sales in the
second half of 1996 were higher than in the second half of 1995. An anticipated
decline in frame lid assemblies occurred due to a major customer's re-design to
a non-precious metal material in the second quarter of 1995. Efforts to broaden
the product offering have been successful through the continued development of
physical/vapor deposition products and services and high temperature braze
alloys. Fine wire sales remained minor. International sales declined in the
current year, reflecting the drop-off in frame lid assembly sales.
Beryllium sales slowed slightly in 1996 as compared to 1995. Defense
applications remain the largest portion of these sales, but at significantly
lower levels resulting from reduced government defense spending in recent years.
Commercial applications, particularly those using AlBeMet(R) (a beryllium
aluminum alloy) are beginning to develop. AlBeMet(R)'s high stiffness and low
density provide excellent properties for a variety of aerospace and
telecommunications applications.
Ceramic sales slipped in 1996 from 1995 levels due to a slowdown in shipments of
base business beryllia ceramic to the telecommunications and automotive
industries. The growth in direct bond copper products was not sufficient to
compensate as these products continue to experience development delays.
Circuits Processing Technology, Inc. ("CPT") was acquired in late October 1996
by the Company and contributed a minor amount to sales and profits. CPT, which
produces thick film circuits using a proprietary etching process, gives the
Company an additional entree into the micro-electronics market.
International operations consist of distribution centers in Germany, England and
Japan, a marketing office in Singapore and a small precious metal finishing
facility in Singapore. Sales by these operations totaled $74.8 million in 1996
compared to $91.2 million in 1995. Sales by the international operations are
predominantly in their respective local currencies with the balance in U.S.
dollars. Direct exports to unaffiliated customers total $33.6 million in 1996
and $36.1 million in 1995. The majority of these sales are to Canada and western
Europe and are denominated in U.S. dollars. International markets served are
essentially the same as in the U.S.
As outlined in Note G to the Consolidated Financial Statements, the Company has
a foreign currency hedge program to protect against adverse currency movements.
Should the dollar strengthen significantly, the decrease in value of foreign
currency transactions will be partially offset by gains on the hedge contracts.
As of December 31, 1996, outstanding hedge contracts totaled $25 million, the
same as the previous year end.
18
<PAGE> 20
Cost of sales declined by $1.0 million in 1996 from 1995 on higher sales,
resulting in a $7.7 million improvement in gross profit. Improved operating
efficiencies, including higher yields on certain products, better utilization of
available capacity, effective use of recycled materials and strong cost control
measures, increased the gross margin to 28.9% of sales in 1996 from 27.3% in
1995. Stable prices and product mix helped to offset the negative margin impact
of the stronger dollar. The lower copper cost in 1996, as compared to 1995, is
passed through to the customer and thus had no impact on gross margin.
Selling, administrative and general expenses of $65.0 million represent a 4%
increase over the prior year. Expenses associated with the first phase of
implementing an enterprise-wide information system caused a portion of the
increase. The project will carry over into 1997 and beyond. Additional
administrative and legal expenses were incurred to support and structure the
$110 million modernization and expansion project and the related financial
arrangements. Compensation plans carried higher costs in 1996 and certain sales
volume related expenses increased in 1996 as well.
Research and development (R&D) expenses grew to $8.3 million or 2.2% of sales in
1996 from $7.8 million or 2.1% of sales in 1995. The increase is predominantly
from efforts to develop a new high quality, low cost precision beryllium copper
strip. The new product will be designed to augment the Company's current
offerings to the electronics markets. The R&D staffing was also increased.
Expenditures on non-beryllium alloy R&D were flat.
Other-net expense was $1.0 million in 1996 and $1.3 million in 1995. Foreign
currency gains, including realized gains on hedge contracts, were $1.2 million
higher in the current year than the last. In 1996, goodwill and other intangible
assets totaling $1.1 million associated with the Fremont, California facility
were written off. While this operation is profitable, its scope of operations,
including product offerings, research capabilities and production capacity, has
been significantly reduced since its acquisition in 1989.
Interest expense fell to $1.1 million in 1996 from $1.7 million in 1995. These
figures are net of capitalized interest associated with long-term capital
projects of $1.0 million in 1996 and $0.4 million in 1995. The weighted average
interest rate was essentially unchanged year on year.
Income before income taxes was $33.2 million in 1996, a 20.9% improvement from
1995. Slightly higher sales and significantly improved margins were responsible
for the increase.
An effective tax rate of 26.2% of pre-tax earnings was used in 1996, an increase
from the 24.6% rate in 1995. Increased pre-tax earnings, reduced foreign tax
benefits and a reduction in the allowable tax benefits from the Company-owned
life insurance program as a result of a change in the tax law caused the higher
rates. Adjustments to the statutory tax rate are detailed in Note I to the
Consolidated Financial Statements.
Comparative earnings per share were $1.52 in 1996 and $1.26 in 1995.
19
<PAGE> 21
1995 TO 1994 COMPARISON
- - -----------------------
Worldwide sales in 1995 were $369.6 million compared to $345.9 million in 1994.
All product lines, except precious metals, increased over the prior year with
beryllium alloys and specialty metal systems increasing significantly.
Sales of beryllium alloy products increased in both the domestic and
international markets. The focused marketing efforts -- teams dedicated towards
particular markets and/or end use applications -- helped support the domestic
growth. Successful examples of these efforts include the continued penetration
into the automotive electronics market and a significant increase in shipments
of products used in aircraft bearings and bushings. Telecommunications and
computers also remain important markets for beryllium alloys as do appliances,
especially in Europe. Favorable economic conditions in portions of western
Europe, particularly in the first half of the year, helped fuel an addition in
sales there. Sales in Asia grew as a result of increased market share and
development of new applications. The sales trend in general for beryllium alloy
strip products is for customers to move toward the lower price alloys such as
the Company's Alloy 174. The sales increase in 1995 over 1994 was also due, in
part, to favorable foreign currency exchange rates and the pass-through effect
of higher commodity costs, particularly copper.
Beryllium sales increased slightly in 1995 over 1994, but were still somewhat
lower than in the recent years prior to 1994. A large portion of beryllium sales
continues to be for defense/ aerospace applications and 1995 sales were enhanced
by shipments for defense programs in Europe and growth in new domestic defense
applications in avionics. The two targets for growth are new defense/aerospace
systems, particularly upgrades of current defense systems, and commercial
applications. Research and development, marketing and manufacturing efforts were
re-deployed to concentrate on specific applications in these and related
markets.
Ceramic sales grew in 1995 as compared to 1994. The increase is primarily a
result of the continued development of products utilizing the direct bond copper
technology. These sales were not profitable due to new process development and
other start-up costs.
Sales of specialty metal systems increased in 1995 over 1994. Most products
experienced gains in 1995 with CERDIP sales increasing significantly. Sales
improved as a result of developing new product applications, increasing market
share and continued expansion into the international markets. Major applications
for these products continue to be automotive electronics and telecommunications.
Precious metal sales declined significantly in 1995 as compared to 1994. Frame
lid assembly sales were reduced due to a customer's re-design of a major
microprocessor application. The re-design had been anticipated by management and
resources have been directed towards developing alternative products and
markets. Sales of physical/vapor deposition products, which service the hybrid
microelectronics, recordable CD, telecommunications and specialty coatings
markets, continue to increase. A small acquisition in late 1994 gave the Company
20
<PAGE> 22
access to the ultra-fine wire market.
Sales from International operations totaled $91.2 million in 1995 compared to
$83.5 million in 1994. International sales of beryllium alloy increased while
sales of frame lid assemblies from Singapore declined. Direct export sales to
unaffiliated customers totaled $36.1 million in 1995 and $31.4 million in 1994.
The majority of these sales were to Canada and western Europe.
Gross margin was 27.3% in 1995 as compared to 26.6% in 1994. The increase in
international sales, which generally carry higher margins, contributed to this
improvement as did the favorable exchange rates. The direct bond copper start-up
costs and a shift in the remaining frame lid assembly business to smaller and
costlier pieces offset a portion of this increase. Certain manufacturing
expenses, including maintenance at the Elmore, Ohio facility, were higher in
1995 than 1994. Commercial applications of beryllium, particularly those
products containing AlBeMet(R), also have lower margins than traditional defense
applications, although restructuring efforts have reduced certain overhead
costs. The pass-through effect of higher commodity costs in beryllium alloy
sales reduced the margin percent while having no bearing on the actual margin
measured in dollars.
Selling, administrative and general expenses were $62.7 million (17.0% of sales)
in 1995 compared to $55.5 million (16.0% of sales) in 1994. Most expense
categories were higher. Causes of the increases include the alloy products
re-design effort and start-up costs associated with the Singapore subsidiary
established to provide marketing support in South Asia. Distribution and other
sales-related expenses grew due to higher volumes of beryllium alloy products.
The exchange rate effect on the international operations' expenses was also
unfavorable.
Research and development (R&D) expenses were $7.8 million in 1995 compared to
$8.8 million in 1994. The decrease was due to focusing beryllium products'
research efforts on selected key applications. R&D expenses supporting all other
products either increased or were flat with the prior year. The R&D efforts for
new process and product development are coordinated with the Company's overall
marketing strategies and growth plans.
Other-net expense was $1.3 million in 1995 and $2.6 million in 1994. This
category included such expenses as amortization of intangible assets and other
non-operating items. The decrease in net expense was due, in part, to lower
foreign currency exchange losses in 1995.
Interest expense fell to $1.7 million in 1995 from $2.1 million in 1994 due to a
lower average level of debt outstanding and an increase in capitalized interest
associated with active capital expenditure projects.
Income before income taxes rose to $27.4 million in 1995 from $23.0 million in
1994. Higher sales and the resulting gross margin, along with a favorable
foreign currency effect, combined to improve earnings. This improvement was
partially offset by the increase in selling, general and administrative
expenses.
21
<PAGE> 23
In 1995, an effective tax rate of 24.6% of pre-tax earnings was employed
compared to 19.4% of pre-tax earnings in 1994. Higher domestic and foreign
pre-tax earnings accounted for the increase.
Comparative earnings per share were $1.26 in 1995 and $1.14 in 1994.
FINANCIAL POSITION
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operations was $45.0 million in 1996, a $5.4 million improvement
from 1995. Total depreciation, depletion and amortization was $23.0 million in
1996 compared to $20.9 million in 1995. The December 31, 1996 cash balance of
$31.7 million represents a $2.2 million increase from the prior year end while
total debt increased $4.8 million. The accounts receivable balance was flat year
on year; however, with higher sales in the fourth quarter 1996 than fourth
quarter 1995, the average days sales outstanding improved.
The $110 million modernization and expansion project begun in 1996 will be
financed in part by two operating leases totaling approximately $75 million (see
Note F to the Consolidated Financial Statements). While the leases will also
finance the construction phase of the project, lease payments are not scheduled
to begin until the underlying assets are placed in service in 1997 and 1998.
Capital expenditures for property, plant and equipment, excluding items under
lease, were $26.8 million while mine development payments totaled an additional
$3.7 million. Major expenditures included a new plating line at the Providence,
Rhode Island facility and completion of the new rod mill at the Elmore, Ohio
facility. The Company also began construction of a new facility in Lorain, Ohio
that will produce a specialty family of alloys in rod, bar and tube form. The
facility is scheduled to be operational in mid-1997. To finance the majority of
this project, the Company issued $8.3 million of tax-advantaged industrial
revenue development bonds. Unexpended bond proceeds of $7.9 million are
restricted for use on the Lorain project and are included as cash and cash
equivalents on the consolidated balance sheets as of December 31, 1996.
Short-term debt at December 31, 1996 of $25.7 million includes $6.6 million of
the current portion of long-term debt. The balance is denominated in precious
metals and foreign currencies to provide hedges against current assets so
denominated. Credit lines amounting to $70.5 million are available for
additional borrowing. The domestic and international lines are uncommitted,
unsecured and reviewed annually. The precious metal facility is committed,
secured and renewed annually.
Long-term debt was $18.9 million or 8.6% of total capital at December 31, 1996.
Long-term financial resources available to the Company include $60 million of
medium-term notes and $50 million under a revolving credit agreement.
Approximately 359,000 shares of Common Stock at a cost of $6.7 million were
re-purchased in
22
<PAGE> 24
early 1996 under a program initiated during the fourth quarter 1995. The program
was suspended in the second quarter 1996. Common Stock was used to acquire CPT
in the fourth quarter 1996. Dividends paid on outstanding shares totaled $6.5
million, an increase of $1.0 million from last year. The quarterly dividend per
share increased to $0.11 from $0.10 in the third quarter 1996 following a two
cents per share increase in the third quarter 1995.
Funds being generated from operations plus the available borrowing capacity are
believed adequate to support operating requirements, capital expenditures,
remediation projects, dividends and small acquisitions. Excess cash, if any, is
invested in money market instruments and other high quality investments.
Cash flow from operating activities in 1995 was $39.6 million. Cash balances
increased $9.1 million during the year while total debt increased less than $1
million. Capital expenditures were $24.2 million in 1995. The Company
re-purchased $2.8 million of Common Stock and paid $5.5 million dividends. As of
December 31, 1995, long-term debt was $17.0 million or 8% of total capital.
ORE RESERVES
The Company's reserves of beryllium-bearing bertrandite ore are located in Juab
County, Utah. An ongoing drilling program has generally added to proven
reserves. Proven reserves are the measured quantities of ore commercially
recoverable through the open pit method. Probable reserves are the estimated
quantities of ore known to exist, principally at greater depths, but prospects
for commercial recovery are indeterminable. Ore dilution that occurs during
mining approximates 7%. About 87% of beryllium in ore is recovered in the
extraction process. The Company augments its proven reserves of bertrandite ore
through the purchase of imported beryl ore (approximately 4% beryllium) which is
also processed at the Utah extraction plant.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C>
Proven bertrandite ore reserves at
year-end (thousands of dry tons) 6,763 6,927 6,747 6,786 6,787
Grade % beryllium 0.249% 0.249% 0.251% 0.251% 0.251%
Probable bertrandite ore reserves at
year-end (thousands of dry tons) 7,432 7,346 7,559 7,594 7,482
Grade % beryllium 0.217% 0.281% 0.279% 0.279% 0.281%
Bertrandite ore processed (thousands
of dry tons, diluted) 97 96 79 92 91
Grade % beryllium, diluted 0.236% 0.232% 0.240% 0.232% 0.234%
</TABLE>
23
<PAGE> 25
INFLATION AND CHANGING PRICES
The prices of certain major raw materials, including copper, nickel and gold
purchased by the Company, decreased during 1996. Such changes in costs are
generally reflected in selling price adjustments. The prices of labor and other
factors of production generally increase with inflation. Additions to capacity,
while more expensive over time, usually result in greater productivity or
improved yields. However, market factors, alternative materials and competitive
pricing affect the Company's ability to offset wage and benefit increases. The
Company employs the last-in, first-out (LIFO) inventory valuation method
domestically to more closely match current costs with revenues.
ENVIRONMENTAL MATTERS
As indicated in Note L to the Consolidated Financial Statements, the Company
maintains an active program of environmental compliance. For projects involving
remediation, estimates of the probable costs are made and the Company has
reserved $4.0 million at December 31, 1996 ($3.3 million at December 31, 1995).
This reserve covers existing and currently foreseen projects.
24
<PAGE> 26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - ----------------------------------------------------
The report of independent auditors and the following consolidated
financial statements of the Company included in the annual report to
shareholders for the year ended December 31, 1996 are incorporated herein by
reference:
Consolidated Balance Sheets - December 31, 1996 and 1995.
Consolidated Statements of Income - Years ended December 31, 1996, 1995
and 1994.
Consolidated Statements of Shareholders' Equity - Years ended December
31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years ended December 31, 1996,
1995 and 1994.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
Quarterly Data on page 17 of the annual report to shareholders for the years
ended December 31, 1996 and December 31, 1995 is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- - ------------------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None
25
<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - -----------------------------------------------------------
The information under Election of Directors on pages 2 through
5 of the Proxy Statement dated March 17, 1997 is incorporated herein by
reference. Information with respect to Executive Officers of the Company is set
forth earlier on pages 14 and 15 of this Form 10-K annual report.
ITEM 11. EXECUTIVE COMPENSATION
- - -------------------------------
The information under Executive Officer Compensation on pages 8
through 12 of the Proxy Statement dated March 17, 1997 is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- - ------------------------------------------------------------
MANAGEMENT
----------
The information under Common Stock Ownership of Certain Beneficial
Owners, Directors and Management on pages 6 and 7of the Proxy Statement dated
March 17, 1997 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - -------------------------------------------------------
The information under Related Party Transactions on page 16 of the
Proxy Statement dated March 17, 1997 is incorporated herein by reference.
26
<PAGE> 28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON
- - -------- -------------------------------------------------------
FORM 8-K
--------
(A) 1. Financial Statements and Supplemental Information
-------------------------------------------------
Included in Part II of this Form 10-K annual report
by reference to the annual report to shareholders for
the year ended December 31, 1996 are the following
consolidated financial statements:
Consolidated Balance Sheets - December 31, 1996 and
1995.
Consolidated Statements of Income - Years ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Shareholders' Equity -
Years ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
(A) 2. Financial Statement Schedules
-----------------------------
The following consolidated financial information for
the years 1996, 1995 and 1994 is submitted herewith:
Schedule II - Valuation and qualifying accounts.
All other schedules for which provision is made in
the applicable accounting regulations of the
Securities and Exchange Commission are not required
under the related instructions or are inapplicable,
and therefore have been omitted.
27
<PAGE> 29
(a) 3. EXHIBITS
-----------
(3a) Articles of Incorporation of the Company as
amended February 28, 1989 (filed as Exhibit 3a to
the Company's Form 10-K Annual Report for the year
ended December 31, 1994), incorporated herein by
reference.
(3b) Regulations of the Company as amended April 27,
1993 (filed as Exhibit 3b to the Company's Form
10-K Annual Report for the year ended December 31,
1994), incorporated herein by reference.
(4a) Credit Agreement dated as of December 13, 1994
between the Company and National City Bank acting
for itself and as agent for three other banking
institutions (filed as Exhibit 4a to the Company's
Form 10-K Annual Report for the year ended
December 31, 1994), incorporated herein by
reference.
(4b) First Amendment to Amended and Restated Credit
Agreement dated December 30, 1996 between Brush
Wellman Inc. and National City Bank acting for
itself and as agent for three other banking
institutions.
(4c) Rights Agreement between the Company and Society
National Bank (formerly Ameritrust Company
National Association) as amended February 28, 1989
(filed as Exhibit 4b to the Company's Form 10-K
Annual Report for the year ended December 31,
1994), incorporated herein by reference.
(4d) Issuing and Paying Agency Agreement dated as of
February 1, 1990, including a specimen form of a
medium term note issued thereunder, between the
Company and First Trust N.A. (formerly with Morgan
Guaranty Trust Company of New York) (filed as
Exhibit 4c to the Company's Form 10-K Annual
Report for the year ended December 31, 1994),
incorporated herein by reference.
(4e) Pursuant to Regulation S-K, Item 601 (b)(4), the
Company agrees to furnish to the Commission, upon
its request, a copy of the instruments defining
the rights of holders of long-term debt of the
Company that are not being filed with this report.
(10a)* Employment Agreement entered into by the Company
and Mr. Gordon D. Harnett on March 20, 1991.
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this report.
28
<PAGE> 30
(10b)* Form of Employment Agreement entered into by the
Company and Messrs. Brophy, Hanes, Harlan, Rozek
and Sandor on February 20, 1989 (filed as Exhibit
10b to the Company's Form 10-K Annual Report for
the year ended December 31, 1994), incorporated
herein by reference.
(10c)* Form of Amendment to the Employment Agreement
(dated February 20, 1989) entered into by the
Company and Messrs. Brophy, Hanes, Harlan, Rozek
and Sandor dated February 28, 1991.
(10d)* Form of Employment Agreement entered into by the
Company and Mr. Daniel A. Skoch on January 28,
1992, Mr. Stephen Freeman dated August 3, 1993,
and Mr. Carl Cramer dated December 6, 1994 (filed
as Exhibit 10d to the Company's Form 10-K Annual
Report for the year ended December 31, 1991),
incorporated herein by reference.
(10e)* Form of Trust Agreement between the Company and
Key Trust Company of Ohio, N.A. (formerly
Ameritrust Company National Association) on behalf
of Messrs. Brophy, Hanes, Harlan, Rozek and Sandor
dated February 20, 1989, Mr. Harnett dated March
20, 1991 and Mr. Skoch dated January 28, 1992, Mr.
Freeman dated August 3, 1993, and Mr. Cramer dated
December 6, 1994 (filed as Exhibit 10e to the
Company's Form 10-K Annual Report for the year
ended December 31, 1994), incorporated herein by
reference.
(10f) Form of Indemnification Agreement entered into by
the Company and Mr. G. D. Harnett on March 20,
1991 (filed as Exhibit 10f to the Company's Form
10-K Annual Report for the year ended December 31,
1994), incorporated herein by reference.
(10g) Form of Indemnification Agreement entered into by
the Company and Messrs. J. H. Brophy, A. J.
Sandor, C. B. Harlan, H. D. Hanes, and R. H. Rozek
on June 27, 1989, Mr. D. A. Skoch on January 28,
1992, Mr. S. Freeman dated August 3, 1993, Mr. C.
Cramer on December 6, 1994 and Messrs. M. D.
Anderson, A. T. Lubrano, S. A. Moyer and J. J.
Paschall on January 19, 1996 (filed as Exhibit 10g
to the Company's Form 10-K Annual Report for the
year ended December 31, 1994), incorporated herein
by reference.
(10h) Form of Indemnification Agreement entered into by
the Company and Messrs. C. F. Brush III, F. B.
Carr, W. P. Madar, G. C. McDonough, R. M. McInnes,
H. G. Piper and J. Sherwin Jr. on
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this report.
29
<PAGE> 31
June 27, 1989, Mr. A. C. Bersticker on April 27,
1993, Mr. D. L. Burner on May 2, 1995 and Mr.
James P. Mooney on October 1, 1996 (filed as
Exhibit 10h to the Company's Form 10-K Annual
Report for the year ended December 31, 1994),
incorporated herein by reference.
(10i)* Directors' Retirement Plan as amended January
26, 1993 (filed as Exhibit 10i to the Company's
Form 10-K Annual Report for the year ended
December 31, 1992), incorporated herein by
reference.
(10j)* Deferred Compensation Plan for Nonemployee
Directors effective January 1, 1992 (filed as
Exhibit I to the Company's Proxy Statement dated
March 6, 1992, Commission File No. 1- 7006),
incorporated herein by reference.
(10k)* Form of Trust Agreement between the Company and
National City Bank dated January 1, 1992 on behalf
of Nonemployee Directors of the Company (filed as
Exhibit 10k to the Company's Form 10-K Annual
Report for the year ended December 31, 1992),
incorporated herein by reference.
(10l)* Incentive Compensation Plan adopted December 16,
1991, effective January 1, 1992 (filed as Exhibit
10l to the Company's Form 10-K Annual Report for
the year ended December 31, 1991), incorporated
herein by reference.
(10m)* Supplemental Retirement Plan as amended and
restated December 1, 1992 (filed as Exhibit 10n to
the Company's Form 10-K Annual Report for the year
ended December 31, 1992), incorporated herein by
reference.
(10n)* Amendment Number 3, adopted February 8, 1995, to
Supplemental Retirement Benefit Plan as amended
and restated December 1, 1992 (filed as Exhibit
10o to the Company's Form 10-K Annual Report for
the year ended December 31, 1994), incorporated
herein by reference.
(10o)* Amendment Number 2, adopted January 1, 1996, to
Supplemental Retirement Benefit Plan as amended
and restated December 1, 1992.
(10p)* Form of Trust Agreement between the Company and
Key Trust Company of Ohio, N.A. (formerly Society
National Bank) dated January 8, 1993 pursuant to
the December 1, 1992 amended Supplemental
Retirement Benefit Plan (filed as
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this report.
30
<PAGE> 32
Exhibit 10p to the Company's Form 10-K Annual
Report for the year ended December 31, 1992),
incorporated herein by reference.
(10q)* 1979 Stock Option Plan, as amended pursuant to
approval of shareholders on April 21, 1982 (filed
as Exhibit 15A to Post- Effective Amendment No. 3
to Registration Statement No. 2- 64080),
incorporated herein by reference.
(10r)* 1984 Stock Option Plan as amended by the Board of
Directors on April 18, 1984 and February 24, 1987
(filed as Exhibit 4.4 to Registration Statement
No. 33-28605), incorporated herein by reference.
(10s)* 1989 Stock Option Plan (filed as Exhibit 4.5 to
Registration Statement No. 33-28605), incorporated
herein by reference.
(10t)* 1990 Stock Option Plan for Nonemployee Directors
(filed as Exhibit 4.6 to Registration Statement
No. 33-35979), incorporated herein by reference.
(10u)* 1995 Stock Incentive Plan (filed as Exhibit A to
the Company's Proxy Statement dated March 13,
1995, Commission File No. 1- 7006), incorporated
herein by reference.
(10v) Lease dated as of October 1, 1996, between Brush
Wellman Inc. and Toledo-Lucas County Port
Authority.
(10w) Master Lease Agreement dated December 30, 1996
between Brush Wellman Inc. and National City Bank
acting for itself and as agent for certain
participants.
(11) Statement re: calculation of per share earnings
for the years ended December 31, 1996, 1995 and
1994.
(13) Portions of the Annual Report to shareholders for
the year ended December 31, 1996.
(21) Subsidiaries of the registrant.
(23) Consent of Ernst & Young LLP.
(24) Power of Attorney.
(27) Financial Data Schedule.
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this report.
31
<PAGE> 33
(99) Form 11-K Annual Report for the Brush Wellman Inc.
Savings and Investment Plan for the year ended
December 31, 1996.
(b) REPORTS ON FORM 8-K
-------------------
There were no reports on Form 8-K filed during the fourth
quarter of the year ended December 31, 1996.
*Reflects management contract or other compensatory
arrangement required to be filed as an Exhibit pursuant to
Item 14(c) of this report.
32
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
March 27, 1997
BRUSH WELLMAN INC.
By: /s/ Gordon D. Harnett By: /s/ Carl Cramer
--------------------------- -------------------------------
Gordon D. Harnett Carl Cramer
Chairman of the Board, Vice President and
President and Chief Executive Officer Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GORDON D. HARNETT* Chairman of the Board,
- - ----------------------------- President, Chief Executive March 27, 1997
Gordon D. Harnett Officer and Director
(Principal Executive Officer)
CARL CRAMER Vice President and Chief March 27, 1997
- - ---------------------------- Financial Officer
Carl Cramer
ALBERT C. BERSTICKER* Director March 27, 1997
- - ---------------------------
Albert C. Bersticker
CHARLES F. BRUSH, III* Director March 27, 1997
- - ----------------------------
Charles F. Brush, III
DAVID L. BURNER* Director March 27, 1997
- - ----------------------------
David L. Burner
FRANK B. CARR* Director March 27, 1997
- - -----------------------------
Frank B. Carr
WILLIAM P. MADAR* Director March 27, 1997
- - -----------------------------
William P. Madar
GERALD C. MCDONOUGH* Director March 27, 1997
- - -----------------------------
Gerald C. McDonough
ROBERT M. MCINNES* Director March 27, 1997
- - -----------------------------
Robert M. McInnes
JAMES P. MOONEY* Director March 27, 1997
- - -----------------------------
James P. Mooney
HENRY G. PIPER* Director March 27, 1997
- - -----------------------------
Henry G. Piper
JOHN SHERWIN, JR.* Director March 27, 1997
- - ----------------------------
John Sherwin, Jr.
</TABLE>
*The undersigned, by signing his name hereto, does sign and
execute this report on behalf of each of the above-named officers and directors
of Brush Wellman Inc., pursuant to Powers of Attorney executed by each such
officer and director filed with the Securities and Exchange Commission.
By: /s/ Carl Cramer
------------------------------
Carl Cramer March 27, 1997
Attorney-in-Fact
33
<PAGE> 35
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BRUSH WELLMAN INC. AND SUBSIDIARIES
Years ended December 31, 1996, 1995 and 1994
- - -----------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- - -----------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
-----------------------------------
DESCRIPTION Balance at Beginning (1) (2)
of Period Charged to Costs Charged to Other Deduction- Balance at End
and Expenses Accounts-Describe Describe of Period
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Deducted from assets accounts:
Allowance for doubtful
accounts receivable $1,014,704 $ 29,455 $0 $89,870 (A) $ 954,289
Inventory reserves and
obsolescence $1,600,000 $2,656,779 $0 $2,538,984 (B) $1,717,795
Year ended December 31, 1995
Deducted from assets accounts:
Allowance for doubtful
accounts receivable $1,036,797 $ 203,213 $0 $225,306 (A) $1,014,704
Inventory reserves and
obsolescence $1,466,039 $1,590,856 $0 $1,456,895 (B) $1,600,000
Year ended December 31, 1994
Deducted from assets accounts:
Allowance for doubtful
accounts receivable $ 904,913 $ 254,042 $0 $122,158 (A) $1,036,797
Inventory reserves and
obsolescence $3,187,135 $ 0 $0 $1,721,096 (B) $1,466,039
Allowance for deferred tax
assets $1,540,000 $ 0 $0 $1,540,000 (C) $ 0
<FN>
Note A - Bad debts written-off.
Note B - Inventory write-off.
Note C - Net operating loss carryforwards utilized or expired.
</TABLE>
<PAGE> 1
EXHIBIT 4b
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------------------
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of December 30, 1996 ("Amendment"), by and among Brush Wellman Inc., an
Ohio corporation ("Borrower"), the banks that are parties to this Amendment (the
"Banks"), and National City Bank, as agent for the Banks (in that capacity,
"NCB-Agent"),
WITNESSETH THAT:
----------------
WHEREAS, Borrower, the Banks and NCB-Agent entered into an
Amended and Restated Credit Agreement, dated as of December 13, 1994 (together
with all Exhibits and Schedules thereto, the "Credit Agreement"), under which
the Banks, subject to certain conditions, agreed to lend to Borrower up to
$50,000,000 from time to time in accordance with the terms thereof; and
WHEREAS, the parties desire to amend the Credit Agreement as
set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements contained herein, the parties hereto agree as
follows:
1. Effect of Amendment; Definitions.
---------------------------------
The Credit Agreement shall be and hereby is amended as
provided in Section 2 hereof. Except as expressly amended in Section 2 hereof,
the Credit Agreement shall continue in full force and effect in accordance with
its respective provisions on the date hereof. As used in the Credit Agreement,
the terms "Credit Agreement", "Agreement", "this Agreement", "herein",
"hereinafter", "hereto", "hereof", and words of similar import shall, unless the
context otherwise requires, mean the Credit Agreement as amended and modified by
this Amendment.
2. Amendments.
-----------
(A) Subsection 3B.02 of the Credit Agreement shall be amended
by deleting the same and substituting in lieu thereof the following:
"3B.02 LEVERAGE. Borrower will not suffer or permit the
Companies' Funded Indebtedness at any time to exceed an amount equal to the
Leverage Multiplier (as hereinafter defined) times the Companies' EBITDA for the
four consecutive fiscal quarters most recently ended, all as determined on a
consolidated basis. As used herein, "Leverage Multiplier" means (i) from the
date of this Agreement to December 31, 1998, inclusive, 3.00, and (ii) on and
after January 1, 1999, 2.75."
<PAGE> 2
(B) Subsection 3B.03 of the Credit Agreement is hereby
deleted and shall be left intentionally blank.
(C) Subsection 3B.04 of the Credit Agreement shall be amended
by deleting the same and substituting in lieu thereof the following:
"3B.04 INTEREST COVERAGE. Borrower will not at any time suffer
or permit the ratio (the "Interest Coverage Ratio") of (a) the aggregate of the
EBITDA of the Companies for the four consecutive fiscal quarters most recently
ended, to (b) the aggregate Interest Expense of the Companies for that period,
to be less than 5.00 to 1.00, all as determined on a consolidated basis."
(D) Subsection 3B.05 of the Credit Agreement shall be amended
by deleting the same and substituting in lieu thereof the following:
"3B.05 FUNDED INDEBTEDNESS. Borrower will not suffer or permit
the Funded Indebtedness of the Companies, at any time, to exceed an amount equal
to the Required Multiplier (as hereinafter defined) times the sum of the Funded
Indebtedness of the Companies plus the Tangible Net Worth of the Companies, all
as determined on a consolidated basis. As used herein, "Required Multiplier"
means (i) from the date of this Agreement to December 31, 2000, inclusive, 0.50,
and (ii) on and after January 1, 2001, 0.45 (provided, however, that Borrower
acknowledges and agrees that the inclusion in this Subsection of dates that are
beyond the current Expiration Date is not intended to supersede Subsection
2A.05, does not constitute an extension of the Expiration Date to or beyond
those dates, and does not obligate the Banks to extend the Expiration Date to or
beyond those dates).
(E) Subsection 3D.01(iv) of the Credit Agreement shall be
amended by deleting the same and substituting in lieu thereof the following:
"(iv) any Guaranty by Borrower of Funded Indebtedness of
any Company otherwise permitted by this Agreement,"
(F) Subsection 3D.02 of the Credit Agreement shall be amended
by deleting the same and substituting in lieu thereof the following:
"3D.02 BORROWINGS. No Company will create, assume or have
outstanding at any time any Indebtedness for Borrowed Money or any Funded
Indebtedness of any kind if after giving effect to such Indebtedness for
Borrowed Money or Funded Indebtedness, Borrower would be in non-compliance with
any of the
-2-
<PAGE> 3
financial standards set forth in Subsections 3B.01 to 3B.05, inclusive."
(G) Subsection 3D.03(vi) of the Credit Agreement shall be
amended by deleting the same and substituting in lieu thereof the following:
"(vi) any lease, other than any capitalized lease (it being
agreed that a capitalized lease is a lien rather than a lease
for the purposes of this Agreement) or the Master Lease
Agreement or the Port Authority Lease, so long as the
aggregate annual rentals under all such leases of all the
Companies do not exceed six million five hundred thousand
dollars ($6,500,000),"
(H) Subsection 3D.04 of the Credit Agreement shall be amended
by deleting the same and substituting in lieu thereof the following:
"3D.04 EQUITY TRANSACTIONS. No Company will
(i) be a party to any merger or consolidation, or
(ii) be or become a party to any joint venture or partnership,
or make or keep any investment in any other stocks or other equity
securities of any kind or otherwise acquire all or substantially all of
the assets of another person, except that this clause (ii) shall not
apply to (A) Borrower's existing investments in the stocks and other
equity securities of existing or future Subsidiaries, (B) any other
investment reflected in Borrower's Most Recent 4A.04 Financial
Statements, or (C) acquisitions of assets of persons or equity
investments made in persons, other than Subsidiaries, after the date of
this Agreement in an aggregate amount, excluding investments permitted
by Subsection 3D.01, not to exceed forty-five million dollars
($45,000,000) in the aggregate during any fiscal year of Borrower,
provided, that of that amount not more than twenty million dollars
($20,000,000) in the aggregate is paid by the Companies in cash during
any fiscal year, or
(iii) lease as lessor, sell, sell-leaseback or otherwise
transfer (whether in one transaction or a series of transactions) all
or any substantial part of its fixed assets (other than in respect of
the Port Authority Lease and chattels that shall have become obsolete
or no longer useful in its present business with a fair market value
not exceeding ten million dollars ($10,000,000) in the aggregate during
any fiscal year), or the capital stock of any Subsidiary of
-3-
<PAGE> 4
Borrower (other than the sale of all of the capital stock of one or
more Subsidiaries of Borrower that own assets with a fair market value
not exceeding ten million dollars ($10,000,000) in the aggregate
during any fiscal year so long as no Bank, within ten (10) Banking
Days of receipt of notice of the proposed sale, notifies Borrower in
writing that such Bank believes the proposed sale could have a
Material adverse effect on the consolidated financial condition of the
Companies);
PROVIDED, that if no Default or Potential Default shall then exist and if none
would thereupon begin to exist, this Subsection 3D.04 shall not apply (A) to any
merger or consolidation of any Subsidiary of Borrower with any other Subsidiary
of Borrower so long as a Subsidiary of Borrower is the surviving entity or to
any merger or consolidation of any wholly owned Subsidiary of Borrower with
Borrower so long as Borrower is the surviving corporation, or (B) to any
dissolution and liquidation of a Subsidiary of Borrower, or any transfer of
assets between Subsidiaries of Borrower or from any Subsidiary of Borrower to
Borrower."
(I) Subsection 5A.04 of the Credit Agreement shall be amended
by deleting the same and substituting in lieu thereof the following:
"5A.04 CROSS-DEFAULT. If, in respect of any existing or future
Indebtedness for Borrowed Money (regardless of maturity) or Funded Indebtedness
now owing or hereafter incurred by Borrower or any Subsidiary of Borrower, there
should occur or exist under its original provisions (except for any amendment
made prior to the date of this Agreement but without giving effect to any
amendment, consent or waiver after the date of this Agreement) any event,
condition or other thing which constitutes, or which with the giving of notice
or the lapse of any applicable grace period or both would constitute, a default
which accelerates (or permits any creditor or creditors or representative
thereof to accelerate) the maturity of any Indebtedness for Borrowed Money or
Funded Indebtedness; or if any Indebtedness for Borrowed Money (regardless of
maturity) or Funded Indebtedness (other than any payable on demand) shall not be
paid in full at its stated maturity; or if any Indebtedness for Borrowed Money
or Funded Indebtedness payable on demand shall not be paid in full on demand
therefor."
(J) Section 9 of the Credit Agreement shall be amended as
follows:
(1) The definition of "Funded Indebtedness" is amended by
deleting the same and inserting the following in lieu thereof:
-4-
<PAGE> 5
"FUNDED INDEBTEDNESS of a person shall mean, without
duplication:
(a) all Indebtedness for Borrowed Money of such person
and all other obligations of such person for the
deferred purchase price of property or services
(including, without limitation, all obligations
contingent or otherwise of such person in connection
with acceptance, letter of credit or similar
facilities and in connection with any agreement to
purchase, redeem or otherwise acquire for value any
capital stock of such person, or agreement to
purchase, redeem or otherwise acquire for value any
rights or options to acquire such capital stock, now
or hereafter outstanding);
(b) all indebtedness created or arising under any sale
and leaseback arrangement, conditional sale or other
title retention agreement with respect to property
owned or acquired by such person (whether or not the
rights and remedies of the seller or lender under
such agreement in the event of default are limited to
repossession or sale of such property);
(c) All obligations secured by a Lien on property owned by
such person (whether or not assumed) (without regard to any limitation
of the rights and remedies of the holder of such Lien or the lessor
under any lease to repossession or sale of such property); and
(d) All obligations of such person under a product financing
or similar arrangement described in paragraph 8 of FASB Statement of
Accounting Standards No. 49 or any similar requirement of GAAP;"
(2) The definition of "Guarantor" is amended by deleting the
same and inserting the following in lieu thereof:
"GUARANTOR means any person that is liable for any Contingent
Obligation; and Guaranty or guaranty means the obligation of a
Guarantor; provided, however, that the amount of any Guaranty
shall be deemed to be equal to the outstanding amount of the
obligation that is guaranteed thereby or such lesser amount to
which the maximum exposure of the Guarantor may be
contractually limited in writing;"
(3) The definition of "Tangible Net Worth" is amended by
deleting the same and inserting the following in lieu thereof:
"TANGIBLE NET WORTH means (a) book net worth, less (b) such
assets of the Companies, on a consolidated basis,
-5-
<PAGE> 6
as consist of good will, costs of businesses over net assets
acquired, patents, copyrights, trademarks, mailing lists,
catalogues, bond discount, underwriting expense,
organizational expenses and intangibles (except that
intangibles such as treasury stock which shall have already
been deducted from book net worth shall not be deducted
again), all as determined on a consolidated basis in
accordance with GAAP;"
(4) The following definitions shall be inserted in
alphabetical order:
"CONTINGENT OBLIGATION means any direct or indirect liability,
contingent or otherwise, with respect to any Funded Indebtedness, lease,
dividend, letter of credit, banker's acceptance or other obligation of another
person incurred to provide assurance to the obligee of such obligation that such
obligation will be paid or discharged, that any agreements relating thereto will
be complied with, or that the holders of such obligation will be protected (in
whole or in part) against loss in respect thereof;
EBIT means for any period, with respect to Borrower and its
Subsidiaries, the sum of (a) the Net Income for such period,
plus (b) the Interest Expense for such period, plus (c)
charges against income for taxes for such period, all on a
consolidated basis;
EBITDA means for any period, with respect to Borrower and its
Subsidiaries, the sum of (a) EBIT plus (b) the charges against
income for depreciation for such period plus (c) the charges
against income for amortization for such period, plus (d)
other non-cash charges for such period, minus (e) any and all
non-cash credits to Net Income, all as determined on a
consolidated basis in accordance with GAAP;
INDEBTEDNESS FOR BORROWED MONEY OR INDEBTEDNESS FOR BORROWED
MONEY of a person shall mean at any time, all indebtedness required by GAAP to
be reflected as indebtedness on such person's balance sheet, including as
appropriate, all indebtedness (i) in respect of any money borrowed; (ii) under
or in respect of any Contingent Obligation (whether direct or indirect) of any
money borrowed; (iii) evidenced by any loan or credit agreement, promissory
note, debenture, bond, or other similar written obligation in respect of
borrowed money; or (iv) arising under any lease that is, or is required under
GAAP to be, capitalized on the balance sheet of such person at such time or any
lease that is a Synthetic Lease;
INTEREST EXPENSE means, for any period, with respect to
Borrower and its Subsidiaries, the aggregate amount of
interest expense for such period on the aggregate principal
amount of any Funded Indebtedness, including capitalized
interest, as determined on a consolidated basis in accordance
with GAAP;
-6-
<PAGE> 7
MASTER LEASE AGREEMENT means the Master Lease Agreement, dated
as of December 30, 1996, between Borrower and National City
Bank, for itself and as agent for certain participants,
relating to the lease of certain items of equipment, as the
same may be amended or modified from time to time;
PORT AUTHORITY LEASE means the Lease, dated as of October 1,
1996, between the Toledo-Lucas County Port Authority, as
lessor, and Borrower, as lessee, relating to certain real and
personal property located at 14710 West Portage River S. Road,
Harris Township, Ohio 43416, as the same may be amended or
modified from time to time;
SYNTHETIC LEASE means any lease that is considered a financing
for federal income tax purposes, but is considered an
operating lease for purposes of GAAP, including, without
limitation, the Master Lease Agreement;"
3. Representations and Warranties.
-------------------------------
(A) Borrower hereby represents and warrants to the Banks and
NCB-Agent that all representations and warranties set forth in the Credit
Agreement, as amended hereby, are true and correct in all material respects, and
that this Amendment and the subject notes have been executed and delivered by a
duly authorized officer of Borrower and constitute the legal, valid and binding
obligation of Borrower, enforceable against Borrower in accordance with their
respective terms.
(B) The execution, delivery and performance by Borrower of
this Amendment and its performance of the Credit Agreement and the subject notes
have been authorized by all requisite corporate action and will not (1) violate
(a) any order of any court, or any rule, regulation or order of any other agency
of government, (b) the Articles of Incorporation, the Code of Regulations or any
other instrument of corporate governance of Borrower, or (c) any provision of
any indenture, agreement or other instrument to which Borrower is a party, or by
which Borrower or any of its properties or assets are or may be bound; (2) be in
conflict with, result in a breach of or constitute, alone or with due notice or
lapse of time or both, a default under any indenture, agreement or other
instrument referred to in (1)(c) above; or (3) result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever.
4. Miscellaneous.
-------------
(A) This Amendment shall be construed in accordance with and
governed by the laws of the State of Ohio, without
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<PAGE> 8
reference to principles of conflict of laws. Borrower agrees to pay on demand
all costs and expenses of the Banks and NCB-Agent, including reasonable
attorneys' fees and expenses, in connection with the preparation, execution and
delivery of this Amendment.
(B) The execution, delivery and performance by the Banks and
NCB-Agent of this Amendment shall not constitute, or be deemed to be or
construed as, a waiver of any right, power or remedy of the Banks or NCB-Agent,
or a waiver of any provision of the Credit Agreement. None of the provisions of
this Amendment shall constitute, or be deemed to be or construed as, a waiver of
any "default under this Agreement" or any "event of default," as those terms are
defined in the Credit Agreement.
(C) This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to
be duly executed as of the day and year first above written.
Address: BRUSH WELLMAN INC.
17876 St. Clair Avenue
Cleveland, Ohio 44110
By:
-----------------------------------
Title:
--------------------------------
Address: NATIONAL CITY BANK,
Deliveries: for itself and as Agent
Metro/Ohio Division
1900 East Ninth Street
Cleveland, Ohio 44114-3484 By:
Fax: (216) 575-9396 -----------------------------------
Title:
--------------------------------
Mail:
Metro/Ohio Division
P.O. Box 5756
Cleveland, Ohio 44101
Address: KEYBANK NATIONAL ASSOCIATION
127 Public Square
Cleveland, Ohio 44114 By:
-----------------------------------
Title:
--------------------------------
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<PAGE> 9
Address: THE BANK OF NOVA SCOTIA
600 Peachtree St., NE
Suite 2700
Atlanta, Georgia 30308 By:
---------------------------------
Title:
------------------------------
Address: FIRST CHICAGO NBD BANK, N.A.
611 Woodward
Detroit, Michigan 48226 By:
--------------------------------
Title:
-----------------------------
<PAGE> 1
Exhibit 10-V
EXECUTION COPY
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
LEASE
between
TOLEDO-LUCAS COUNTY PORT AUTHORITY, Lessor
and
BRUSH WELLMAN INC., Lessee
---------------------------------------------
Dated
as of
October 1, 1996
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
This Lease was executed in ten
counterparts, of which this is
Counterpart No. 1. No assignment of or
security interest in this Lease may be
perfected without possession of executed
Counterpart No. 1 of this Lease.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
(This Table of Contents is not a part of the Lease
but rather is for convenience of reference only.)
PAGE
----
<S> <C>
Preambles................................................................................................. 1
ARTICLE I
DEFINITIONS
Section 1.1 Use of Defined Terms....................................................................... 2
Section 1.2 Definitions................................................................................ 2
Section 1.3 Interpretation............................................................................. 8
Section 1.4 Captions and Headings...................................................................... 8
ARTICLE II
LEASE OF PROJECT
Section 2.1 Lease; Lease Term; Possession and Use...................................................... 9
Section 2.2 Ground Lease............................................................................... 9
Section 2.3 Representations of the Lessor.............................................................. 9
Section 2.4 Representations of the Lessee.............................................................. 9
Section 2.5 Lessee Required to Pay Costs in Event
Proceeds Insufficient............................................................ 10
ARTICLE III
RENTAL PAYMENTS AND ADDITIONAL PAYMENTS
Section 3.1 Rental Payments............................................................................ 12
Section 3.2 Additional Payments........................................................................ 12
Section 3.3 Place of Payments.......................................................................... 12
Section 3.4 Obligations Unconditional.................................................................. 12
Section 3.5 Past Due Rent, Additional Payments and Rentals............................................. 13
Section 3.6 Assignment of Lease........................................................................ 13
Section 3.7 No Abatement of Rental Payments............................................................ 14
ARTICLE IV
LESSEE'S OWN PERSONAL PROPERTY
Section 4.1 Installation of the Lessee's Own Personal Property......................................... 15
ARTICLE V
MAINTENANCE AND USE OF PROJECT
Section 5.1 Compliance with Legal and Insurance Requirements........................................... 17
Section 5.2 Maintenance and Use of Project............................................................. 17
Section 5.3 Alterations, Additions and Improvements.................................................... 18
Section 5.4 Removals and Substitutions................................................................. 18
Section 5.5 Indemnification............................................................................ 19
Section 5.6 Environmental Matters...................................................................... 21
Section 5.7 Performance by Lessor of Lessee's Requirements............................................. 22
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE VI
TAXES, MECHANICS' LIENS AND INSURANCE
<S> <C>
Section 6.1 Taxes, Other Governmental Charges and
Utility Charges.................................................................. 23
Section 6.2 Mechanics' and Other Liens................................................................. 23
Section 6.3 Insurance.................................................................................. 24
Section 6.4 Workers' Compensation and Unemployment Coverage............................................ 24
Section 6.5 Waiver of Subrogation...................................................................... 24
Section 6.6 Payment of Amounts Not Paid by Lessee...................................................... 25
ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1 Damage to or Destruction of Project........................................................ 26
Section 7.2 Use of Insurance Proceeds.................................................................. 26
Section 7.3 Eminent Domain............................................................................. 26
Section 7.4 Investment and Disbursement of Net Proceeds................................................ 27
Section 7.5 Lessee's Own Personal Property............................................................. 27
ARTICLE VIII
FURTHER REPRESENTATIONS AND AGREEMENTS
RESPECTING THE PROJECT
Section 8.1 Right of Access............................................................................ 28
Section 8.2 Lessee to Maintain its Corporate Existence
Conditions Under Which Exceptions Permitted...................................... 28
Section 8.3 Title of Project Site...................................................................... 28
Section 8.4 No Warranty of Condition or Suitability.................................................... 28
Section 8.5 Annual Statement and Other Reports......................................................... 29
ARTICLE IX
TERMINATION OF LEASE
Section 9.1 Option to Terminate on Payment of Rental
Payments......................................................................... 30
Section 9.2 Termination of Lease on Substantial Casualty
or Condemnation.................................................................. 30
Section 9.3 Option to Purchase Lessor's Interest in Project............................................ 31
Section 9.4 Conveyance on Exercise of Option to Purchase............................................... 32
ARTICLE X
EVENTS OF DEFAULT
Section 10.1 Events of Default.......................................................................... 34
Section 10.2 Remedies on Default........................................................................ 35
Section 10.3 No Remedy Exclusive........................................................................ 36
Section 10.4 Lessee to Pay Attorneys' Fees and Expenses................................................. 36
Section 10.5 No Additional Waiver Implied by One Waiver................................................. 36
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE XI
ASSIGNMENT OF LEASE, SUBLEASING AND RELEASE
OF PORTIONS OF PROJECT
<S> <C> <C>
Section 11.1 Subleasing by Lessee....................................................................... 37
Section 11.2 Mortgage and Assignment by Lessor.......................................................... 37
Section 11.3 Restrictions on Transfer and Encumbrance of
Project by the Lessor..................................................................... 38
Section 11.4 Release of Project......................................................................... 38
Section 11.5 Granting Easements......................................................................... 39
Section 11.6 No Abatement or Diminution of Payments..................................................... 39
Section 11.7 Payment on Release or Conveyance........................................................... 39
Section 11.8 Lessor to Apply Lease Payments to Debt Amortization
During Any Extension of Lease Term................................................. 39
ARTICLE XII
MISCELLANEOUS
Section 12.1 Quiet Enjoyment............................................................................ 41
Section 12.2 Surrender of Project....................................................................... 41
Section 12.3 Notices ................................................................................... 41
Section 12.4 Binding Effect............................................................................. 41
Section 12.5 Amendments, Changes and Modifications...................................................... 41
Section 12.6 Execution Counterparts..................................................................... 41
Section 12.7 Severability............................................................................... 41
Section 12.8 Extent of Covenants; No Personal Liability................................................. 42
Section 12.9 Captions................................................................................... 42
Section 12.10 Governing Law.............................................................................. 42
Section 12.11 Estoppel Certificate....................................................................... 42
Section 12.12 Relationship of the Parties................................................................ 42
Section 12.13 Arbitration................................................................................ 42
Section 12.14 Other Agreements........................................................................... 43
Section 12.15 No Merger.................................................................................. 43
Section 12.16 Extension of Lease Term.................................................................... 43
Signatures................................................................................................ 45
Acknowledgments........................................................................................... 46
Exhibit A - PROJECT FACILITIES
Exhibit B-1 - LEASED REAL PROPERTY
Exhibit B-2 - EASEMENT REAL PROPERTY
Exhibit C - RENTAL PAYMENT AMOUNTS
</TABLE>
<PAGE> 5
LEASE
THIS LEASE made and entered into as of October 1, 1996, between
TOLEDO-LUCAS COUNTY PORT AUTHORITY, as lessor (the "Lessor"), a port authority
and political subdivision, duly organized and validly existing under the laws of
the State of Ohio, and BRUSH WELLMAN INC., as lessee (the "Lessee"), a
corporation for profit organized and existing under the laws of the State of
Ohio (all terms used as defined terms being used as defined in Article I of this
Lease),
WITNESSETH:
WHEREAS, pursuant to and in accordance with the provisions of the
Ohio Constitution and the Act, and a resolution adopted by the Legislative
Authority on May 23, 1996, as amended and supplemented by a resolution adopted
by the Legislative Authority on July 25, 1996, the Lessor has determined, upon
the terms and conditions hereinafter set forth, to lease the Project to the
Lessee and the Lessee desires, upon the terms and conditions hereinafter set
forth, to lease the Project from the Lessor; and
WHEREAS, the Lessor and the Lessee each have full right and
lawful authority to enter into this Lease and to perform and observe the
provisions hereof on their respective parts to be performed and observed;
NOW THEREFORE, in consideration of the premises and the mutual
agreements hereinafter contained, the parties hereto agree as follows:
(Balance of Page Intentionally Left Blank)
<PAGE> 6
ARTICLE I
DEFINITIONS
Section 1.1. USE OF DEFINED TERMS. In addition to the words and
terms elsewhere defined in this Lease or by reference to the Indenture, the
words and terms set forth in Section 1.2 of this Lease shall have the meanings
set forth therein unless the context or use indicates another or different
meaning or intent and such definitions shall be equally applicable to both the
singular and plural forms of any of the words and terms herein:
Section 1.2. DEFINITIONS. As used herein:
"Act" means Sections 4582.01 to 4582.20, both inclusive, of the
Ohio Revised Code, as enacted and amended.
"Additional Bonds" means the Additional Bonds of the Lessor which
may be issued under and as defined in the Indenture.
"Additional Payments" means the amounts required to be paid by
the Lessee pursuant to the provisions of Section 3.2 hereof.
"Assignment of Lease" means the Assignment of Lease, dated as of
even date herewith, transferring all right, title and interest of the Lessor in
and to this Lease to the Trustee.
"Authorized Lessee Representative" means the person at the time
designated to act on behalf of the Lessee by written certificate furnished to
the Lessor containing the specimen signature of such person and signed on behalf
of the Lessee by the President, a Vice President, the Treasurer or the Secretary
of the Lessee. Such certificate may designate an alternate or alternates who
shall have the same authority, duties and powers as the Authorized Lessee
Representative. In the event that all such incumbents become unavailable or
unable to act and the Lessee fails to designate at least one replacement within
ten business days after notice to the Lessee from the Lessor of such
unavailability or inability to act, the Lessor may appoint a successor.
"Bond Service Charges" means, for any period or payable at any
time, the principal of and interest and any premium due on the Bonds for that
period or payable at that time whether due at maturity or upon acceleration or
redemption.
"Bonds" means the Project Bonds and any Additional Bonds.
"Capitalized Interest Account" means the Capitalized Interest
Account in the Project Fund, including the Project Bonds Capitalized Interest
Subaccount and the State Loan Capitalized Interest Subaccount.
"CERCLA" shall mean the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, 42 U.S.C. "9601 ET SEQ.
"Completion Date" means the date specified as such in the
certificate furnished pursuant to Sections 2.2 and 4.6 of the Project Service
Agreement.
"Construction Contract" means the Design/Build Agreement for
Project Facilities, dated _________, 1996, by and between the Authority and GEM
Industrial, Inc., as the same may be amended and supplemented from time to time.
-2-
<PAGE> 7
"Consumer Price Index Increase" means the percentage of increase
in the Consumer Price Index for Urban Wage Earners and Clerical Workers as
finally issued for Cleveland, Ohio by the Bureau of Labor Statistics of the
United States Department of Labor, or any successor thereto, from that index as
issued for the month of the execution and delivery of this Lease. In the event
such index should be abolished and no substitute provided, then any index,
service or publication which, in the judgment of the Lessor, most nearly
provides the measurement now being provided by the Consumer Price Index shall be
used in place of the Consumer Price Index.
"Corporation Account" means the account in the Project Fund
created by the Indenture into which moneys will be deposited pursuant to Section
2.5 of this Lease.
"Director" means The Director of Development of the State of
Ohio, acting on behalf of the State.
"Discounted Rent" shall mean the amount of the Rental Payments,
determined in the manner set forth in Section 9.2 of this Lease, to be paid in
full satisfaction of the Lessee's obligation to pay the remaining Rental
Payments hereunder in the event that, as a result of the occurrence of any of
the events described in Section 9.2 of this Lease, the Lessee shall have
certified that it will prepay all remaining Rental Payments by paying the
Discounted Rent and terminate the Lease.
"Easement Agreement" means the Easement Agreement, dated as of
October 1, 1996, from the Lessee, as grantor, to the Lessor, as amended and
supplemented from time to time.
"Engineer" means Hatch Associates Consultants (Ohio) Inc. or
another individual or firm qualified to practice the profession of engineering
or architecture under the laws of the State, designated by the Lessor and
acceptable to the Lessee.
"Environmental Complaint" shall have the meaning set forth in
Section 5.6 hereof.
"Environmental Laws" means all applicable federal, state and
local environmental, land use, zoning, health, chemical use, safety and
sanitation laws, statutes, ordinances and codes relating to the protection of
the environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto, including, without limitation,
CERCLA and Chapter 3734 of the Ohio Revised Code.
"Essential Lessor Personal Property" has the meaning assigned in
Section 5.2(f).
"Event of Default" means any of the events described as an event
of default in Section 10.1 hereof.
"Fair Market Value" of any property as of any date shall mean the
rental payment in money or the cash price that would be obtained in an
arm's-length lease or sale, as the case may be, between an informed and willing
third party lessee or buyer (under no compulsion to lease or purchase) and an
informed and willing lessor or seller (under no compulsion to lease or sell) of
the property in question, and shall be determined on the basis that the Project
has been maintained in accordance with the requirements of this Lease (but
otherwise on an "as-is" basis). Whenever Fair Market Value is to be determined
hereunder and the parties cannot agree on the Fair Market Value, the
determination shall be made according to the arbitration provision set forth in
Section 12.13 hereof. Fair Market Value shall be determined without regard to
and exclusive of modifications (other than substitutions) and additions to the
Project during the Lease Term paid for by the Lessee.
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<PAGE> 8
"Ground Lease" means the Amended and Restated Ground Lease dated
as of October 1, 1996 from the Ground Lessor to the Ground Lessee, leasing to
the Ground Lessee the interest in the Project Site which is the subject of this
Lease, as amended and supplemented from time to time.
"Ground Lessee" means the lessee under the Ground Lease,
including without limitation, any Permitted Leasehold Mortgagee that executes an
agreement agreeing to perform the obligations of the Lessee under the Ground
Lease.
"Ground Lessor" means Brush Wellman Inc., as lessor under the
Ground Lease.
"Hazardous Discharge" shall have the meaning set forth in Section
5.6 hereof.
"Hazardous Substance" means, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. "1801, ET SEQ.), RCRA, or any other applicable
Environmental Law and in the regulations adopted pursuant thereto. "Hazardous
Substance" does not include beryllium or beryllium alloys.
"Hazardous Wastes" includes all waste materials subject to
regulation under CERCLA, RCRA or applicable state law, and any other applicable
federal and state laws now in force or hereafter enacted relating to hazardous
waste disposal.
"Holder" means the person in whose name a Bond is registered on
the books kept and maintained for the registration and transfer of Bonds
pursuant to the Indenture.
"Indenture" means the Trust Indenture dated as of even date with
this Lease between the Lessor and the Trustee, as amended and supplemented from
time to time.
"Independent Counsel" means an attorney acceptable to the Lessor
duly admitted to practice law before the highest court of the State and who is
not a salaried employee of the Lessor or the Lessee.
"Insurance Requirements" means all material provisions of any
insurance policy covering or applicable to the Project or any part thereof, all
material requirements of the issuer of any such policy, and all material orders,
rules, regulations or other requirements of the National Board of Fire
Underwriters (or any other body exercising similar functions) applicable to or
affecting the Project or any part thereof.
"Interest Rate for Advances" means a rate per annum which is the
greater of (a) two percent (2%) per year plus the annual interest rate announced
by the Trustee in its lending capacity as a bank as its "Prime Rate" or its
"Base Rate" or (b) ten and seventeen one-hundredths percent (10.17%) per year,
and to the extent lawfully chargeable.
"Lease" means this Lease, as it may be duly amended and
supplemented from time to time in accordance with its terms.
"Lease Term" means the period commencing on the date of delivery
of this Lease and, unless earlier terminated as herein provided, ending on May
1, 2011, or the date to which this Lease is extended pursuant to the provisions
of this Lease, whichever is latest.
"Legal Requirements" means all laws, statutes, codes, acts,
ordinances, resolutions,
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<PAGE> 9
orders, judgments, decrees, injunctions, rules, regulations, permits, licenses,
directions and requirements of all governments and departments, commissions,
boards, courts, authorities, agencies, officials and officers of governments,
foreseen or unforeseen, ordinary or extraordinary, which now or at any time
hereafter may be applicable to the Project or any part thereof, or any use or
condition of the Project or any part thereof.
"Legislative Authority" means the Board of Directors of the
Lessor.
"Lenders" means, collectively, the Trustee and the Director.
"Lessor Personal Property" has the meaning assigned in Section
5.2(f) hereof.
"Net Proceeds", when used with respect to any insurance proceeds
or condemnation award, means the gross proceeds thereof less the payment of all
expenses, including reasonable attorneys' fees, incurred in connection with the
collection of such gross proceeds.
<TABLE>
<CAPTION>
"Notice Address" means:
<S> <C> <C>
(a) As to the Lessee: Brush Wellman Inc.
17876 St. Clair Avenue
Cleveland, Ohio 44110
Attention: Treasurer
with a copy to the Secretary at the same address
and with a copy to: McDonald, Hopkins, Burke &
Haber Co., L.P.A.
2100 Bank One Center
600 Superior Ave., E.
Cleveland, Ohio 44114-2653
Attention: David E. Weiss, Esq.
(b) As to the Lessor: Toledo-Lucas County Port Authority
One Maritime Plaza
Toledo, Ohio 43604-1866
Attention: Secretary
(c) As to the Project National City Bank
Bond Trustee: 629 Euclid Avenue
Suite 635
Cleveland, Ohio 44114
Attention: Corporate Trust Department
and
The Prudential Insurance Company of
America
c/o Prudential Capital Group
Two Prudential Plaza, Suite 5600
Chicago, Illinois 60601
Attention: Managing Director
(d) As to the Director: Director of Development
Ohio Department of Development
77 South High Street - 29th Floor
</TABLE>
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<PAGE> 10
Columbus, Ohio 43215
or such different address notice of which is given under Section 12.3 hereof.
"Permitted Leasehold Mortgage" and "Permitted Leasehold
Mortgagee" are used as defined in the Ground Lease.
"Person" or words importing persons means firms, associations,
partnerships (including, without limitation, general, limited and limited
liability partnerships), joint ventures, societies, estates, trusts,
corporations, limited liability companies, public or governmental bodies, other
legal entities and natural persons.
"Plans and Specifications" means the plans and specifications for
the Project as filed with the Lessor, and as such may be completed in accordance
herewith and changed from time to time as herein provided.
"Proceeds Account" means the Proceeds Account in the Project Fund
created by the Indenture.
"Project" means the leasehold and easement interest in the
Project Site and the Project Facilities, together constituting "port authority
facilities" as defined in the Act.
"Project Bonds" means the $13,100,000 aggregate principal
amount of revenue bonds of the Lessor designated "Taxable Project Development
Revenue Bonds, Series 1996 (Brush Wellman Inc. Project)".
"Project Bonds Capitalized Interest Subaccount" means the
subaccount by that name in the Capitalized Interest Account in the Project Fund
created under the Indenture.
"Project Debt" means the Project Bonds, any Additional Bonds that
may hereafter be issued, and the State Loan Note.
"Project Facilities" means the facilities generally identified in
Exhibit A hereto (and more particularly described in the Plans and
Specifications or, with respect to personal property, to be more specifically
identified in requests to disburse funds therefor pursuant to Section 4.2 of the
Project Service Agreement, or in the certificate to be given by the Authorized
Lessee Representative pursuant to Sections 2.2(c) and 4.6 of the Project Service
Agreement), together with any additions and improvements thereto, modifications
thereof and substitutions therefor, less any removals of such property, all in
the manner and to the extent in this Lease provided.
"Project Fund" means the Project Fund in the custody of the
Trustee of which the Proceeds Account, the Capitalized Interest Account and the
Corporation Account are a part.
"Project Purposes" means acquiring, constructing, equipping,
furnishing, improving and otherwise developing real and personal property, or
any combination thereof, comprising port authority facilities to be used as a
facility for metal processing and manufacturing and as may otherwise be
permitted by this Lease and the Project Service Agreement.
"Project Service Agreement" means the Project Service and
Indemnity Agreement dated as of even date herewith among the Lessor, the Lessee
and to the extent set forth therein, the Lenders, as the same may be amended and
supplemented from time to time.
"Project Site" means the real estate described in Exhibit B
hereto and the Lessor's leasehold interest therein, together with any additions
thereto and less any removals therefrom, in
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the manner and to the extent provided in this Lease, and all easements
appurtenant thereto.
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. "6901 ET SEQ.
"Rental Payment Date" means the last business day of each
calendar month, commencing with the last business day in December, 1997, through
the end of the Lease Term.
"Rental Payments" means the rent required to be paid by the
Lessee to the Lessor as provided in Sections 3.1 and 3.3 hereof.
"Required Property Insurance Coverage" means at any time
insurance in the amount of (i) the then full insurable value of the Project
Facilities or (ii) the then total unpaid principal amount of the Project Debt
then outstanding, whichever is greater, provided that the coverage shall not be
less than an amount that would result in coinsurance, insuring the Project
Facilities against loss or damage by fire and extended coverage risks and
containing loss deductible provisions of not to exceed $500,000; provided that
the amounts of such deductible may be increased on each January 1 by the
Consumer Price Index Increase to the extent that such Consumer Price Index
Increase had not previously been utilized to increase such deductible.
"Required Public Liability Insurance Coverage" means
comprehensive general accident and public liability insurance, or alternative
arrangements for insurance or self-insurance approved in writing by both the
Lessor and the Trustee, with coverage limits in the minimum amounts of
$10,000,000 as to death or bodily injury in each occurrence and $10,000,000 as
to property damage with a loss deductible clause of not to exceed $2,500,000;
provided that the amounts of coverage shall be, and any deductible may be,
increased on each January 1 by ten percent for each ten percent increase in the
Consumer Price Index Increase.
"State" means the State of Ohio.
"State Loan Agreement" means the Loan Agreement between the
Director and the Lessor, as the same may be amended and supplemented from time
to time.
"State Loan Capitalized Interest Subaccount" means the subaccount
by that name in the Capitalized Interest Account in the Project Fund created
under the Indenture.
"State Loan Note" means the revenue note of the Lessor to
evidence its limited obligation to repay the loan to the Lessor by the Director
in the aggregate principal amount of $5,000,000.
"Sublease" means the Sublease dated as of October 1, 1996 between
the Lessee and B.W. Alloy Ltd., as the same may be amended and supplemented from
time to time.
"Toxic Substance" means and includes any material present on the
Project Site which has been shown to have significant adverse effect on human
health or which is subject to regulation under the Toxic Substances Control Act
(TSCA), 15 U.S.C. "2601, ET SEQ., applicable state law, or any other applicable
Federal or state laws now in force or hereafter enacted relating to toxic
substances. "Toxic Substance" includes, but is not limited to, asbestos,
polychlorinated biphenyls (PCBs) and lead-based paints. "Toxic Substance" does
not include beryllium or beryllium alloys.
"Trustee" means National City Bank, until a successor Trustee
shall have become such pursuant to the applicable provisions of the Indenture,
and thereafter "Trustee" shall mean the successor Trustee.
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Section 1.3. INTERPRETATION. Any reference herein to the Lessor,
to the Legislative Authority or to any member or officer of either includes
entities or officials succeeding to their respective functions, duties or
responsibilities pursuant to or by operation of law or lawfully performing their
functions.
Any reference to a section or provision of the Constitution of
the State or the Act, or to a section, provision or chapter of the Ohio Revised
Code or to any statute of the United States of America, includes that section,
provision or chapter as amended, modified, revised, supplemented or superseded
from time to time; provided, that no amendment, modification, revision,
supplement or superseding section, provision or chapter shall be applicable
solely by reason of this provision, if it constitutes in any way a limitation,
restriction or impairment of the rights or obligations of the Lessor or the
Lessee under this Lease or the rights of any other person under this Lease.
Unless the context indicates otherwise, words importing the
singular number include the plural number, and vice versa; the terms "hereof",
"hereby", "herein", "hereto", "hereunder" and similar terms refer to this Lease;
and the term "hereafter" means after, and the term "heretofore" means before,
the date of execution and delivery of this Lease. Words of any gender include
the correlative words of the other genders, unless the sense indicates
otherwise.
Section 1.4. CAPTIONS AND HEADINGS. The captions and headings in
this Lease are solely for convenience of reference and in no way define, limit
or describe the scope or intent of any Articles, Sections, subsections,
paragraphs, subparagraphs or clauses hereof.
(End of Article I)
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<PAGE> 13
ARTICLE II
LEASE OF PROJECT
Section 2.1. LEASE; LEASE TERM; POSSESSION AND USE. Upon and
subject to the provisions herein set forth, the Lessor does hereby lease to the
Lessee, and the Lessee does hereby lease from the Lessor, the Project for the
Lease Term. Possession of the Project shall be delivered by the Lessor and
accepted by the Lessee on the Completion Date or such earlier date as may be
requested by the Lessee, provided that in such case Lessee hereby agrees to
comply with all requirements of this Lease, the Project Service Agreement and
the Indenture as if the Completion Date had occurred. From and after the
commencement of the Lease Term, the Lessee and its agents and independent
contractors shall have the right to enter upon the Project Site for purposes of
inspection and taking actions in accordance with this Lease to (i) determine
that acquisition, construction, improvement, furnishing, equipping and
development of the Project is being made in accordance with the Project Service
Agreement and the Plans and Specifications and (ii) prepare to occupy and use
the Project. Upon delivery of possession and during the Lease Term, the Lessee
shall have the right to use the Project for the Project Purposes.
Section 2.2. GROUND LEASE. The Lessee hereby approves the Ground
Lease (for purposes of this Section 2.2, the term Ground Lease shall refer
collectively to both the Ground Lease and to the Easement Agreement), and all
commitments of the Ground Lessor thereunder, acknowledges all rights of the
Ground Lessor and the Ground Lessee under the Ground Lease, and all obligations
of the Ground Lessor and the Ground Lessee under the Ground Lease, and, for
itself and its successors and assigns and any permitted sublessees, covenants
and agrees, (a) to the extent set forth in the Ground Lease, to abide by all
covenants and agreements set forth therein with respect to the Ground Lessor or
the Lessee, (b) subject to the express provisions of this Lease (i) to not
impair the ability of the Lessor or any Permitted Leasehold Mortgagee to satisfy
the obligations of the Ground Lessee under the Ground Lease and (ii) to not
impede the Ground Lessee in the exercise of its rights under the Ground Lease,
and (c) to comply, in the name of and for and on behalf of the Ground Lessee,
with all covenants and agreements of the Ground Lessee in the Ground Lease other
than those obligations that, by the nature of such obligations, are personal to
the Ground Lessee (unless the Lessee shall have acquired all interests of the
Ground Lessee in and to the Project Site).
Section 2.3. REPRESENTATIONS OF THE LESSOR. The Lessor represents
that: (a) it is duly organized and validly existing under the laws of the State;
(b) it has duly accomplished all conditions necessary to be accomplished by it
prior to execution and delivery of this Lease and the Project Service Agreement;
(c) it is not in violation of or in conflict with any provisions of the laws of
the State or any agreement or instrument to which the Lessor is a party or by
which it is bound which would impair its ability to carry out its obligations
contained in this Lease and the Project Service Agreement; (d) it is empowered
to enter into the transactions contemplated by this Lease and the Project
Service Agreement; (e) it has duly authorized the execution, delivery and
performance of this Lease and the Project Service Agreement; and (f) it will do
all things in its power in order to maintain its existence or assure the
assumption of its obligations under the Project Service Agreement and this Lease
by any successor public body.
Section 2.4. REPRESENTATIONS OF THE LESSEE. The Lessee represents
that:
(a) It is a corporation for profit organized and
existing under the laws of the State.
(b) It has full corporate power and authority to execute,
deliver and perform this Lease and to enter into and carry out
the transactions contemplated by this Lease.
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<PAGE> 14
That execution, delivery and performance, and such entering into
and carrying out of those transactions, do not, and will not,
violate any provision of law applicable to the Lessee or the
Lessee's Articles of Incorporation or its Code of Regulations and
do not, and will not, conflict with or result in a default under
any agreement or instrument to which the Lessee is a party or by
which it is bound, which would impair its ability to carry out
its obligations contained in this Lease or resulting from those
transactions. This Lease has, and to the extent required the
transactions contemplated by this Lease have, by proper action,
been duly authorized, and this Lease has been duly executed and
delivered by the Lessee and all steps necessary have been taken
to constitute this Lease a valid and binding obligation of the
Lessee.
(c) The provision of financial assistance to be made
available to it with respect to the Project, including the terms
of this Lease and the commitments therefor made by the Lessor,
have induced the Lessee to continue, within the boundaries of the
Lessor, that business of the Lessee to be conducted by use of the
Project and such business will preserve jobs and employment
opportunities within the jurisdiction of the Lessor.
(d) It presently intends to use or operate the Project
during the Lease Term in a manner consistent with the Project
Purposes and knows of no reason why the Project will not be so
operated. If, in the future, there is a cessation of that
operation, it will use its best efforts to resume that operation
or accomplish an alternative use by the Lessee or others which
will be consistent with the Act and this Lease.
(e) In the event that, in accordance with Section 2.5 of
this Lease, moneys in the Proceeds Account of the Project Fund
are insufficient to complete the acquisition, construction,
improvement, furnishing, equipping and development of the Project
in accordance with the Plans and Specifications (including all
costs and expenses referred to in Section 4.2 of the Project
Service Agreement), the Lessee will, in accordance with Section
2.5 of this Lease, provide to the Trustee, for deposit into the
Corporation Account of the Project Fund, moneys which, together
with those in the Proceeds Account, will be sufficient to
complete acquisition, construction, improvement, furnishing,
equipping and development of the Project in accordance with the
Plans and Specifications (including all costs and expenses
referred to in Section 4.2 of the Project Service Agreement). In
addition, if the proceeds of the State Loan are not received by
the Trustee within forty-five days after filing of the request of
the Toledo-Lucas County Port Authority with the Director for
which provision is made in Section 2.2(k) of the Project Service
Agreement, the Lessee shall pay into the Project Fund the sum of
$5,000,000.
Section 2.5. LESSEE REQUIRED TO PAY COSTS IN EVENT PROCEEDS
INSUFFICIENT. In the event that at any time or from time to time the moneys
available from proceeds of the Project Bonds and the State Loan Note (all
conditions for the disbursement of which under Section 4.2 of the Project
Service Agreement have been satisfied) are not sufficient to pay in full the
costs and expenses of the Project and related infrastructure requested by the
Lessee to be paid therefrom, including all items set forth in Section 4.2 of the
Project Service Agreement (the "Facilities Shortfall"), the Lessee covenants and
agrees, for the benefit of the Lessor, the Lenders and the Holders and to
fulfill the purposes for which the Project Bonds and the State Loan Note have
been issued, to promptly pay the Facilities Shortfall to the Corporation
Account. In furtherance thereof, the Lessee agrees that upon receipt of a
written notice from the Lessor notifying the Lessee of a Facilities Shortfall,
the Lessee will promptly provide to the Trustee moneys for deposit into the
Corporation Account from any lawful source in an amount which is adequate to pay
the Facilities Shortfall.
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For purposes of the preceding paragraph, the moneys in the
Proceeds Account shall include without limitation (i) the amount of investment
income from the Proceeds Account and the Capitalized Interest Account estimated
reasonably by the Authorized Authority Representative (as defined in the Project
Service Agreement), which is to be deposited in the Proceeds Account for the
respective relevant periods, and (ii) the proceeds deposited into the Proceeds
Account of any Additional Bonds sold to finance completion of the Project
Facilities.
The Lessor does not make any representation or warranty, either
express or implied, that the moneys from proceeds of the Project Bonds and the
State Loan Note and which under the provisions of the Indenture and the Project
Service Agreement will be available for payment of the costs of the acquisition,
construction, improvement, furnishing, equipping and developing to be
accomplished pursuant thereto, will be sufficient to pay all of the costs
thereof or costs and expenses which will be incurred in connection therewith.
The Lessee covenants and agrees that, if the Lessee should pay
pursuant to this Section any portion of the costs of the acquisition,
construction, improvement, furnishing, equipping and development of the Project,
including any portion of the costs and expenses described in Section 4.2 of the
Project Service Agreement, the Lessee will not be entitled to any reimbursement
therefor from the Lessor, the Toledo-Lucas County Port Authority, the Lenders or
the Holders, except pursuant to and in accordance with Section 4.2 of the
Project Service Agreement, subject to the issuance of any Additional Bonds and
the availability of proceeds from the same. The Lessee acknowledges that it will
not be entitled in that event to any diminution in or abatement or postponement
of any amounts payable pursuant to any covenant, agreement or other obligation
under the Project Service Agreement or this Lease.
(End of Article II)
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ARTICLE III
RENTAL PAYMENTS AND ADDITIONAL PAYMENTS
Section 3.1. RENTAL PAYMENTS. The Lessee shall make Rental
Payments to the Lessor, whether or not construction of the Project has been
completed, on or before each Rental Payment Date in immediately available funds
commencing with the last business day of December, 1997 in the respective
amounts shown for each such month in Exhibit C hereto.
Section 3.2. ADDITIONAL PAYMENTS. The Lessee agrees to make
Additional Payments as follows:
(a) To the Lessor, payment for or reimbursement of any and
all costs, expenses and liabilities incurred by the Lessor in
satisfaction of any obligations of the Lessee hereunder not
performed by the Lessee.
(b) To the Lessor, reimbursement for or prepayment of
expenses paid or to be paid by the Lessor and incurred as a
result of a request by the Lessee or in enforcing performance by
or the obligations of the Lessee under this Lease.
Section 3.3. PLACE OF PAYMENTS. The Lessee shall make all Rental
Payments and Additional Payments directly to the Lessor at its principal office
or at such other office for the delivery of such payments as the Lessee is given
notice of in writing (at least five business days before the applicable payment
is due) in accordance with Section 12.3 hereof.
Section 3.4. OBLIGATIONS UNCONDITIONAL. The obligations of the
Lessee to make Rental Payments, Additional Payments and any other payments
required hereunder shall be absolute and unconditional and the Lessee shall make
such payments without abatement, diminution or deduction regardless of any cause
or circumstances whatsoever including, without limitation, any defense (other
than the defense of indefeasible payment in full to the Lessor), set-off,
recoupment or counterclaim which the Lessee may have or assert against the
Lessor or any other Person. The Lessee (i) will not suspend or discontinue any
such payments, (ii) will perform and observe all of its other agreements
contained in this Lease and (iii) will not terminate this Lease except as
expressly permitted hereby, for any cause including, without limitation, failure
to complete the Project Facilities, failure of title to the Project or any
portion thereof, any acts or circumstances that may constitute failure of
consideration, destruction of or damage to the Project, commercial frustration
of purpose, any change in the tax or other laws or administrative rulings of or
administrative actions by or under authority of the United States of America,
the State or any political subdivision thereof or any failure of the Lessor, any
Lender, any Holder or any other person to perform and observe any agreement,
whether express or implied, or any duty, liability or obligation arising out of
or connected with this Lease, the Project Service Agreement, the Ground Lease,
the State Loan Agreement or otherwise. The obligations and liabilities of the
Lessee hereunder shall in no way be released, discharged or otherwise affected
for any reason, including, without limitation: (i) any defect in the condition,
quality or fitness for use of the Project or any part thereof; (ii) any damage
to, removal, abandonment, salvage, loss, scrapping or destruction of or any
requisition or taking of the Project or any part thereof; (iii) any restriction,
prevention or curtailment of or interference with any use of the Project or any
part thereof; (iv) any defect in title to the Project or any encumbrance on such
title; (v) any change, waiver, extension, indulgence or other action or omission
in respect of any obligation or liability of Lessor; (vi) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to Lessor or Lessee or any action taken with
respect to this Lease by any trustee or receiver of Lessor or Lessee, or by any
court, in any such proceeding; (vii) any claim which Lessee has or might have
against any Person, including, without limitation, Lessor, any Lender or
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any Holder; (viii) any failure on the part of Lessor or any other Person to
perform or comply with any of the terms hereof or of any other agreement,
including, without limitation, the State Loan Agreement; (ix) any invalidity or
unenforceability or disaffirmance of this Lease or any provision hereof; or (x)
any other occurrence whatsoever, whether similar or dissimilar to the foregoing,
whether or not Lessee shall have notice or knowledge of any of the foregoing;
provided, however, that this provision does not represent a waiver of any claims
that Lessee may have against Lessor, any Lender, any Holder or any other Person.
This Lease shall be non-cancelable by Lessee other than through termination of
the Lease pursuant to Article IX hereof and, to the extent permitted by law,
Lessee waives all rights now or hereafter conferred by statute or otherwise to
quit, terminate or surrender this Lease or the Project Facilities, or to any
diminution or reduction of Rental Payments or Additional Payments payable by
Lessee hereunder. All payments by Lessee properly made hereunder as required
hereby shall be final, and, except as provided herein, Lessee will not seek to
recover any such payment or any part thereof from Lessor or any other person. If
for any reason whatsoever this Lease shall be terminated in whole or in part by
operation of law or otherwise, Lessee will nonetheless pay an amount equal to
each Rental Payment and any other amount payable by Lessee hereunder at the time
and in the manner that such Rental Payment or other payment would have become
due and payable under the terms of this Lease if it had not been terminated in
whole or in part. Nothing contained in this Section shall be construed to
release the Lessor, the Lenders and the Holders from the performance of any of
the agreements on the part of any of them contained in this Lease, and in the
event the Lessor, the Lenders and the Holders should fail to perform any such
agreement on the part of any of them, the Lessee may institute such action
against the nonperforming party as the Lessee may deem necessary to compel
performance or recover its damages for nonperformance so long as such action
shall not be inconsistent with the agreements of the Lessee contained in the
preceding sentences. The Lessee may, however, at its own cost and expense and in
its own name or, to the extent lawful, in the name of the Lessor, prosecute or
defend any action or proceeding or take any other action involving third Persons
which the Lessee deems reasonably necessary in order to secure or protect its
right of possession, occupancy and use hereunder, and in such event the Lessor
hereby agrees to cooperate fully with the Lessee, but at the Lessee's expense,
and to take all action necessary to effect the substitution of the Lessee for
the Lessor in any such action or proceeding if the Lessee shall so request.
Section 3.5. PAST DUE RENT, ADDITIONAL PAYMENTS AND RENTALS. If
the Lessee fails to make any Rental Payment, Additional Payment or other payment
hereunder, the item in default shall continue as an obligation of the Lessee
until such payment shall have been fully paid. During the default period, the
portion of any such Rental Payment, any Additional Payment or other payment in
default shall bear interest at the Interest Rate for Advances until such amount
(including all such interest) is paid.
Section 3.6. ASSIGNMENT OF LEASE. The Lessee acknowledges that
the Lessor has sold, assigned, transferred and conveyed all of its right, title
and interest in and to this Lease, including the Rental Payments, to the
Trustee. No subsequent assignment to any Person other than the Trustee may be
made without prior written notice to the Lessee; provided, however, that upon
occurrence and continuation of an Event of Default hereunder such an assignment
may be made without prior written notice to the Lessee. The Lessee further
acknowledges that, upon the execution and delivery of the Assignment of Lease,
the Lessor, as assignor, will have neither any interest under this Lease, nor
any obligations or rights with respect to this Lease, and all such interest,
obligations and rights of the Lessor hereunder shall be vested irrevocably in
the Trustee, as assignee.
Section 3.7. NO ABATEMENT OF RENTAL PAYMENTS. Except as
specifically provided in this Lease to the contrary, no action pursuant to any
provision of this Lease shall abate in any way payment of Rental Payments or any
Additional Payments payable hereunder.
(End of Article III)
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ARTICLE IV
LESSEE'S OWN PERSONAL PROPERTY
Section 4.1. INSTALLATION OF THE LESSEE'S OWN PERSONAL PROPERTY.
From time to time, in its sole discretion and at its own expense, the Lessee
may, and may permit any of its licensees or sublessees to, install personal
property on the Project Site or in the Project Facilities, including without
limitation, personal property which becomes in whole or in part a fixture when
installed. All personal property so installed shall remain the sole property of
the Lessee or the licensee or sublessee, as the case may be, unless it is a
fixture necessary to the structural integrity of the Project Facilities (other
than a trade fixture) or is essential for the faithful and efficient
administration, maintenance and operation of the Project Facilities, in which
case such personal property shall become and be deemed to be property of the
Lessor and part of the Project, and with that exception, the Lessor shall have
no interest in that personal property. Any damage to the Project Facilities
caused by the removal of the personal property or fixtures which remain the
property of the Lessee shall be repaired by the Lessee at the Lessee's sole
expense so as to restore the Project Facilities to their original condition,
ordinary wear and tear excepted.
The personal property which is the sole property of the Lessee or
a licensee or sublessee may be modified or removed at any time, but without
causing any damage to the Project, if there is then no Event of Default under
this Lease, and if an Event of Default then exists, may be modified or removed
if a certificate of the Authorized Lessee Representative has been delivered to
the Lessor and the Trustee stating that such modification or removal will not
prevent the Project from being operated or used for the Project Purposes.
Nothing contained in this Lease shall prevent the Lessee or any
of its licensees or sublessees from acquiring personal property (other than any
personal property purchased pursuant to Section 2.5 hereof) under a lease or
under a conditional sale, installment purchase or lease sale contract, or
subject to a vendor's lien or security agreement, as security for the unpaid
portion of the purchase price thereof or to prevent a vendor so secured from
exercising its remedies; provided, however, that no lien or security interest
shall attach to any part of the Project.
The Lessee shall pay or cause to be paid, as they become due, the
purchase price of, and all costs and expenses in connection with, the
acquisition and installation of any personal property installed by the Lessee or
any of its licensees or sublessees pursuant to this Section. The Lessee may, at
its expense, in good faith contest those purchase prices, costs and expenses. In
the event of a contest, the Lessee may permit the purchase prices, costs and
expenses contested to remain unpaid during the period of the contest and any
appeal unless the Lessor shall notify the Lessee that, in the reasonable opinion
of Lessor, by nonpayment the interests of the Lessor or the Lessee in the
Project Site or the Project Facilities will be materially endangered or the
Project Site or the Project Facilities or any part of either or both will be
subject to imminent loss or forfeiture, in which event those purchase prices,
costs and expenses shall be paid promptly by the Lessee. The Lessor will
cooperate fully with the Lessee, but at the Lessee's expense, in any such
contest.
From time to time, the Lessor shall execute and deliver such
documents as the Lessee may properly and reasonably request to evidence that
particular items of personal property installed on or removed from the Project
pursuant to this Section, are not part of the Project for purposes of this Lease
or that fixtures have been removed as provided in this Lease. In the event any
removal of property pursuant to this Section causes damage to any portion of the
Project, the Lessee shall restore the same or repair such damage.
The Lessee shall execute and deliver such documents (if any) as
the Lessor may properly and reasonably request in connection with any action
taken by the Lessee in conformity
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with this Section. Any action taken by the Lessee pursuant to this Section shall
not entitle the Lessee to any abatement or diminution of the Rental Payments or
Additional Payments payable hereunder.
Upon the termination of this Lease, any such personal property
not removed from the Project Site by the Lessee pursuant to this Section 4.1
shall become the exclusive property of the Lessor.
(End of Article IV)
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ARTICLE V
MAINTENANCE AND USE OF PROJECT
Section 5.1. COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS.
The Lessee, at its expense, will promptly comply or cause compliance with all
Legal Requirements and Insurance Requirements, and will procure, maintain and
comply (or cause compliance) in all material respects with all permits, licenses
and other authorizations required for any use of the Project or any part thereof
then being made or anticipated to be made by the Lessee, and for the proper
operation and maintenance of the Project or any part thereof during the Lease
Term, and will comply in all material respects with any instruments of record as
of the date of initial delivery of the Project Bonds in force and currently
burdening the Project or any part thereof or hereafter approved in writing by
the Lessee. The Lessee may, at its expense and after prior notice to the Lessor,
contest by appropriate legal proceedings conducted in good faith and with due
diligence any Legal Requirement and postpone compliance therewith pending the
completion of such contest provided that such postponement does not, in the
reasonable opinion of the Lessor, subject the Project, or any part thereof, to
imminent loss or forfeiture or subject the Lessor to any criminal liability.
Section 5.2. MAINTENANCE AND USE OF PROJECT.
(a) Subject to Article VII hereof, the Lessee, at its
expense, will keep or cause the Project to be kept in good
repair, working order and condition (ordinary wear and tear
excepted) and will make all necessary or appropriate repairs,
replacements and renewals thereof, interior, exterior, structural
and non-structural, ordinary and extraordinary and foreseen and
unforeseen so that the Project can be used for the Project
Purposes.
(b) The Lessee will not do, or permit to be done, any act
or omission or thing which might materially impair the value or
usefulness of the Project or any part thereof, will not commit or
permit any material waste of the Project or any part thereof, and
will not permit any unlawful occupation, business or trade to be
conducted on the Project or any part thereof.
(c) The Lessee shall also, at its expense, promptly comply
with all rights of way or use, privileges, franchises,
servitudes, licenses, easements, tenements, hereditaments and
appurtenances forming a part of the Project and all instruments
creating or evidencing the same, in each case, to the extent that
(i) compliance therewith is required of the Lessee under the
terms thereof and (ii) the same are currently of record or
subsequently approved in writing by the Lessee.
(d) The Lessee shall remove regularly all trash, litter
and debris from the Project Site at the Lessee's expense and
shall maintain the Project Site in a neat and safe manner.
(e) The Lessee agrees to permit the Lessor and its
employees and agents to enter upon the Project at all reasonable
times to inspect the same, but no such inspection shall
unreasonably interfere with the Lessee's operation and use of the
Project and such Persons shall strictly comply with all of
Lessee's reasonable safety and security regulations, and no such
inspection shall be conducted without reasonable prior notice and
the failure of the Lessor to make any such inspection shall not
impose any liability upon either for its failure to do so. The
Lessee shall have the right to have its representative in
attendance at any such inspection.
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(f) The Lessee covenants and agrees to obtain and maintain
within the Project Facilities all moveable equipment, furnishings
and other personal property (including any personal property
which upon installation becomes a fixture) acquired by the
Lessor, or acquired pursuant to disbursement requests submitted
pursuant to Section 4.2 of the Project Service Agreement, and any
property acquired pursuant to this Article V as a substitution or
replacement for any such property (collectively, "Lessor Personal
Property"). The Lessee further covenants and agrees
(notwithstanding clause (ii) of the first sentence of Section 5.4
hereof) to replace promptly any worn out or obsolete Lessor
Personal Property with other personal property necessary to
enable the Project to be used for the Project Purposes if the
worn out or obsolete Lessor Personal Property is essential for
the efficient or proper operation or maintenance of the Project
Facilities for the Project Purposes in accordance herewith and as
it is then being used (the "Essential Lessor Personal Property").
The Lessee further covenants and agrees that no Essential Lessor
Personal Property will be removed or relocated without securing a
replacement therefor. The Lessee further agrees that title to any
Lessor Personal Property acquired in replacement of Lessor
Personal Property pursuant to this Section, or in substitution
therefor pursuant to Section 5.4 hereof, shall vest immediately
in the Lessor and such personal property so acquired shall be and
be considered for all purposes a part of the Project Facilities
as if originally a part thereof. Without limiting the foregoing,
the Lessee shall promptly upon such replacement or substitution
deliver a bill of sale or other similar evidence of title to the
Lessor, and Lessor shall promptly deliver to the Lessee a release
of any interest in any Lessor Personal Property so replaced by
the Lessee. Any action taken by the Lessee pursuant to this
Section shall not entitle the Lessee to any abatement or
diminution of the Rental Payments or any Additional Payments
payable hereunder.
(g) The Lessee shall not discriminate against
any person because of race, color, religion, sex or national
origin.
Section 5.3. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. The Lessee
may, in its discretion and at its expense, make from time to time any
alterations, additions, or improvements to the Project which it may deem
desirable for its business purposes provided that no such alterations,
additions, or improvements shall adversely affect the structural integrity or
strength of any improvements constituting a part of the Project Facilities,
substantially reduce the value of the Project or materially interfere with the
use and operation thereof as a copper beryllium alloy expansion facility. All
alterations, additions, and improvements so made to the Project Facilities by
the Lessee shall become and be deemed to be the property of Lessor and
constitute a part of the Project. At the end of the Lease Term the Lessee shall
have no obligation, but may, in its discretion and at its expense, remove any
such alteration, addition or improvement, provided that upon such removal the
Lessee is required to restore or repair the Premises. Any free standing
buildings or other free standing structures erected and paid for by the Lessee
shall be the property of the Lessee but shall be removed at the Lessee's expense
at the expiration or termination of the Lease Term unless the Lessor shall have
agreed to accept such buildings or structures in which event they need not be
removed and shall become property of the Lessor at the conclusion of the Lease
Term.
Section 5.4. REMOVALS AND SUBSTITUTIONS. Subject to the
requirements of Section 5.2(f) hereof with respect to Essential Lessor Personal
Property, in any instance where the Lessee, in its reasonable discretion,
determines that any item of Lessor Personal Property shall have become
inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary or should
otherwise be replaced, the Lessee may remove such items; provided, that such
removal (taking into account any substitutions) shall not impair the operation
of the Project and that any damage caused to any portion of the Project as a
result of such removal is restored or repaired at Lessee's sole cost; and
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provided, further, that the Lessee (i) substitutes and installs other items of
property necessary to enable the Project to be used for the Project Purposes
(but not necessarily having the same function in the operation of the Project),
which such substituted property shall be free from liens and encumbrances and
shall be the property of Lessor and become part of the Project, without taking
account of personal property previously designated to be the property of Lessor
as Lessor Personal Property as required by Section 5.2 or 5.4 hereof, or (ii) in
the case of removal of property without substitution, promptly pays to the
Lessor an amount equal to (A) if the removed property is sold or scrapped, the
proceeds of such sale or the scrap value thereof, (B) if the removed property is
used as a trade-in for property not to be installed as part of the Project, the
trade-in credit received by the Lessee, or (C) in the case of the retention of
such removed property by the Lessee for use at locations other than at the
Project, the Fair Market Value, less the Excess Value (as defined below), of
such property. If, prior to or concurrently with any such removal, the Lessee
shall have acquired and installed personal property with its own funds which has
become a part of the Project Facilities, the Lessee may credit the amount so
spent, or, if such property was acquired more than six (6) months prior to the
date on which the credit is to be made, the Fair Market Value of such property,
against the requirement that it either substitute other property or make payment
under this Section on account of such removal, provided that such previously
acquired and installed property meets the requirements for substituted property
under clause (i) of the next preceding sentence of this Section. "Excess Value"
shall mean the amount by which the then Fair Market Value of replacement Lessor
Personal Property exceeds the Fair Market Value of replaced Lessor Personal
Property at the time of its replacement. The Authorized Lessee Representative
shall promptly report to the Lessor each such removal, substitution, sale or
other disposition, shall take such actions as are required to vest title to any
such replacement or substitution property (including any property substituted
pursuant to the next preceding sentence) in the Lessor, and shall cause Lessee
to pay to the Lessor such amounts as are required by the provisions of clause
(ii) of the second preceding sentence of this Section (but after taking into
account any credits available pursuant to the next preceding sentence) to be
paid to the Lessor promptly after the sale, trade-in or other disposition
requiring such payment; provided, however, that no such payment need be made
until the amount to be paid to the Lessor on account of all such sales,
trade-ins or other dispositions not previously paid aggregates at least
$100,000. Except as otherwise provided in the Indenture, any amounts so paid
shall be made available to the Lessee for use for, alterations, additions or
improvements to the Project, or the acquisition and installation of personal
property within the Project Facilities, which alterations, additions,
improvements or personal property shall be the property of Lessor and become a
part of the Project for all purposes of this Lease, and the Lessee shall
promptly deliver to the Lessor a bill of sale or other appropriate evidence of
title thereto. Upon the request of the Lessee, the Lessor shall promptly execute
and deliver to the Lessee appropriate instruments releasing any property removed
pursuant to this Section from the Project and this Lease.
Section 5.5. INDEMNIFICATION. Except as otherwise expressly
provided herein, in order to induce the Lessor to undertake the duties,
obligations and responsibilities set forth herein, the Lessee releases the
Lessor from, agrees that the Lessor shall not be liable for, and indemnifies the
Lessor against, all liabilities, obligations, damages, costs and expenses
(including, without limitation, reasonable attorney's fees and expenses except
as may be limited by law or judicial decision or order) imposed upon, incurred
or asserted against the Lessor without negligence or bad faith on the part of
the Lessor on account of: (a) ownership of any interest in the Project; (b) any
loss or damage to property or any accident or injury to or disease, sickness or
death of or loss by any person that may be occasioned by any cause whatsoever
pertaining to activities pursuant to Sections 4.1, 5.3 and 5.4 of this Lease or
the maintenance, operation and use of the Project or any part thereof or the
adjoining sidewalks, curbs, vaults and vault space, if any, streets, alleys or
ways; (c) any use, disuse or condition of the Project or any part thereof or the
adjoining sidewalks, curbs, vaults and vault space, streets, alleys or ways, or
arising from any act or failure to act by the Lessee, or any of its agents,
contractors, servants, employees, sublessees or licensees; (d) any failure of
compliance of Lessee, its agents or the independent contractors of the Lessee or
any
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agents or independent contractors of the Lessor under the Construction
Contract, with the provisions of Section 4115.05, any other applicable provision
of the Ohio Revised Code or any other applicable provision of State or federal
law; (e) without limitation on the provisions of Section 5.6 hereof, all loss or
expense arising out of the existence in, on or about the Project of Hazardous
Substances or relating to beryllium or beryllium alloys, whether arising prior
to or during the Lease Term and regardless of whether the same arise out of the
release by the Lessee of such materials, and including without limitation civil
and criminal fines and penalties (whether arising or existing during or prior to
the Lease Term), and (f) any action or proceeding brought with respect to the
matters set forth in (a), (b), (c), (d) and (e) above. The Lessee shall notify
the Lessor in a timely manner of any knowledge it may receive of any loss or
expense under clause (e) of the next preceding sentence.
The Lessee agrees to indemnify the Lessor for and to hold it
harmless against all liabilities, costs and expenses incurred without negligence
or bad faith on the part of the Lessor on account of any action taken or omitted
to be taken by the Lessor in accordance with the terms of this Lease or any
related instruments or any action taken at the request of or with the consent of
the Lessee, including the costs and expenses of the Lessor in defending itself
against any such claim, action or proceeding brought in connection with the
exercise or performance of any of its powers or duties under this Lease or any
related instrument.
The Lessee agrees to indemnify the Lessor for and to hold it
harmless against all liabilities, costs and expenses incurred without negligence
or bad faith on its part arising from the issuance, sale, trading or redemption
or purchase of the Bonds, or performance by the Lessor of its obligations under
the Indenture with respect to, the Project Bonds, and the provision by the
Lessee of any information or certification furnished in connection therewith
concerning the Project Bonds, the Project or the Lessee.
In case any action or proceeding is brought against the Lessor in
respect of which indemnity may be sought hereunder, the Lessor promptly shall
give written notice of that action or proceeding to the Lessee, and the Lessee
upon receipt of that notice shall have the obligation and the right to assume
the defense of the action or proceeding; provided, that failure to give that
notice shall not relieve the Lessee from any of its obligations under this
Section except to the extent that such failure prejudices the defense of the
action or proceeding by the Lessee or otherwise results in an increase in the
amount to be indemnified. At its own expense, an indemnified party may employ
separate counsel and participate in the defense. The Lessee shall not be liable
for any settlement made without its consent.
The indemnifications set forth above are intended to and shall
include the indemnification of all affected officials, directors, officers and
employees of the Lessor. Those indemnifications are intended to and shall be
enforceable to the full extent permitted by law and shall survive the
termination or expiration of this Lease.
Section 5.6. ENVIRONMENTAL MATTERS. (a) Throughout the Lease
Term, the Lessee or its employees, contractors or agents shall:
(i) not place or permit to be placed any Hazardous
Substances at the Project except as not prohibited by applicable
law or appropriate governmental authorities;
(ii) forthwith upon receipt by the Lessee of written notice
of the occurrence of any material violation of any Environmental Law
in connection with the ownership, occupancy or use of the Project,
or the receipt by the Lessee of any citation, notice of
investigation, fine or other assessment in connection therewith,
report or other communication from any governmental authority with
respect to any violation or alleged violation of any Environmental
Law, deliver written notice thereof to the Lessor
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describing the same and any steps being taken by the Lessee with
respect thereto.
(iii) In the event that it obtains, gives or receives
written notice of any Release or threat of Release of a reportable
quantity of any Hazardous Substances or beryllium or beryllium alloys
at the Project Site (any such event being hereinafter referred to as
a "Hazardous Discharge") or receives any written notice of violation,
request for information or notification that it is potentially
responsible for investigations or cleanup of environmental conditions
at the Project or any demand letter or complaint, order, citation, or
other written notice with regard to any Hazardous Discharge or
violation of Environmental Laws affecting the Project Site or the
Lessor's or the Lessee's interest therein (any of the foregoing is
referred to herein as an "Environmental Complaint") from any Person
or entity, including any state agency responsible in whole or in part
for environmental matters in the State or the United States
Environmental Protection Agency (any such person or entity
hereinafter the "Agency"), then the Lessee shall, within thirty (30)
business days, give written notice of same to the Lessor detailing
facts and circumstances of which the Lessee is aware giving rise to
the Hazardous Discharge or Environmental Complaint. Such information
is not intended to create nor shall it create any obligation upon the
Lessor with respect thereto. The Lessee shall promptly forward to the
Lessor copies of all documents and reports concerning a Hazardous
Discharge at the Project that the Lessee is required to file under
any Environmental Laws.
(iv) respond in a timely manner to any Hazardous Discharge
or Environmental Complaint to avoid subjecting the Project to any
lien. If the Lessee shall fail to respond in a timely manner to any
Hazardous Discharge or Environmental Complaint or the Lessee shall
fail to comply in all material respects with any of the requirements
of any Environmental Laws, the Lessor may, but without the
obligation to do so, for the sole purpose of protecting the Lessor's
interest in the Project: (A) give such notices or (B) after notice
of intent to the Lessee to enter, enter onto the Project (or
authorize third parties to enter onto the Project) and take such
actions as the Lessor (or such third parties as directed by the
Lessor) deems reasonably necessary or advisable, to clean up,
remove, mitigate or otherwise deal with any such Hazardous Discharge
or Environmental Complaint.
(v) to the full extent permitted by law, defend and
indemnify the Lessor, and hold the Lessor harmless, from and
against all loss, liability, damage and expense, claims, costs,
fines and penalties, including reasonable attorney's fees, suffered
or reasonably incurred by the Lessor under or on account of any
Environmental Laws, including, without limitation, the assertion of
any lien thereunder, with respect to any Hazardous Discharge, the
presence of any Hazardous Substances or beryllium or beryllium
alloys affecting the Project, whether or not the same originates or
emerges from the Project or any contiguous real estate, except to
the extent such loss, liability, damage and expense is attributable
to any Hazardous Discharge resulting from actions on the part of
the Lessor. The Lessee's obligations under this Section shall arise
upon the discovery by the Lessee of any Hazardous Discharge or the
presence of any Hazardous Substances or beryllium or beryllium
alloys at the Project Site causing this paragraph to be applicable,
whether or not any federal, state, or local environmental agency
has taken or threatened any action in connection with the presence
of any Hazardous Substances or beryllium or beryllium alloys.
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Section 5.7. PERFORMANCE BY LESSOR OF LESSEE'S REQUIREMENTS. If the
Lessee shall fail to do or perform any act or thing required to be done by it
under the terms of this Lease, the Lessor may, at its sole option, after
reasonable written notice to the Lessee with respect thereto and reasonable
opportunity afforded to the Lessee to do and perform the same, itself or by its
employees, enter the Project and do and perform the same on the Lessee's behalf
and at the Lessee's cost and expense; and the Lessee shall, forthwith upon
receipt of notice of the amount of such cost and expense, pay the same to the
Lessor as Additional Payments under Section 3.2, together with interest thereon
at the Interest Rate for Advances, from the date of each payment by the Lessor
to the date of repayment (including such interest) by the Lessee.
(End of Article V)
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ARTICLE VI
TAXES, MECHANICS' LIENS AND INSURANCE
Section 6.1. TAXES, OTHER GOVERNMENTAL CHARGES AND UTILITY CHARGES.
This is a net lease and, in addition to paying the Rental Payments and
Additional Payments hereunder, except to the extent that certain costs are paid
pursuant to Section 4.2 of the Project Service Agreement, Lessee shall be
responsible for and shall pay any and all expenses of owning, operating,
maintaining and repairing the Project incurred from and after the date hereof
until the expiration of the Lease Term and any and all other costs, charges,
assessments, expenses and taxes of every kind and character, ordinary or
extraordinary, arising out of or incurred in connection with the use or
occupancy of the Project or the execution, delivery and performance by Lessee of
this Lease, whether or not such cost, charge, assessment, expense or tax is
expressly referred to herein, so as to allow the Lessor to receive the Rental
Payments as net rent. Without limiting the generality of the foregoing, the
Lessee shall pay, as the same respectively become due, all taxes, assessments,
whether general or special, and governmental charges of any kind whatsoever that
may at any time during the Lease Term be lawfully assessed or levied against or
with respect to the Project (including, without limitation, any taxes levied
upon or with respect to the revenues, income or profits of the Lessee from the
Project) which, if not paid, may become or be made a lien on the Project or any
part thereof, or a charge on such revenues, income and profits therefrom, and
all utility and other charges incurred in the operation, maintenance, use,
occupancy and upkeep of the Project during the Lease Term; provided, that with
respect to special assessments or other governmental charges that lawfully may
be paid in installments over a period of years, the Lessee shall be obligated to
pay only such installments as are required to be paid during the Lease Term.
The Lessee may, at its expense, in good faith contest any such
taxes, assessments and other charges and, in the event of any such contest,
during the period of such contest and any appeal therefrom, may permit the
taxes, assessments or other charges so contested to remain unpaid unless the
Lessor shall notify the Lessee that, in the reasonable opinion of the Lessor, by
nonpayment of any such items the Project or any part of the Project will be
materially affected or the Project or any part thereof will be subject to
imminent loss or forfeiture, in which event such taxes, assessments or charges
shall be paid or provisions for payment by deposit or bonding shall be made
promptly by the Lessee.
Section 6.2. MECHANICS' AND OTHER LIENS. The Lessee shall not
suffer or permit any mechanics' or other liens to be filed or exist (i) against
the Project, nor (ii) against any account or fund in which Rental Payments,
Additional Payments or proceeds of the Project Debt are deposited, by reason of
work, labor, services or materials supplied or claimed to have been supplied to,
for, or in connection with the Project or to the Lessee or anyone holding the
Project or any part thereof through or under the Lessee, or otherwise; provided,
however, that if any such liens shall at any time be filed, the Lessee shall,
within ninety days after notice of the filing thereof but subject to the right
to contest hereinafter set forth, cause the same to be discharged of record by
payment, deposit, bonding, order of a court of competent jurisdiction or
otherwise. The Lessee shall have the right, but at its own cost and expense, to
contest the validity or the amount of any such lien by appropriate proceedings
timely instituted, unless the Lessor shall notify the Lessee that, in the
reasonable opinion of the Lessor, by nonpayment of any such items any part of
the Project or moneys in such an account or fund will be subject to imminent
loss or forfeiture, in which event the Lessee shall promptly cause such lien to
be discharged as aforesaid or, in the case of a mechanics' or other lien filed
against the Project, provisions reasonably satisfactory to the Lessor and the
Lenders for payment by deposit or bonding shall be made promptly by the Lessee.
Lessor will cooperate fully with the Lessee, but at the Lessee's expense, in any
such contest (except as any such lien is asserted by the Lessor in which event
the Lessee shall have the right to contest such lien as if it were the owner of
the Project). If the Lessee shall fail to cause such lien to be discharged, or
to
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contest the validity or amount thereof, within the period aforesaid, then, in
addition to any other right or remedy of the Lessor, the Lessor may, but shall
not be obligated to, discharge the same by deposit or by bonding following
written notice to the Lessee of Lessor's intention to take such action.
Section 6.3. INSURANCE. The Lessee shall keep the Project
Facilities continuously insured in the amount and with the coverage of the
Required Property Insurance Coverage and shall keep and maintain, with respect
to the Project, Required Public Liability Insurance Coverage, provided, that
through the Completion Date, the Lessee shall provide all-risk builders risk
insurance covering the then insurable value of the Project. Subject to the next
paragraph of this section, such insurance shall name the Lessor, the Lenders,
the Ground Lessee (if the Ground Lessee is other than the Lessor), the Ground
Lessor (and any Permitted Leasehold Mortgagees) and Significant Holders (as
defined in the Indenture) as, with respect to Public Liability Required
Insurance Coverage, additional insureds and, with respect to Required Property
Insurance Coverage, the Lessor, the Lessee and the Trustee as loss payees, as
their respective interests may appear consistent with Section 7.2 hereof, and
shall be obtained and maintained by means of policies with generally recognized,
responsible insurance companies qualified to do business in the State, in
conjunction with other companies through an insurance trust or other
arrangements reasonably satisfactory to the Lessor. The insurance to be provided
may be by blanket policies. Each policy of insurance shall be written so as not
to be subject to cancellation or substantial modification without not less than
thirty days' advance written notice to the Lessor, the Ground Lessor, the Ground
Lessee and the Lenders. The Lessee shall deposit with the Lessor certificates or
other evidence reasonably satisfactory to the Lessor that the insurance required
hereby has been obtained and is in full force and effect and, at least 30 days
prior to the expiration of any such insurance, the Lessee shall furnish the
Lessor with evidence reasonably satisfactory to the Lessor that such insurance
has been renewed or replaced.
All policies providing the Required Property Insurance Coverage
shall contain a clause requiring all proceeds resulting from any claim for loss
or damage, if the proceeds of such claim are in excess of $500,000 (increased on
each January 1 by ten percent for each ten percent increase in the Consumer
Price Index Increase not theretofore the subject of such increase), to be paid
to the Lessor or its designee, and any Net Proceeds of insurance providing such
coverage shall be paid and applied as provided in Section 7.2 hereof. The
proceeds of insurance providing Required Public Liability Insurance Coverage
shall be applied toward the extinguishment or satisfaction of the liability with
respect to which such insurance proceeds have been paid.
Section 6.4. WORKERS' COMPENSATION AND UNEMPLOYMENT COVERAGE. The
Lessee shall maintain, or cause to be maintained in connection with the Project,
the workers' compensation and unemployment coverages required of it by the
applicable laws of the State.
Section 6.5. WAIVER OF SUBROGATION. Notwithstanding any other
provision of this Lease to the contrary, it is mutually agreed that the Lessor
shall not be responsible for damage by fire, lightning, windstorm, hail,
explosion, riot, riot attending a strike, civil commotion, aircraft, vehicles,
smoke, vandalism or malicious mischief to the property of the Lessee and the
Lessee shall not be responsible for damage to the property of the Lessor by the
same perils as mentioned above regardless of the negligence of either party. The
Lessee will cause each insurance carrier issuing any policy required by this
Lease to waive all rights of subrogation against the Lessor, the Lenders and the
Holders.
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Section 6.6. PAYMENT OF AMOUNTS NOT PAID BY LESSEE. If the Lessee
fails to (i) pay taxes, assessments and other governmental or utility charges as
required by Section 6.1 hereof, (ii) pay or discharge mechanics' or other liens
as required by Section 6.2 hereof, (iii) maintain and keep in force the
insurance required by Section 6.3 hereof or (iv) maintain required workers'
compensation and unemployment coverage as required by Section 6.4 hereof, the
Lessor may (but shall not be obligated to) advance funds to pay any such
required charges or items after ten business days' prior written notice to the
Lessee. Any funds so advanced shall be payable by the Lessee on demand as
Additional Payments pursuant to Section 3.2 hereof and shall bear interest from
the date of advancement to the date the Lessor is repaid (including such
interest) at the Interest Rate for Advances.
(End of Article VI)
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ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.1. DAMAGE TO OR DESTRUCTION OF PROJECT. In case of any
damage to or destruction of the Project Facilities or any part thereof, the
Lessee will promptly give or cause to be given written notice thereof to the
Lessor, the Ground Lessor, any Permitted Leasehold Mortgagees and the Lenders
generally describing the nature and extent of such damage or destruction. Unless
such damage or destruction is such that the Lessee shall have certified that it
will prepay all remaining Rental Payments by paying the Discounted Rent and
terminate this Lease in accordance with Article IX hereof, there shall be no
abatement or diminution of Rental Payments and the Lessee shall, whether or not
the Net Proceeds of insurance, if any, received on account of such damage or
destruction shall be sufficient for such purpose, promptly commence and
complete, or cause to be commenced and completed, repair or restoration of the
Project Facilities as nearly as practicable to the value, condition and
character thereof existing immediately prior to such damage or destruction, with
such changes or alterations, however, as the Lessee may deem necessary for
proper operation of the Project and to which the Lessor has consented, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing,
Lessee may under certain circumstances relating to damage or destruction
terminate this Lease and/or acquire the Project as set forth in Article IX.
Section 7.2. USE OF INSURANCE PROCEEDS. In connection with the
repair or restoration of the Project Facilities pursuant to Section 7.1 hereof,
Net Proceeds of Required Property Insurance Coverage not in excess of $500,000
(increased on each January 1 by ten percent for each ten percent increase in the
Consumer Price Index Increase not theretofore the subject of such increase)
shall be paid to the Lessee for application of as much as may be necessary for
such repair and restoration. Any balance of the Net Proceeds remaining after
payment of all costs of such repair, rebuilding or restoration shall be retained
by the Lessee. If such Net Proceeds are in excess of $500,000 (increased on each
January 1 by ten percent for each ten percent increase in the Consumer Price
Index Increase not theretofore the subject of such an increase) the Net Proceeds
shall be paid to and held by the Lessor or its designee, as described in the
second paragraph of Section 6.3 hereof, in a separate insurance loss account,
for application of as much as may be necessary of the Net Proceeds for the
payment of the costs of repair, rebuilding or restoration, either on completion
thereof or as the work progresses as directed by the Lessee or otherwise
provided in the Indenture. Any balance of the Net Proceeds held by the Lessor or
its designee remaining after payment of all costs of such repair, rebuilding or
restoration shall, except as otherwise provided in the Indenture, be made
available to Lessee in the event that such balance is less than $200,000, and
shall be used by the Lessee for alterations, additions or improvements to the
Project thereafter during the Lease Term in the event that such balance is
$200,000 or more.
If, in lieu of repair and restoration, the Lessee has certified
that it will prepay all remaining Rental Payments by paying the Discounted Rent
and terminate this Lease in accordance with Article IX hereof, any Net Proceeds
received by the Lessor or its designee prior to such prepayment shall be
credited against the Discounted Rent payable by the Lessee pursuant to this
Lease, and after such prepayment, no further Rental Payments shall be due
hereunder.
Section 7.3. EMINENT DOMAIN. If title to or the temporary use of
the Project, or any part thereof, shall be taken under the exercise of the power
of eminent domain by any governmental body or by any person, firm or corporation
acting under governmental authority, the Lessee will promptly give or cause to
be given written notice thereof to the Lessor, the Ground Lessor, any Permitted
Leasehold Mortgagees, the Lenders and the Holders describing the nature and
extent of such taking. Any Net Proceeds received from any award made in such
eminent domain proceedings shall be paid to and held by or on behalf of the
Lessor or its designee in a separate
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condemnation award account and, unless the taking is such that the Lessee shall
have certified that it will prepay all remaining Rental Payments by paying the
Discounted Rent and terminate this Lease in accordance with Article IX hereof,
shall, except as otherwise provided in the Indenture, be made available to
Lessee to be applied in one of the following ways:
(a) The restoration of the Project Facilities to
substantially the same condition as existing prior to the
exercise of the power of eminent domain;
(b) The acquisition by construction or otherwise of other
improvements acceptable to the Lessor and suitable for the Lessee's
operations on the Project Site (which improvements shall be deemed
property of the Lessor and a part of the Project).
The balance of any net Proceeds remaining after application to (a) and (b) above
shall, except as otherwise provided in the Indenture, be made available to the
Lessee for alterations, additions and improvements to the Project thereafter
during the Lease Term.
If the Lessee shall have certified that it will prepay all
remaining Rental Payments by paying the Discounted Rent and terminate this Lease
in accordance with Article IX hereof, any Net Proceeds received from any award
made in such eminent domain proceeding shall be credited against the Discounted
Rent payable by the Lessee pursuant to this Lease, and after such prepayment no
further Rental Payments shall be due hereunder. If the Lessee shall not have so
certified, there shall be no abatement or diminution of Rental Payments.
Section 7.4. INVESTMENT AND DISBURSEMENT OF NET PROCEEDS. All
moneys received by or on behalf of the Lessor or its designee constituting Net
Proceeds may, pending application, be invested and shall, to the extent to be
used for repair, rebuilding, improvement, restoration, acquisition or
construction, be disbursed as provided in or pursuant to the Indenture and the
Project Service Agreement for the investment and disbursement of moneys in the
Proceeds Account of the Project Fund created under the Indenture.
Section 7.5. LESSEE'S OWN PERSONAL PROPERTY. The Lessee or any
permitted assignee or sublessee of the Lessee shall be entitled to the net
proceeds of any insurance claims or eminent domain award for damage or
destruction or taking of its personal property.
(End of Article VII)
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ARTICLE VIII
FURTHER REPRESENTATIONS AND AGREEMENTS
RESPECTING THE PROJECT
Section 8.1. RIGHT OF ACCESS. The Lessee agrees that inspections
may be made as provided in Section 5.2 hereof. The Lessee further agrees that
the Lessor, the Ground Lessor, any Permitted Leasehold Mortgagees, the Lenders
and the Holders and their employees and agents shall be provided such access to
the Project upon reasonable prior notice to the Lessee, as may be reasonably
necessary to cause to be completed the Project Facilities and thereafter for the
proper maintenance of the Project in the event of failure by the Lessee to
perform any of its obligations. All inspections shall be made in strict
compliance with Lessee's reasonable safety and security regulations.
Section 8.2. LESSEE TO MAINTAIN ITS CORPORATE EXISTENCE; CONDITIONS
UNDER WHICH EXCEPTIONS PERMITTED. The Lessee agrees that during the Lease Term
it will maintain its corporate existence, will not dissolve or otherwise dispose
of all or substantially all of its assets and will not consolidate with or merge
into another corporation or permit one or more other corporations to consolidate
with or merge into it; provided, that the Lessee may, without violating the
agreement contained in this Section, consolidate with or merge into another
corporation, or permit one or more other corporations to consolidate with or
merge into it, or sell or otherwise transfer to another corporation all or
substantially all of its assets as an entirety and thereafter dissolve, provided
that if the surviving, resulting or transferee corporation, as the case may be,
is other than the Lessee, such surviving, resulting or transferee corporation
assumes in writing all of the obligations of the Lessee herein and either
obtains the consent of the Lessor or has a net worth at least equal to that of
the Lessee prior to dissolution, sale, consolidation or merger, and provided
further that such consolidation, merger, sale or transfer does not violate or
result in the violation of any provision of any other agreement with any Lender
to which the Lessee is a party or of the Inducement Agreement as defined in
Section 10.1(g) hereof. Net worth shall be determined in accordance with
generally accepted accounting principles consistently applied.
If consolidation, merger or sale or other transfer is made as
provided in this Section, the provisions of this Section shall continue in full
force and effect and no further consolidation, merger or sale or other transfer
shall be made except in compliance with the provisions of this Section.
Section 8.3. TITLE OF PROJECT SITE. Written evidence as to the
status of title to the Project Site as of the date of delivery of this Lease has
been made available to the Lessee and the Lessor. The Lessee and the Lessor
agree that such title is satisfactory and that all defects in and liens and
encumbrances on such title, as set forth in such evidence as exclusions from
coverage and exceptions, do not materially impair the Lessee's use or the value
of the Project Site.
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Section 8.4. NO WARRANTY OF CONDITION OR SUITABILITY. The Lessor
does not make any warranty, either express or implied, as to the suitability or
utilization of the Project for the Project Purposes, or as to the condition of
the Project or whether the Project is or will be suitable for the Lessee's
purposes or needs. Lessor and Lessee agree that the Project is being leased to
Lessee, and Lessee hereby accepts possession of the Project, "as-is, where-is,
with all faults," with no right of set-off or reduction in the Rental Payments,
and that such transaction shall be without representation or warranty of any
kind or nature whatsoever by Lessor, or any officer, director, employee, agent
or attorney of Lessor, or any other party related in any way to any of the
foregoing (all of which parties are collectively referred to as the "Lessor
Parties"), whether express, implied, statutory or otherwise, including, without
limitation, title, warranty of income potential, operating expenses, uses,
condition, merchantability, habitability, compliance with designs,
specifications or legal requirements, absence of latent defects, or fitness for
a particular purpose, and Lessor, for itself and each of the other Lessor
Parties does hereby disclaim and renounce any such representation or warranty.
Section 8.5. ANNUAL STATEMENT AND OTHER REPORTS. The Lessee (i)
shall have an annual audit made by its regular independent certified public
accountants and shall furnish a copy of such audit to the Lessor promptly upon
its completion, but not later than one hundred twenty (120) days after the end
of the Lessee's fiscal year, and (ii) shall prepare and furnish within sixty
(60) days after the end of each fiscal year of the Lessee to the Lessor a
certificate of the Authorized Lessee Representative stating whether, to the best
of its knowledge, the Lessee is in default under this Lease, and if it is, the
nature of the default. The Lessee shall also furnish promptly to the Lessor a
copy of all financial statements, reports, notices, proxy statements and
registration statements which it sends to its shareholders generally or which it
files with any securities exchange or the Securities and Exchange Commission or
any successor agency. In the event the Lessee ceases to be an entity required to
file periodic reports with a securities exchange or the Securities and Exchange
Commission or any successor agency, the Lessee shall furnish to the Lessor the
same information and at the same times as it would have furnished such
information to a securities exchange or the Securities and Exchange Commission
in financial statements, reports, notices, proxy statements and registration
statements filed with that securities exchange or the Securities and Exchange
Commission or any successor agency.
(End of Article VIII)
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ARTICLE IX
TERMINATION OF LEASE
Section 9.1. OPTION TO TERMINATE ON PAYMENT OF RENTAL PAYMENTS. The
Lessee shall have the option to terminate this Lease when payment of the
Discounted Rent (as defined in Section 9.2 hereof but exclusive of clause (4) of
that definition) shall have been made to the Lessor. Such option shall be
exercised by the Lessee giving the Lessor and each of the Lenders notice of such
termination and, upon such payments or, to the extent applicable, provision for
payments, such termination shall forthwith become effective.
Section 9.2. TERMINATION OF LEASE ON SUBSTANTIAL CASUALTY OR
CONDEMNATION. If the Project shall have been damaged or destroyed, or title to
or the temporary use of all or substantially all of the Project shall have been
taken under the exercise of the power of eminent domain by any governmental
authority, or other Person acting under governmental authority, to such an
extent that, in the opinion of the Board of Directors of the Lessee, it is not
economically feasible to repair, rebuild, restore or replace the Project to
substantially the condition thereof immediately preceding the damage,
destruction or taking (because for example, without limitation, of the
occurrence of an uninsurable casualty), then, within 90 days following the date
on which the event authorizing that exercise occurred (the date of the
occurrence of any damage or destruction or the date of entry of a final order in
any eminent domain proceeding), the Authorized Lessee Representative shall
provide the Lessor with a copy of the action of the Board of Directors making
such determination and with its certification that (i) it will prepay all of the
remaining Rental Payments by paying the Discounted Rent on the date required as
set forth below, (ii) upon such payment it will terminate this Lease and (iii)
the Lessee has irrevocably taken such steps as are necessary under the Project
Service Agreement to terminate the Project Service Agreement, in accordance with
its terms, on or prior to such date. Copies of those certificates shall be
provided to the Lenders. In the event that such certification is given, such
certifications shall be irrevocable and the Lessee shall pay the Discounted Rent
(less any amounts on deposit with the Lessor or its designee and available
therefor pursuant to Article VII hereof, including without limitation, the Net
Proceeds of Required Property Insurance Coverage or Net Proceeds of any eminent
domain or similar payments) to the Lessor on or prior to the business day
preceding the next Interest Payment Date (as defined in the Indenture) occurring
at least 35 days after delivery of the certification (and all copies thereof)
pursuant to the preceding two sentences, which date shall be specified in the
certification of the Authorized Lessee Representative. The Discounted Rent is
irrevocably agreed and acknowledged by the parties to be the sum of the
following amounts (collectively being the "Discounted Rent" as used and defined
herein):
(1) an amount of money which will be sufficient pursuant to
the Indenture to pay all outstanding principal of and premium with
respect to the Bonds and to pay any accrued, but unpaid interest on
the Bonds to such Interest Payment Date; and
(2) an amount of money which will be sufficient to pay all
outstanding principal of the State Loan Note plus any interest and
service charges accrued, but unpaid, along with any premium on the
State Loan Note, to such Interest Payment Date; and
(3) an amount of money (or provision therefor satisfactory
to the Lessor) equal to the Additional Payments and other amounts
payable hereunder accrued and to accrue to such Interest Payment
Date; and
(4) an amount of money sufficient to raze the damaged
structures
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and level and seed the sites of such structures, which amount
shall be placed in a segregated account to be so used solely for
such purpose.
In the event the Net Proceeds of Required Property Insurance Coverage or the Net
Proceeds of any eminent domain or similar payments are received subsequent to
the payment by the Lessee of the Discounted Rent, such Net Proceeds shall be
paid to the Lessee.
The mutual agreements contained in this Section 9.2 are independent
of, and constitute an agreement separate and distinct from, any other provisions
of this Lease and any other agreements between the Lessor and the Lessee and
shall be unaffected by any fact or circumstance which might impair or be alleged
to impair the validity of those other provisions. Upon acquisition of the Bonds
and the State Loan Note by the Lessee, the Bonds, and the State Loan Note shall
be surrendered for cancellation, this Lease shall be terminated (subject to
survival of such provisions hereof as are intended to survive termination of
this Lease), all right, title and interest of the Lessee or the Lessor in or to
the Project will revert to and vest in the Lessor, as the fee owner of the
Project Facilities and the Lessee shall terminate the Project Service Agreement.
Section 9.3. OPTION TO PURCHASE LESSOR'S INTEREST IN PROJECT. The
Lessee is hereby granted an option to purchase all interests of the Lessor in
the Project upon the termination of the Lease Term pursuant to Section 9.1 or
9.2 of this Lease, or at the expiration of the Lease Term, in any such case, by
payment to the Lessor of the following sums, as applicable.
In the case of a termination pursuant to Section 9.1 of this Lease
or at the expiration of the Lease Term, the Lessee shall pay to the Lessor the
sum of
(x) $100.00; and
(y) an amount of money which is the greater of (a) the Fair
Market Value of the Project or (b) the amount required to retire in
full the Bonds and the State Loan Note plus any interest and
service charges accrued, but unpaid, along with any premium on the
Bonds and the State Loan Note, to the specified purchase date.
In the case of a termination pursuant to Section 9.2 of this
Lease, the Lessee shall pay to the Lessor the sum of
(x) $100.00; and
(y) the amount of money required to retire in full the Bonds
and the State Loan Note plus any interest and service charges
accrued, but unpaid, along with any premium on the Bonds and the
State Loan Note, to the specified purchase date.
In determining the Fair Market Value of the Project at the
termination or expiration of the Lease Term, the Lessee shall obtain an M.A.I.
appraisal of the Project acceptable to Lessor which will (i) reflect the fact
that the Project Facilities constitute a special use building configured to fit
special machinery and equipment and (ii) exclude the value of the Lessee's own
machinery, equipment and personal property (including property affixed to the
Project Facilities but which may be removed by the Lessee pursuant to the terms
hereof) from the Fair Market Value of the Project.
Any amount required to the paid by the Lessee pursuant to this
Section 9.3 in order to purchase all interests of the Lessor in the Project
shall be reduced by the amount previously paid by the Lessee pursuant to either
Section 9.1 or Section 9.2 hereof as Discounted Rent (to the extent of clauses
(1) and (2) of that definition) in connection with the termination of the Lease.
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If the Lessee exercises its option to purchase in connection with
its option pursuant to Section 9.2 of this Lease, it shall do so within the time
and in the manner as is provided in that Section. If the Lessee exercises its
option pursuant to this Section, the Lessee shall give written notice to the
Lessor and the Lenders at least three months prior to the purchase date.
Section 9.4. CONVEYANCE ON EXERCISE OF OPTION TO PURCHASE. Upon
exercise by the Lessee of its option under Section 9.3 hereof and upon payment
of all amounts payable by the Lessee in connection therewith, the Lessor will
deliver, or cause to be delivered, to the Lessee such quitclaim deeds, bills of
sale, instruments and other documents conveying to the Lessee all of the
Lessor's interests in the Project, as the Project then exists, subject to
(a) liens and encumbrances, if any, to which title to the
Project was subject at the commencement of the Lease Term;
(b) liens and other encumbrances created by the Lessee or to or in
the creation or suffering of which the Lessee consented or
acquiesced or in the creation of which it participated;
(c) liens and other encumbrances for taxes, governmental charges
or special assessments not then delinquent;
(d) liens and other encumbrances resulting from the failure of the
Lessee to observe or perform any of its covenants, agreements or
obligations under this Lease; and
(e) if the option under Section 9.3 hereof is exercised in
connection with the exercise by the Lessee of its option under
Section 9.2 hereof pursuant to the provisions of Section 9.2(a)
hereof, the rights and title of the condemning authority.
If the option under Section 9.3 hereof is exercised in connection
with the exercise by Lessee of the option under Section 9.2 hereof pursuant to
the provisions of paragraph (a) of that Section, the Lessee, upon payment of the
option price to Lessor, shall be entitled to all insurance proceeds in
connection with the damage or destruction or, at the Lessee's option, the Lessee
shall be entitled to credit such net proceeds against the payment of the option
price.
No further action of the Legislative Authority shall be required to
authorize or to effect the conveyance contemplated in this Section, and upon the
payment by the Lessee of all amounts payable by the Lessee in connection
therewith and upon satisfaction by the Lessee of all other requirements
therefor, the Secretary, either alone or together with any other officer or
officers deemed by the Secretary to be appropriate, is authorized and directed
hereby to execute and deliver any instruments and documents necessary or
advisable to effect the conveyance.
(End of Article IX)
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ARTICLE X
EVENTS OF DEFAULT
Section 10.1. EVENTS OF DEFAULT. Each of the following shall be
an "Event of Default":
(a) The Lessee shall fail (i) to pay in full any Rental
Payment on or prior to any Rental Payment Date and such failure
continues for a period of five (5) calendar days thereafter, or
(ii) to pay in full the Discounted Rent on or prior to the date
established for the payment thereof pursuant to Section 9.2 of this
Lease or (iii) to maintain any of the insurance required by Section
6.3 of this Lease or fail to maintain the required levels of
insurance for a period of five (5) calendar days.
(b) The Lessee shall fail to make any payment, other than a
Rental Payment or a payment of Discounted Rent, required to be made
under this Lease, which failure shall continue for a period of 30
days after written notice (unless the Lessor shall agree in writing
to an extension of such time prior to its expiration) specifying
such failure and requesting that it be remedied, given by the
Lessor to the Lessee.
(c) The Lessee shall fail to observe and perform any of its
other covenants, conditions or agreements contained herein for a
period of 60 days after written notice (unless the Lessor shall
agree in writing to an extension of such time prior of its
expiration) specifying such failure and requesting that it be
remedied, given by the Lessor to the Lessee; provided, however,
that if such failure is other than the payment of money and is of
such a nature that it cannot be corrected within such 60 day
period, then such failure shall not constitute an Event of Default
so long as the Lessee notifies the Lessor of its intention to cure
such failure as soon as possible after such 60 day period,
institutes curative action within such 60 day period, diligently
pursues such action to completion, and cures such failure within a
reasonable period of time, not to exceed 120 days, after such 60
day period.
(d) Any representation or warranty by the Lessee contained
in this Lease is false or misleading in any material respect.
(e) The Lessee shall: (A) (i) admit in writing its inability
to pay its debts generally as they become due; or (ii) file a
petition in bankruptcy or a petition to take advantage of any
insolvency act; or (iii) make an assignment for the benefit of
creditors; or (iv) consent to the appointment of a receiver for
itself or of the whole or any substantial part of its property; or
(B) file a petition or answer seeking reorganization or arrangement
under the Federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof; or
(C) if a petition in bankruptcy is filed against it, be adjudicated
a bankrupt, or have a court of competent jurisdiction enter an
order or decree appointing, without the consent of the Lessee, a
receiver or trustee for the Lessee or for the whole or
substantially all of its property, or have a court of competent
jurisdiction enter an order or decree approving a petition filed
against it seeking reorganization or arrangement of the Lessee
under the Federal bankruptcy laws or any other applicable law or
statute of the United States of America or any state thereof, if
any such adjudication, order or decree under this clause (C) shall
not be vacated or set aside or stayed within 90 days from the date
of the entry thereof.
(f) The Lessee shall fail, within 90 days after the
commencement of any proceeding against the Lessee seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute,
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law or regulation, to have such proceeding dismissed, or, within
90 days after the appointment without the consent or acquiescence
of the Lessee, of any trustee, receiver or liquidator of the
Lessee or any material part of its properties, to have such
appointment vacated, or the Lessee shall be adjudicated as a
bankrupt or insolvent.
(g) An "Event of Default" as defined in the Inducement
Agreement, dated as of the date hereof, between the Lessee and the
original purchaser of the Project Bonds shall have occurred.
Section 10.2. REMEDIES ON DEFAULT. Whenever an Event of
Default shall have happened and be subsisting, any one or more of the
following remedial steps may be taken:
(a) The Lessor may declare all Rental Payments, together
with any Additional Payments and other amounts payable hereunder to
be immediately due and payable, but only in an amount equal to the
amount set forth in clauses (1) through (3) of Discounted Rent as
defined in Section 9.2 hereof (determined as of the date of payment
by the Lessee pursuant to this Section 10.2), whereupon, to the
extent permitted by law, the same shall become immediately due and
payable;
(b) The Lessor may re-enter and take possession of the
Project without terminating the Lease and sublease the Project for
the account of the Lessee, holding the Lessee liable for the
difference between the rent and other amounts payable by such
sublessee in such subleasing and the aggregate of the Rental
Payments, Additional Payments and other amounts payable by the
Lessee hereunder;
(c) The Lessor may terminate this Lease, exclude the Lessee
from possession of the Project and lease the Project to another,
but holding the Lessee liable for all Rental Payments, Additional
Payments and other amounts payable hereunder up to the effective
date of such leasing;
(d) The Lessor may have access to and inspect, examine and
make copies of the books and records and any and all accounts, data
and financial records of the Lessee, only, however, insofar as they
pertain to the Project and only to the extent that such information
is available;
(e) The Lessor may take whatever action at law or in equity
may appear necessary or desirable to collect the Rental Payments,
Additional Payments and other amounts then due and thereafter to
become due, or to enforce performance and observance of any other
obligation or agreement of the Lessee, under this Lease.
After the termination of the Lease or of Lessee's right of
possession, the Lessor shall, to the extent required under applicable law, use
reasonable efforts to mitigate damages by reletting the Project, in whole or in
part, either in its own name or as agent for the Lessee, for a term or terms,
that at the Lessor's option, may be for the remainder of the then current Lease
Term or for any longer or shorter period. The Lessor may waive and rescind any
declaration made pursuant to subparagraph (a) of the first paragraph of this
Section and waive and rescind the consequences of such declaration and of the
Event of Default with respect to which such declaration has been made, provided
that no such waiver or rescission shall extend to or affect any subsequent or
other default or impair any right consequent thereon.
The Lessor and the Lessee acknowledge that the Lessor has borrowed
money in order to provide the moneys necessary to acquire, construct, improve,
furnish, equip and develop the Project Facilities and that the Lessor, with the
knowledge of the Lessee, has contractually obligated itself to use the Rental
Payments to repay its borrowings and that an Event of Default under Section
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10.1 hereof would eliminate future Rental Payments and the source to be used to
repay the Lessor's borrowings. The Lessor and the Lessee agree that amounts paid
pursuant to paragraph (a) of this Section are liquidated damages and not a
penalty and will permit the Lessor to repay the borrowings that would have been
repaid from Rental Payments during the Lease Term.
The Lessor shall give prompt notice to each of the Lenders of an
Event of Default under this Lease and of any waiver thereof and of any
rescission of an acceleration.
Section 10.3. NO REMEDY EXCLUSIVE. No remedy conferred or reserved
by this Lease is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Lease or now or hereafter
existing at law, in equity or by statute. No delay or omission to exercise any
right or power accruing upon any default shall impair any such right or power or
shall be construed to be a waiver thereof, but any such right and power may be
exercised from time to time and as often as may be deemed expedient. In order to
entitle the Lessor to exercise any remedy reserved to it in this Article, it
shall not be necessary to give any notice, other than such notice as may be
expressly required herein or by applicable law.
Section 10.4. LESSEE TO PAY ATTORNEYS' FEES AND EXPENSES. If an
Event of Default occurs and the Lessor, any Lender or any Holder employs
attorneys or incurs other expenses for the enforcement of any obligation or
agreement of the Lessee contained herein or in any other agreement relating to
the Project or the Project Debt and to which the Lessee is a party, the Lessee
shall, on demand therefor and to the extent permitted by law, reimburse the
reasonable fees of such attorneys and such other expenses so incurred.
Section 10.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the
event any agreement contained in this Lease should be breached by either party
and thereafter waived by the other party, such waiver shall be limited to the
particular breach so waived and shall not be deemed to waive any other breach
hereunder.
(End of Article X)
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ARTICLE XI
ASSIGNMENT OF LEASE, SUBLEASING AND RELEASE
OF PORTIONS OF PROJECT
Section 11.1. SUBLEASING BY LESSEE. The Project may be subleased in
whole or in part, by the Lessee without the necessity of obtaining the consent
of the Lessor; provided that if the Lessee and its subsidiaries are occupying
and using less than 90 percent of the usable space of the Project Facilities,
then ten business days prior to executing any sublease the Lessee shall provide
notice to the Lessor specifying the name of the sublessee, the nature of its
business, the use to be made of the subleased space, the number of persons
anticipated to be employed in the subleased space, whether any hazardous or
flammable materials will be located in the space and any remodeling that is to
be accomplished to accommodate the sublessee; subject, however, to each of the
following conditions:
(a) No subletting, including pursuant to the Sublease, shall
relieve the Lessee from primary liability for any of its
obligations hereunder, and in the event of any such subletting the
Lessee shall continue to remain primarily and fully liable for the
Rental Payments and Additional Payments and for performance and
observance of the agreements on its part herein provided to be
performed and observed by it.
(b) Any sublease from the Lessee must retain for the Lessee
such rights and interests as will permit it fully to perform its
obligations under this Lease.
(c) The Lessee shall, prior to the delivery thereof, furnish
or cause to be furnished to the Lessor a true and complete copy of
each such proposed sublease, together with, after delivery, a fully
executed original counterpart of such sublease.
(d) Any sublease from the Lessee shall not materially impair
fulfillment of the purposes of the Act to be accomplished by
operation of the Project.
Section 11.2. MORTGAGE AND ASSIGNMENT BY LESSOR. In accordance with
applicable law, the Lessor may mortgage or grant an assignment of its leasehold
interest in the Project Site, and may mortgage or grant a security interest in
the Project Facilities as security for payment of any obligations of the Lessor
issued to finance costs of the Project; provided, however, that each such
mortgage, assignment or pledge shall be subordinate and subject to this Lease.
So long as no default or Event of Default has occurred and is
continuing under this Lease, upon (i) foreclosure by a Permitted Leasehold
Mortgagee on the interests of the Lessor mortgaged or (ii) realization upon the
Project Facilities by a party to which the Lessor has granted a security
interest in such Project Facilities, any party to whom ownership of such
interests mortgaged or of such Project Facilities shall be transferred (and any
assigns of any such party) shall be required, as a condition to obtaining
ownership of such interests mortgaged or of such Project Facilities, to be a
legal entity with the characteristics set forth below:
(a) Such entity shall not, except as contemplated by the
Permitted Leasehold Mortgages commingle its assets with the assets
of the Lessor or any affiliate of the Lessor; and
(b) Such entity shall at all times maintain the following
procedures to avoid or minimize any risk of substantive
consolidation of such entity with the bankruptcy or reorganization
of the Lessor: (i) maintain books and records and bank accounts
separate from those of the Lessor; (ii) file separate tax returns
except to the extent required or
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permitted by applicable law, rule or regulation; (iii) conduct
business with the Lessor and affiliates of the Lessor on an
arm's-length basis; (iv) observe trust (or similar organizational)
formalities; and (v) hold such entity out to the public as a legal
entity separate and distinct from the Lessor or any affiliate
thereof; and
(c) The trust agreement (or by-laws or other similar
organizational documents relating to the formation of such entity)
shall incorporate the restrictions and covenants contained in this
paragraph.
As used in clauses (a) - (c) of this Section 11.2, "the Lessor"
shall refer solely to the Toledo-Lucas County Port Authority.
Section 11.3. RESTRICTIONS ON TRANSFER AND ENCUMBRANCE OF PROJECT
BY THE LESSOR. The Lessor agrees that, so long as no Event of Default has
occurred and is continuing under this Lease and except as otherwise provided in
this Lease, it will not, directly or indirectly, sell, assign, transfer, convey,
grant any easement or encumbrance or otherwise dispose of the Project or any
portion thereof during the Lease Term, nor will it create or suffer to be
created by, through and under it any debt, lien or charge thereon (except the
lien or charge for taxes, governmental charges or special assessments) or make
any pledge or assignment of or create any lien or encumbrance upon the rents,
revenues and receipts derived from the sale, lease or other use or disposition
of the Project, other than as provided in Section 11.2 hereof, or as a result of
foreclosure by a Lender on the interest of Lessor mortgaged as described in
Section 11.2 or transfer in lieu of such foreclosure, or as approved by the
Lessee.
Section 11.4. RELEASE OF PROJECT. The Lessee hereby reserves the
right and the Lessor hereby agrees, at any time and from time to time, to amend
this Lease to effect the release of and removal from this Lease and the
leasehold estate created hereby of any part of or interest in the Project and
the conveyance or transfer for Fair Market Value of such part or interest to the
Lessee or one of its subsidiaries or to a grantee so long as that grantee is
approved in writing by the Lessee and the Lessor which approval shall not be
unreasonably withheld or delayed; provided, that such amendment shall not be
effective until and unless there are deposited with the Lessor the following:
(a) An executed copy of said amendment.
(b) A certificate of the Authorized Lessee Representative
(i) stating that to his knowledge no Event of Default exists and
the Lessee is not in default under any of the provisions of this
Lease, (ii) giving, if applicable, an adequate legal description of
that portion of the Project to be released, (iii) stating the
purpose for which the release is desired, (iv) stating that the
improvements, if any, to be constructed upon that portion of the
Project to be released are consistent with, or not inconsistent
with, the purposes of the Act, (v) requesting such release and (vi)
approving such amendment.
(c) Evidence of the authority of the officer of the
Lessee who executed such amendment.
(d) A certificate of the President, a Vice President, the
Treasurer or the Secretary of the Lessee or an opinion of counsel
for the Lessee stating that, to the best of his or her knowledge
after due inquiry, the Lessee is not in default under this Lease.
(e) A fully executed counterpart of the instrument conveying
or transferring the interest proposed to be released.
(f) A certificate of an Engineer, reasonably acceptable to
the Lessor, dated not more than sixty days prior to the date of the
release and stating that, in the opinion of
-36-
<PAGE> 41
such Engineer, (i) the release of the portion of the Project so
proposed to be released is necessary or desirable in order to
benefit the Project, or such portion is not needed for the
operation of the Project or such portion shall not materially
adversely affect the operation of the Project, and (ii) the
release so proposed to be made will not materially impair the
usefulness of the Project as furthering the Project Purposes, and
will not destroy or materially impair means of ingress to and
egress from the Project.
(g) An appraisal from an appraiser satisfactory to the
Lessee and the Lessor, establishing the Fair Market Value of that
portion of the Project to be released.
The Lessor shall execute and deliver such documents as the Lessee
may properly request in order to effect any release pursuant to this Section.
Any release pursuant to this Section may be made for the purpose of conveying
the part or interests released to the Lessee.
Section 11.5. GRANTING EASEMENTS. The Lessee may grant or release,
as the case may be, those easements, licenses, rights-of-way or use (including
without limitation, the dedication of public highways), party wall rights,
rights of lateral support and other rights and privileges in the nature of
easements with respect to the Project which may be lawful and which do not
unreasonably interfere in the proper and efficient use and operation of the
Project and do not materially impair the value of the Project. The Lessee
covenants and agrees that it will deliver to the Lessor at least ten days prior
to the effectiveness of the executed grant or release (a) a copy of the
instrument of grant or release, and (b) a certificate of the Authorized Lessee
Representative stating that in his opinion the grant or release (i) will not
interfere with the proper and efficient use and operation of the Project for the
Project Purposes and (ii) will not destroy or materially impair means of ingress
to or egress from the Project or the Project Facilities.
Section 11.6. NO ABATEMENT OR DIMINUTION OF PAYMENTS. No grant,
release, removal or conveyance effected under any of the provisions of this
Lease shall entitle the Lessee to any abatement or diminution of the Rental
Payments or Additional Payments payable hereunder.
Section 11.7. PAYMENT ON RELEASE OR CONVEYANCE. Any grant, release,
removal or conveyance under Section 11.4 or 11.5 of this Lease shall be made
only for consideration which is equal to or greater than the appraised value or
which the Authorized Lessee Representative certifies, and the Lessor
acknowledges, is a fair and adequate consideration. Any moneys received as such
consideration shall be paid to the Lessor and used by the Lessor for, or made
available to the Lessee (which shall promptly deliver a bill of sale or other
similar evidence of title to the Lessor) for use for, capital alterations,
additions or improvements to the Project or the acquisition of personal property
for the Project (which capital alterations, additions or improvements and any
such personal property shall become a part of the Project for all purposes of
this Lease) thereafter during the Lease term.
Section 11.8. LESSOR TO APPLY LEASE PAYMENTS TO DEBT AMORTIZATION
DURING ANY EXTENSION OF LEASE TERM. In the event that Lessee extends the Lease
Term pursuant to Section 12.16 of this Lease, Lessor agrees to apply Rental
Payments received during that extension of the Lease Term first to the
amortization of debt issued by the Toledo-Lucas County Port Authority to
refinance the Project Debt in accordance with the provisions contained in any
trust indenture, loan agreement or similar instrument entered into by the Port
Authority in connection with that refinancing directing the application of
Rental Payments to debt amortization, and then to any other lawful purpose of
the Toledo-Lucas County Port Authority.
(End of Article XI)
-37-
<PAGE> 42
ARTICLE XII
MISCELLANEOUS
Section 12.1. QUIET ENJOYMENT. The Lessor covenants with the Lessee
that, so long as the Lessee shall have paid all Rental Payments, Additional
Payments and other payments due hereunder, as and when due, and performed and
observed the other covenants and agreements on its part to be performed and
observed hereunder, the Lessee shall and may peaceably and quietly have, hold
and enjoy the Project without let or hindrance from any Person whatsoever;
provided that from and after delivery of the Assignment of Lease, with respect
to the Trustee, as assignee or its successors or assigns, such covenant to
provide the peaceable and quiet enjoyment of the Project shall be limited to
Persons claiming by, through or under the assignee.
Section 12.2. SURRENDER OF PROJECT. Upon the termination or
expiration of this Lease, the Lessee shall surrender peaceably and promptly
possession of the Project, leaving same in good condition and repair (ordinary
wear and tear excepted) and subject to damage, destruction and taking by eminent
domain if the Lessee has elected to terminate this Lease pursuant to Section 9.2
of this Lease.
Section 12.3. NOTICES. All notices, certificates, requests or other
communications hereunder shall be by first-class mail, postage prepaid, courier
service, delivery charges prepaid, facsimile transmission (if the sender's
system can confirm receipt of the transmission), or delivery addressed to the
appropriate Notice Address and deemed effective on receipt, with a duplicate
copy of such notice to be provided to the Lessor which shall have requested such
notices and provided a Notice Address to the Lessor and the Lessee. The Lessee,
the Lessor, and any other person to receive notices as provided in the
definitions of Notice Address may, by notice given hereunder, designate any
further or different addresses to which subsequent notices, certificates,
requests or other communications shall be sent.
Section 12.4. BINDING EFFECT. This Lease shall inure to the benefit
of and shall be binding in accordance with its terms upon the Lessor, the Lessee
and the Lenders and their respective successors and assigns. The Holders are
third party beneficiaries of this Lease as to those provisions referring to the
Holders.
Section 12.5. AMENDMENTS, CHANGES AND MODIFICATIONS. This
Lease may not be effectively amended, changed, modified, altered or terminated
except in writing signed by both the Lessor and the Lessee.
Section 12.6. EXECUTION COUNTERPARTS. This Lease may be executed
in counterpart, and in any number of counterparts, each of which shall be
regarded as an original and all of which shall constitute but one and the same
instrument.
Section 12.7. SEVERABILITY. If any provision of this Lease, or any
covenant, stipulation, obligation, agreement, act, or action, or part thereof
made, assumed, entered into, or taken thereunder or any application thereof, is
for any reason held to be illegal or invalid, such illegality or invalidity
shall not affect any other provision or any other covenant, stipulation,
obligation, agreement, act or action or part thereof, made, assumed, entered
into, or taken, each of which shall be construed and enforced as if such illegal
or invalid portion were not contained herein. Nor shall such illegality or
invalidity of any application thereof affect any legal and valid application
thereof, and each such provision, covenant, stipulation, obligation, agreement,
act, or action, or part shall be deemed to be effective, operative, made,
entered into or taken in the manner and to the full extent permitted by law.
-38-
<PAGE> 43
Section 12.8. EXTENT OF COVENANTS; NO PERSONAL LIABILITY. All
covenants, stipulations, obligations and agreements of the Lessor contained in
this Lease shall be effective to the extent authorized and permitted by
applicable law. No covenant, stipulation, obligation or agreement contained in
this Lease shall be deemed to be a covenant, stipulation, obligation or
agreement of any present or future member, officer, agent or employee of the
Lessor or the Lessee in other than his official capacity, and neither the
members of the Legislative Authority or any director or other officer of the
Lessor or the Lessee shall be subject to any personal liability or
accountability by reason of the covenants, stipulations, obligations or
agreements contained in this Lease or other instruments referred to herein.
Section 12.9. CAPTIONS. The table of contents, captions and
headings in this Lease are for convenience only and in no way define, limit or
describe the scope or intent of any provisions or sections of this Lease.
Section 12.10. GOVERNING LAW. This Lease shall be governed
exclusively by and construed in accordance with the laws of the State.
Section 12.11. ESTOPPEL CERTIFICATE. Upon the written request of
either the Lessor or the Lessee, as the case may be, the Lessor and the Lessee
agree to deliver to the other a statement in writing and certified that this
Lease is a true and exact copy of the lease between the parties, that there are
no amendments thereto (or stating what amendments there may be and attaching
copies thereof), that to the extent the same are true this Lease is in full
force and effect, there are no offsets, defenses or counterclaims with respect
to the payment of any obligations under the terms of this Lease or under the
performance of any other terms, covenants and conditions thereof, that there are
no defaults or if there are defaults, setting forth the nature of such defaults,
the status of the Rental Payments and other payments due under the terms of this
Lease and such other information reasonably requested by the Lessor or the
Lessee. The Lessor and the Lessee agree to promptly supply the aforesaid
instrument to the other party but no later than ten days after receipt of a
written request therefor. The Lessor and the Lessee agree that any statement as
aforesaid may be relied upon by any prospective purchaser, mortgagee, assignee,
sublessee or any other Person concerning the Project.
Section 12.12. RELATIONSHIP OF THE PARTIES. Nothing contained in
this Lease shall be deemed or construed by the parties hereto, or by any third
party, as creating the relationship of principal and agent, or of partnership or
joint venture between the parties hereto, it being understood and agreed that
neither the method of computation of Rental Payments or Additional Payments nor
any other provision contained in this Lease, nor any acts of the parties to this
Lease, shall be deemed to create any relationship between the parties hereto
other than the relationship of landlord and tenant.
Section 12.13. ARBITRATION. If any controversy concerning the
determination of Fair Market Value ("Controversy") shall arise under this Lease
which is not resolved by the parties hereto, at the request of either of the
parties hereto, and unless otherwise prohibited by law, such Controversy shall
be determined in Cleveland, Ohio by three disinterested arbitrators, one of whom
shall be chosen by the Lessor, one by the Lessee and a third by the two so
chosen. The arbitrators shall as promptly as possible determine the Fair Market
Value. The Lessee shall pay the fees and expenses of that arbitration. Each
arbitrator shall be an M.A.I. appraiser and shall have at least 15 years
experience in appraising industrial projects.
The party hereto requesting arbitration, as aforesaid, shall give
notice in writing to the other party of such desire, naming therein the
arbitrator selected by it. In the event the other party shall fail, within a
period of thirty business days after the giving of such notice, to notify the
other in writing of the arbitrator selected by it, or in the event the two
arbitrators chosen shall fail, within fifteen business days after their
selection, to agree upon the third, then a judge of the Probate
-39-
<PAGE> 44
Division of the Common Pleas Court of Lucas County, Ohio shall, on request of
the party not in default, appoint, within fifteen days after such request, an
arbitrator or arbitrators, to fill the place or places remaining vacant. If any
arbitrator chosen pursuant to this paragraph shall die, resign or become
incapable of acting as an arbitrator, a replacement shall be selected in the
same manner as provided herein for the original selection of the arbitrator to
be replaced.
The Ohio rules of evidence and civil procedure shall apply to any
arbitration hereunder. Each side shall be limited in its rights of discovery to
discovery permitted by the arbitrators. The decision of any two of the
arbitrators in conformity with the foregoing direction shall be final and
conclusive upon the parties hereto. The decision of the arbitrators shall be in
writing, signed in duplicate by any two of said arbitrators, and a copy shall be
delivered to each of the parties hereto. Judgment upon such decision may be
entered in any court of competent jurisdiction and shall be specifically
enforceable to the full extent permitted by law.
Except as hereinbefore in this Section provided, the rules of the
American Arbitration Association (or of any successor thereto) shall apply to
any arbitration proceeding hereunder.
Section 12.14. OTHER AGREEMENTS. Nothing herein shall be construed
nor is intended to limit or in any manner adversely affect the rights,
privileges or remedies afforded to any mortgagee of the Lessor or any other
Person under any other agreement executed in connection with the execution and
delivery of this Lease and the Project Service Agreement or the issuance of the
Bonds and the State Loan Note.
Section 12.15. NO MERGER. The acquisition by Lessee or Lessor, or
any other Person, of any greater or lesser estate in the Project or any portion
thereof shall in no event result in a merger or extinguishment of the estate
created hereby.
Section 12.16. EXTENSION OF LEASE TERM. The Lessee is granted an
option to extend the Lease Term for three (3) five (5) year periods with the
first such period commencing May 1, 2011 (the "first extension"), the second May
1, 2016 (the "second extension") and the third May 1, 2021 (the "third
extension"). To exercise the option to extend this Lease, the Lessee must notify
the Lessor, not later than eighteen (18) months prior to the commencement of the
period for which the option is exercised, that it is exercising the option and
designating the period therein for which the option is exercised.
The Rental Payments to be paid by the Lessee as rent for the
Project during the first extension shall be such amounts as are agreed to
between the parties or, in the event that no such agreement is reached, the Fair
Market Value thereof at the time of such extension. In any event, however, the
Rental Payments during the first extension shall be in amounts sufficient to
amortize, through a refinancing by the Toledo-Lucas County Port Authority (the
"Authority"), the (i) State Loan Note Balloon (as defined in Section 7(g) of the
resolution adopted by the Board of the Authority on May 23, 1996) and (ii)
reasonable costs of issuance relating to the refinancing, such refinancing to be
repayable over five years in equal monthly installments of principal and
interest and bearing interest at a Fair Market Interest Rate (but not to exceed
a rate of 12% per year) plus an Authority fee of not to exceed $25,000 per year.
As used herein, Fair Market Interest Rate means that rate of interest to be
borne by the debt ("Debt") issued in connection with the refinancing referred to
in the previous sentence which is determined by a reputable investment banking
firm selected by the Authority and approved by the Lessee to be a fair market
rate of interest for securities of comparable maturity and credit quality as the
Debt.
The Rental Payments to be paid by the Lessee as rent for the
Project during the second and third extensions shall be such amounts as are
agreed to between the parties or, in the event that no such agreement is
reached, the Fair Market Value thereof at the time of such extensions.
-40-
<PAGE> 45
(End of Article XII)
-41-
<PAGE> 46
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
Lease to be duly executed in their respective names, all as of the date
hereinbefore written.
Signed and acknowledged in TOLEDO-LUCAS COUNTY
the presence of: PORT AUTHORITY
By:
- - ------------------------- ---------------------------------
Name: James H. Hartung, President
And by:
- - ------------------------- ----------------------------
Name: Jerry J. Arkebauer, Secretary
(Witnesses as to Lessor)
Signed and acknowledged in BRUSH WELLMAN INC.
the presence of:
By:
- - ------------------------- ---------------------------------
Name: Carl Cramer, Chief Financial Officer
And by:
- - ------------------------- ----------------------------
Name: Michael C. Hasychak, Treasurer
(Witnesses as to the Lessee)
Approved as to form:
---------------------------------------------
Mary Frederick Coy, Staff Counsel
Toledo-Lucas County Port Authority
-42-
<PAGE> 47
STATE OF OHIO )
) SS:
COUNTY OF LUCAS )
On this ______ day of October, 1996, before me a Notary Public in
and for said County and State, personally appeared James H. Hartung and Jerry J.
Arkebauer, President of, and Secretary of the Board of Directors of the
Toledo-Lucas County Port Authority, respectively, and acknowledged the execution
of the foregoing instrument as the duly authorized officers of said Port
Authority on behalf of said Port Authority, and that the same is their voluntary
act and deed as said officers of said Port Authority and the voluntary act and
deed of said Port Authority.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed my official seal on the day and year aforesaid.
(SEAL) -------------------------------
Notary Public
-43-
<PAGE> 48
STATE OF OHIO )
) SS:
COUNTY OF CUYAHOGA )
On this _______ day of October, 1996, before me a Notary Public
in and for said County and State, personally appeared Carl Cramer and Michael C.
Hasychak, Chief Financial Officer and Treasurer of Brush Wellman Inc.,
respectively, and acknowledged the execution of the foregoing instrument as the
duly authorized officers for and on behalf of said Corporation and pursuant to
authority granted by the Board of Directors of said Corporation, and that the
same is their voluntary act and deed on behalf of said Corporation and the
voluntary act and deed of said Corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed my official seal on the day and year aforesaid.
(SEAL) -----------------------------
Notary Public
This instrument was prepared by: Bruce P. Jones, Esq.
Squire, Sanders & Dempsey
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
-44-
<PAGE> 49
EXHIBIT A
PROJECT FACILITIES
------------------
The improvements to be developed and constructed on the Project
Site pursuant to a Design/Build Agreement for Project Facilities between The
Toledo-Lucas County Port Authority and GEM Industrial, Inc. and the additional
installation of equipment and improvements at the Project Site pursuant to the
Construction and Installation Agreement by and between Brush Wellman Inc. and
GEM Industrial, Inc., being generally an approximately 160,000 square foot
facility to be used for metal processing and manufacturing
A-1
<PAGE> 50
EXHIBIT B-1
LEASED REAL PROPERTY
--------------------
B1-1
<PAGE> 51
EXHIBIT B-2
EASEMENT REAL PROPERTY
----------------------
B2-1
<PAGE> 52
EXHIBIT C
RENTAL PAYMENT AMOUNTS
Last Business
Day of: Payment Due
-------------- ------------
December, 1997 $119,936.27
January, 1998 119,936.27
February, 1998 119,936.27
March, 1998 119,936.27
April, 1998 119,936.27
May, 1998 167,586.27
June, 1998 164,620.52
July, 1998 164,304.77
August, 1998 168,989.02
September, 1998 168,638.19
October, 1998 168,287.35
November, 1998 167,936.52
December, 1998 167,585.69
January, 1999 167,234.85
February, 1999 166,884.02
March, 1999 166,533.19
April, 1999 166,182.35
May, 1999 168,481.52
June, 1999 165,480.69
July, 1999 165,129.85
August, 1999 164,779.02
September, 1999 164,428.19
October, 1999 164,077.35
November, 1999 168,726.52
December, 1999 168,340.60
January, 2000 167,954.69
February, 2000 167,568.77
March, 2000 167,182.85
April, 2000 166,796.94
May, 2000 169,061.02
June, 2000 166,025.10
July, 2000 165,639.19
August, 2000 165,253.27
September, 2000 164,867.35
October, 2000 164,481.44
November, 2000 164,095.52
December, 2000 168,709.60
January, 2001 168,288.60
February, 2001 167,867.60
March, 2001 167,446.60
April, 2001 167,025.60
May, 2001 169,254.60
June, 2001 166,183.60
July, 2001 165,762.60
August, 2001 165,341.60
September, 2001 $164,920.60
October, 2001 164,499.60
C-1
<PAGE> 53
November, 2001 164,078.60
December, 2001 168,657.60
January, 2002 168,201.52
February, 2002 167,745.44
March, 2002 167,289.35
April, 2002 166,833.27
May, 2002 173,797.00
June, 2002 170,690.92
July, 2002 170,234.84
August, 2002 169,778.75
September, 2002 169,322.67
October, 2002 168,866.59
November, 2002 173,410.50
December, 2002 172,919.34
January, 2003 172,428.17
February, 2003 171,937.00
March, 2003 171,445.84
April, 2003 170,954.67
May, 2003 173,113.50
June, 2003 169,972.34
July, 2003 169,481.17
August, 2003 168,990.00
September, 2003 173,498.84
October, 2003 172,972.59
November, 2003 172,446.34
December, 2003 171,920.09
January, 2004 171,393.84
February, 2004 170,867.59
March, 2004 170,341.34
April, 2004 169,815.09
May, 2004 171,938.84
June, 2004 173,762.59
July, 2004 173,201.25
August, 2004 172,639.92
September, 2004 172,078.59
October, 2004 171,517.25
November, 2004 170,955.92
December, 2004 170,394.59
January, 2005 169,833.25
February, 2005 169,271.92
March, 2005 173,710.59
April, 2005 173,114.17
May, 2005 175,167.75
June, 2005 171,921.34
July, 2005 171,324.92
August, 2005 170,728.50
September, 2005 170,132.09
October, 2005 169,535.67
November, 2005 168,939.25
December, 2005 173,342.84
January, 2006 172,711.34
February, 2006 $172,079.84
March, 2006 171,448.34
April, 2006 170,816.84
May, 2006 172,835.34
C-2
<PAGE> 54
June, 2006 169,553.84
July, 2006 168,922.34
August, 2006 173,290.84
September, 2006 172,624.25
October, 2006 171,957.67
November, 2006 171,291.09
December, 2006 170,624.50
January, 2007 169,957.92
February, 2007 169,291.34
March, 2007 173,624.75
April, 2007 172,923.09
May, 2007 174,871.42
June, 2007 171,519.75
July, 2007 170,818.09
August, 2007 170,116.42
September, 2007 169,414.75
October, 2007 168,713.09
November, 2007 173,011.42
December, 2007 172,274.67
January, 2008 171,537.92
February, 2008 170,801.17
March, 2008 170,064.42
April, 2008 169,327.67
May, 2008 176,240.92
June, 2008 172,819.09
July, 2008 172,047.25
August, 2008 171,275.42
September, 2008 170,503.59
October, 2008 169,731.75
November, 2008 168,959.92
December, 2008 173,188.09
January, 2009 172,381.17
February, 2009 171,574.25
March, 2009 170,767.34
April, 2009 169,960.42
May, 2009 171,803.50
June, 2009 173,346.59
July, 2009 172,504.59
August, 2009 171,662.59
September, 2009 170,820.59
October, 2009 169,978.59
November, 2009 169,136.59
December, 2009 173,294.59
January, 2010 172,417.50
February, 2010 171,540.42
March, 2010 170,663.34
April, 2010 169,786.25
May, 2010 171,559.17
June, 2010 173,032.09
July, 2010 $172,119.92
August, 2010 171,207.75
September, 2010 170,295.59
October, 2010 169,383.42
November, 2010 173,471.25
December, 2010 172,524.00
C-3
<PAGE> 55
January, 2011 171,576.75
February, 2011 170,629.50
March, 2011 169,682.25
April, 2011 168,735.00
C-4
<PAGE> 1
EX.10-W
MASTER LEASE AGREEMENT
Dated as of
December 30, 1996
Between
NATIONAL CITY BANK,
FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS,
Lessor
and
BRUSH WELLMAN INC.,
Lessee
<PAGE> 2
MASTER LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
I. LEASING................................................................................................ 1
II. TERM, RENT AND PAYMENT................................................................................. 2
III. TAXES.................................................................................................. 3
IV. REPORTS................................................................................................ 4
V. DELIVERY, USE, REPLACEMENT, SUBSTITUTION AND OPERATION................................................. 6
VI. SERVICE................................................................................................ 8
VII. STIPULATED LOSS VALUE AND CASUALTY OCCURRENCE.......................................................... 9
VIII. LOSS OR DAMAGE......................................................................................... 10
IX. INSURANCE.............................................................................................. 10
X. RETURN OF EQUIPMENT.................................................................................... 11
XI. DEFAULT................................................................................................ 12
XII. ASSIGNMENT............................................................................................. 15
XIII. NET LEASE; NO SET-OFF, ETC............................................................................. 17
XIV. INDEMNIFICATION........................................................................................ 17
XV. NO WARRANTY; DISCLAIMERS............................................................................... 18
XVI. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE.................................................... 19
XVII. OWNERSHIP FOR TAX PURPOSES; GRANT OF SECURITY INTEREST; USURY SAVINGS.................................. 22
XVIII. END OF LEASE OPTIONS................................................................................... 24
XIX. MISCELLANEOUS.......................................................................................... 26
XX. CHOICE OF LAW; JURISDICTION............................................................................ 29
XXI. CHATTEL PAPER.......................................................................................... 30
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
XXII. EARLY TERMINATION...................................................................................... 30
XXIII. GENERAL FINANCIAL STANDARDS............................................................................ 31
XXIV. COVENANTS.............................................................................................. 32
XXV. CERTAIN DEFINITIONS.................................................................................... 37
XXVI. CONDITIONS TO FUNDING.................................................................................. 45
EXHIBIT NO. 1 - DISBURSEMENT SCHEDULE
ANNEX A - DESCRIPTION OF DISBURSEMENT EQUIPMENT
EXHIBIT NO. 2 - EQUIPMENT SCHEDULE
ANNEX A - DESCRIPTION OF EQUIPMENT
ANNEX B - ASSIGNMENT OF PURCHASE ORDERS
ANNEX C - CERTIFICATE OF ACCEPTANCE
ANNEX D - STIPULATED LOSS AND TERMINATION VALUE TABLE
ANNEX E - AMORTIZATION SCHEDULE
ANNEX F - RETURN PROVISIONS
EXHIBIT NO. 3 - COMPLIANCE CERTIFICATE
EXHIBIT NO. 4 - LIST OF EQUIPMENT AND EQUIPMENT COST
EXHIBIT NO. 5 - DISBURSEMENT FUNDING NOTICE
EXHIBIT NO. 6 - FORM OF ASSIGNMENT OF PURCHASE ORDERS
</TABLE>
-ii-
<PAGE> 4
MASTER LEASE AGREEMENT
THIS MASTER LEASE AGREEMENT, dated as of December 30, 1996
("AGREEMENT"), between NATIONAL CITY BANK, FOR ITSELF AND AS AGENT FOR CERTAIN
PARTICIPANTS, with an office at 1900 East Ninth Street, Cleveland, Ohio 44114
(hereinafter called, together with its successors and assigns, if any,
"LESSOR"), and BRUSH WELLMAN INC., an Ohio corporation with its mailing address
and chief place of business at 17876 St. Clair Avenue, Cleveland, Ohio 44110
(hereinafter called "LESSEE").
WITNESSETH:
I. LEASING:
(a) This Agreement shall be effective from and after the date of
execution hereof. Subject to the terms and conditions set forth in this
Agreement, Lessor agrees (i) to make disbursements to Vendors in respect of
interim or progress payments of the Acquisition Cost of the equipment (the
"DISBURSEMENT EQUIPMENT", which term shall also include, prior to the Basic Term
Commencement Date, all equipment described in a Certificate of Acceptance
executed and delivered by Lessee) described in Annex A to any Disbursement
Schedule hereto in the form of Exhibit 1 (each being a "DISBURSEMENT SCHEDULE"),
provided that any initial disbursement made on the date of this Agreement may be
made directly to Lessee to reimburse Lessee for interim or progress payments on
Disbursement Equipment made by Lessee to Vendors so long as the amount of that
initial disbursement made by Lessor is less than $8,000,000, and (ii) to fund
the payment of the Acquisition Cost of and to lease to Lessee, and Lessee agrees
to lease from Lessor, the equipment (the "EQUIPMENT") described in Annex A to
any Equipment Schedule hereto in the form of Exhibit 2 (each being an "EQUIPMENT
SCHEDULE") (a Disbursement Schedule and an Equipment Schedule are sometimes
hereinafter referred to as a "SCHEDULE"). Terms defined in a Schedule and not
otherwise defined herein shall have the meanings ascribed to them in that
Schedule. Certain capitalized terms used in this Agreement shall have the
meaning ascribed thereto in Section XXV.
(b) The obligation of Lessor to make disbursements in respect of the
Equipment and the Disbursement Equipment and to lease the Equipment to Lessee
shall be subject to the conditions set forth in Section XXVI. Immediately upon
final acceptance of all of the Disbursement Equipment that constitutes one of
the units of equipment described in Exhibit 4, Lessee shall execute and deliver
to Lessor a Certificate of Acceptance, in the form of Annex C to the form of the
Equipment Schedule hereto, covering all of that Equipment. As of the Basic Term
Commencement Date, Lessee shall execute and deliver to Lessor an Equipment
Schedule relating to all of the equipment described in all of the Certificates
of Acceptance delivered to Lessor by Lessee.
<PAGE> 5
(c) If on the Basic Term Commencement Date, any item of Disbursement
Equipment described in any Disbursement Schedule has not been completed,
delivered and installed at the Elmore Project, and accepted by Lessee as
evidenced by a Certificate of Acceptance delivered to Lessor ("EXCLUDED
DISBURSEMENT EQUIPMENT"), then Lessee shall immediately pay to Lessor an amount
equal to all accrued and unpaid Interim Rent due in respect of that Excluded
Disbursement Equipment plus all amounts disbursed by Lessor in respect of that
Excluded Disbursement Equipment (the "EXCLUDED DISBURSEMENT EQUIPMENT PAYMENT").
Upon receipt by Lessor of any Excluded Disbursement Equipment Payment, Lessor
agrees, upon Lessee's reasonable request and at Lessee's expense, to execute any
instrument necessary to evidence Lessee's ownership of the Excluded Disbursement
Equipment and any Purchase Order to the extent that it relates to the Excluded
Disbursement Equipment, free and clear of any rights of Lessor hereunder, that
is the subject of that payment, including a bill of sale.
II. TERM, RENT AND PAYMENT:
(a) The term of this Agreement (the "TERM") shall be the Interim Lease
Term, the Basic Term and, if exercised by Lessee, any Renewal Term pursuant to
Section XVIII(b) hereof, as specified in the applicable Schedule.
(b) The obligation of Lessee to pay the rent payable hereunder during
the Term, as provided in the Equipment Schedule (the "RENT"), shall commence on
the Basic Term Commencement Date, and Lessee's right to use the Disbursement
Equipment and the Equipment shall commence on the date of Lessor's first
disbursement in respect of any Disbursement Schedule (the "DISBURSEMENT
COMMENCEMENT DATE"). At the end of each Interim Interest Period, the Interim
Rent that accrued during that Interim Interest Period shall become part of the
Capitalized Lessor's Cost outstanding under that Disbursement Schedule upon
which Interim Rent will accrue during the next Interim Interest Period, and at
the end of the Interim Lease Term, shall become part of the Lessor's Capitalized
Cost under the Equipment Schedule, as the case may be. Anything to the contrary
set forth in this Lease notwithstanding, if the aggregate unpaid Interim Rent
accrued under all Disbursement Schedules at any time exceeds five million nine
hundred twenty thousand dollars ($5,920,000), Lessee shall immediately pay to
Lessor an amount equal to such excess.
(c) Rent and other amounts due Lessor under this Lease shall be paid to
Lessor by wire transfer of immediately available funds to National City Bank -
Cleveland, Cleveland, Ohio, ABA # 041000124, Commercial Loan Operations, Account
No. 151804 (Brush Wellman Lease Agreement dated 12/30/96), or to such other
account as Lessor may direct in writing; and shall be effective upon receipt if
received by Lessor on or prior to Noon, Cleveland, Ohio, time on a Business Day;
payments received after Noon, Cleveland, Ohio, time shall be deemed for purposes
of this Agreement to be received on the next succeeding Business Day. Payments
of Rent shall be in the amount set forth in, and due in accordance with, the
provisions of the applicable Schedule. So long as no Potential Default or
Default exists, in no event shall any Rent payments then due and payable be
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refunded to Lessee. If Rent is not paid within five (5) days of its due date,
Lessee agrees to pay a late charge of Five Cents ($0.05) per dollar on, and in
addition to, the amount of such Rent but not exceeding the lawful maximum, if
any.
III. TAXES
(a) Lessee shall have no liability for taxes imposed by the United
States of America or any state or political subdivision thereof or by any
foreign government which are on or measured by the net income of Lessor.
Notwithstanding the foregoing, Lessee shall pay, indemnify and hold Lessor, the
Participants, their agents, employees, successors and assigns harmless on a net
after-tax basis (after taking into account any tax benefit or credit received by
such indemnified person) from any increase in Taxes (as hereinafter defined)
based upon or measured by such indemnified person's net or gross income and any
franchise taxes imposed or levied by the United States of America or any state
or political subdivision thereof or by any foreign government as a result of
characterizing the transactions under this Lease as anything other than a
secured loan for purposes of calculating those Taxes. Lessee will promptly
notify Lessor and each other indemnified person of all reports or returns
required to be made with respect to any Tax with respect to which Lessee is
required to provide indemnification hereunder, and at Lessee's expense, will
promptly provide Lessor with all information necessary for the making and timely
filing of any reports or returns by Lessor or any other indemnified person. If
Lessor or any other indemnified person requests that any such reports or returns
related to this Lease be prepared and filed by Lessee, then Lessee, at its
expense, will prepare and file the same if permitted by applicable law to file
the same, and if not so permitted, Lessee, at its expense, shall provide all
information requested by Lessor to prepare and file such reports or returns and
Lessee shall forward immediately available funds for payment of any Tax due, to
Lessor or any other indemnified person, as applicable, at least ten (10) days in
advance of the date such payment is to be paid.
(b) Subject to Paragraph (a), Lessee shall report (to the extent that
it is legally permissible) and pay promptly all taxes, fees and assessments due,
imposed, assessed or levied against any Disbursement Equipment or Equipment (or
the purchase, ownership, delivery, leasing, possession, use or operation
thereof), against this Agreement (or any rentals or receipts hereunder), against
any Schedule, or otherwise against Lessor or Lessee in respect of this Lease by
any foreign, federal, state or local government or taxing authority during or
related to the term of this Agreement, including, without limitation, all
license and registration fees, and all sales, use, personal property, excise,
gross receipts, franchise, stamp or other taxes, imposts, duties and charges,
together with any penalties, fines or interest thereon (all hereinafter called
"TAXES"). Lessee shall (i) reimburse Lessor upon receipt of written request for
reimbursement for any Taxes charged to or assessed against Lessor (on an
after-tax basis), (ii) on request of Lessor, submit to Lessor written evidence
of Lessee's payment of Taxes, (iii) on all tax reports or tax returns in respect
of Taxes show the ownership of any Disbursement Equipment and Equipment by
Lessee, and (iv) send a copy of all reports or returns pertaining to personal
property taxes to Lessor.
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<PAGE> 7
(c) Subject to Paragraph (a), Lessee hereby agrees to indemnify, save
and keep harmless Lessor, the Participants, their agents, employees, successors
and assigns, from and against any and all Taxes charged to or assessed against
any of them. Lessee shall, at its expense and upon request of Lessor, defend any
actions based on, or arising out of, any Taxes with counsel reasonably
satisfactory to Lessor. Lessee shall reimburse any indemnified party for any
amounts expended by it in connection with any of the foregoing or pay such
amounts directly within ten (10) Business Days after the date Lessor sends
notice to Lessee requesting payment thereof, together with a written itemization
of those amounts. Lessee shall not be obligated to indemnify Lessor under this
Section for any Taxes that are attributable to a transfer by Lessor of any
Disbursement Equipment or Equipment or any interest therein, unless such
transfer arises as a result of (1) the existence of a Default, or (2) the
exercise by Lessee of its options pursuant to Sections XVIII(c) or (d) or
Section XXII hereof, or (3) the exercise by Lessee of its option pursuant to
Section V(d) hereof, or (4) the occurrence of a Casualty Occurrence (as
hereinafter defined).
IV. REPORTS:
(a) Lessee will promptly notify Lessor in writing after receipt of
notice of any Tax or other lien, mortgage, security interest, claim, charge or
other right or encumbrance (collectively, a "LIEN") shall attach to any
Disbursement Equipment or Equipment, of the full particulars thereof and of the
location of such Disbursement Equipment or Equipment on the date of such
notification.
(b) Lessee will furnish to Lessor and to each Participant (as
hereinafter defined), except as otherwise provided in Paragraph (iii) below:
(i) within forty-five (45) days after the end of each of the
first three quarter-annual periods of each of Lessee's fiscal years,
balance sheets of Lessee and its Subsidiaries as at the end of that
period and their income statements and surplus reconciliations for the
year to the end of that period, all prepared (but unaudited) on a
consolidated basis, on a comparative basis with the prior year (as to
the consolidated statements only), in accordance with GAAP (except as
disclosed therein) and in form and detail reasonably satisfactory to
Lessor;
(ii) as soon as available (and in any event within ninety (90)
days after the end of each of Lessee's fiscal years), a complete copy
of the annual audit report (including without limitation the
consolidated financial statements of Lessee and its Subsidiaries and
notes thereto) of Lessee for that year, which shall be
(1) prepared on a consolidated basis, on a comparative
basis with the prior year, in accordance with GAAP
(except as disclosed therein) and in form and detail
reasonably satisfactory to Lessor, and
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<PAGE> 8
(2) certified (without qualification as to GAAP) by Ernst
& Young LLP, or any other independent public
accountants selected by Lessee and reasonably
satisfactory to Lessor;
(iii) concurrently with each delivery of financial statements
pursuant to Paragraph (b)(i) or (b)(ii), furnish to Lessor a
certificate, substantially in the form of Exhibit 3, by Lessee's chief
financial officer
(1) certifying that to the best of such officer's
knowledge and belief, (i) those financial statements
fairly present in all Material respects the financial
condition and results of operations of Lessee and its
Subsidiaries in accordance with GAAP, subject, in the
case of interim financial statements, to routine
year-end audit adjustments and (ii) no Default or
Potential Default then exists or, if any does, a
brief description thereof and Lessee's intentions in
respect thereof, and
(2) setting forth the calculations necessary to determine
whether or not Lessee and its Subsidiaries are in
compliance with the general financial standards set
forth in Section XXIII;
(iv) promptly when filed (in final form) or sent, a copy
of
(1) each registration statement, Form 10-K annual report,
Form 10-Q quarterly report, Form 8-K current report
or similar document filed by Lessee with the
Securities and Exchange Commission (or any similar
federal agency having regulatory jurisdiction over
Lessee's securities) or with any securities exchange,
and
(2) each proxy statement, annual report, certificate,
notice or other document sent by Lessee to the
holders of any of its securities (or any trustee
under any indenture which secures any of its
securities or pursuant to which such securities are
issued); and
(v) forthwith upon the written request of Lessor or any
Participant such other information about the financial condition,
properties and operations of Lessee or any of its Subsidiaries,
including, without limitation, Pension Plans and obligations in respect
of Environmental Laws, as Lessor or any Participant may from time to
time reasonably request.
(c) Lessee will permit Lessor and any Participant to inspect any
Disbursement Equipment and Equipment during normal business hours and, upon
three (3) Business Days' prior written notice to Lessee, will use its reasonable
efforts to procure the cooperation of any third party that is in possession of
any premises where any of the Disbursement Equipment or Equipment is located to
permit such inspections. In connection with any such inspection, Lessor and the
Participants agree to observe
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<PAGE> 9
Lessee's standard rules with respect to operation and safety. If any failure by
Lessee to perform or observe any obligation in respect of any Equipment or
Disbursement Equipment, as the case may be, under this Agreement is found as a
result of an such inspection, Lessor will communicate that information to Lessee
in writing and Lessee shall have ten (10) days to correct that failure, at its
sole expense; provided, however, if during that period Lessee shall commence
corrective action that, if begun and prosecuted with due diligence, cannot be
completed within a period of ten (10) days, then that ten-day period shall be
extended, but not more than sixty (60) additional days, to the extent necessary
to enable Lessee to diligently complete that corrective action. Lessee shall pay
all reasonable expenses of an inspection by a Lessor-appointed expert to
determine if any action is required to correct any failure in respect of the
Disbursement Equipment or Equipment described in the preceding sentence.
(d) Subject to the other terms of this Lease, Lessee will keep the
Equipment at the Equipment Location (specified in the applicable Schedule), or
with the prior written approval of Lessor, at any other location within the
continental United States of America; Lessee shall immediately notify Lessor of
any relocation of Equipment. In connection with any permitted relocation of the
Equipment within the continental United States of America, Lessee shall provide
to Lessor, at Lessee's expense, such documents and instruments as reasonably may
be required by Lessor to protect the interest of Lessor in the Equipment. Upon
the written request of Lessor not more than once per calendar quarter, Lessee
will notify Lessor and each Participant forthwith in writing of the location of
all Equipment as of the date of such notification. In addition, prior to the
Basic Term Commencement Date, upon the written request of Lessor not more than
once per calendar quarter, Lessee will notify Lessor and each Participant
forthwith in writing of the location of all Disbursement Equipment as of the
date of such notification.
(e) Lessee will promptly and fully report to Lessor and each
Participant in writing if any Disbursement Equipment or Equipment with a fair
market value in excess of Two Hundred Fifty Thousand Dollars ($250,000) is lost
or damaged, or if any Disbursement Equipment or Equipment is involved in an
accident causing, directly or indirectly, personal injury or property damage in
an amount that could reasonably be expected to exceed Two Hundred Fifty Thousand
Dollars ($250,000).
V. DELIVERY, USE, REPLACEMENT, SUBSTITUTION AND OPERATION:
(a) The parties acknowledge that the Equipment or Disbursement
Equipment, as the case may be, will be in Lessee's possession as of the date of
the execution and delivery by Lessee to Lessor of a Certificate of Acceptance in
respect of that Equipment or Disbursement Equipment, as the case may be.
(b) Lessee agrees that the Equipment will be used by Lessee solely in
the conduct of its business (which business, for all purposes of this Agreement,
shall be deemed to include Lessee's operation of the Equipment to manufacture
goods for Subsidiaries and Affiliates of Lessee and for other Persons with whom
Lessee has entered
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<PAGE> 10
into a written agreement to do so) and in a manner complying with all applicable
federal, state, and local laws and regulations, and any applicable insurance
policies.
(c) Lessee will keep the Disbursement Equipment and Equipment free and
clear of all Liens other than (1) those that relate to the interest of Lessor
hereunder, and with respect to the Disbursement Equipment, to the claims of the
Vendor in possession thereof, (2) those arising from the rights and interest of
Lessee in any Sublease that has been assigned to Lessor, (3) Liens for fees,
taxes, levies, duties or other governmental charges of any kind, or Liens of
mechanics, materialmen, laborers, employees or suppliers and similar Liens
arising by operation of law incurred by Lessee in the ordinary course of
business and not relating to Indebtedness for Borrowed Money, in all cases for
sums that are not yet delinquent or are being contested in good faith by
appropriate proceedings which suspend the collection thereof (provided, however,
that such proceedings do not involve any substantial danger (as determined in
Lessor's sole discretion) of the sale, forfeiture or loss of the Disbursement
Equipment or Equipment or any interest therein), and (4) Liens arising out of
any judgments or awards against Lessee that have been adequately bonded, in
Lessor's sole discretion, to protect Lessor's interest or with respect to which
a stay of execution has been obtained pending an appeal or a proceeding for
review. The Liens described in clauses (1) through (4) hereof are referred to as
"PERMITTED LIENS". Lessee will defend, at its own expense, Lessor's interest in
the Disbursement Equipment and Equipment from all claims, Liens or legal
processes. Lessee will also notify Lessor and each Participant immediately upon
receipt of notice of any Lien, attachment or judicial proceeding affecting the
Disbursement Equipment and the Equipment, whether in whole or in part.
(d) Provided that no Default or Potential Default shall then exist,
Lessee, at Lessee's expense, may elect to replace or substitute a unit of
Equipment (a "SUBSTITUTED ITEM") with another unit of Equipment (a "REPLACEMENT
ITEM"). Each Replacement Item shall be free and clear of all Liens and shall
have, as reasonably determined by Lessor, at least the value, utility and
remaining useful life and be in as good an operating condition as the
Substituted Item, assuming that the Substituted Item had been maintained in
accordance with the provisions of this Agreement. Lessee shall notify Lessor
within fifteen (15) days after the end of each quarter of Lessee's fiscal year
as to all items of Equipment having been replaced during such quarter,
identifying the Substituted Items and the Replacement Items for each relevant
Equipment Location. Lessee shall execute and deliver to Lessor an Assignment of
Purchase Orders and an amended Annex A to the applicable Schedule with respect
to each Replacement Item, together with such documents and instruments as
reasonably may be required by Lessor in connection with such replacement,
including (without limitation) Uniform Commercial Code financing statements or
statements of amendment to be filed at Lessee's expense. Upon compliance by
Lessee with the provisions hereof, (1) Lessor will transfer to Lessee, on an AS
IS, WHERE IS BASIS, without recourse or warranty, express or implied, of any
kind whatsoever, all of Lessor's interest in and to the Substituted Item and (2)
Lessor agrees, upon Lessee's reasonable request and at Lessee's expense, to
execute and deliver any instrument necessary to evidence Lessee's ownership of
the Substituted Item, including a bill of sale or
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<PAGE> 11
Uniform Commercial Code statements of termination or partial release as
reasonably may be required in order to terminate any interest of Lessor in and
to such Substituted Item. Lessor shall not be required to make and may
specifically disclaim any representation or warranty as to the condition of the
Substituted Item and any other matters (except that Lessor shall warrant that it
conveyed whatever interest it received in such Substituted Item free and clear
of any Lien created by Lessor).
(e) Subject to Lessee performing and observing all of its obligations
hereunder on its part to be performed and observed and provided no Default or
Potential Default shall have occurred, and subject to any sublessee under a
Sublease permitted hereby performing and observing all of the covenants and
conditions of the applicable Sublease on its part to be performed and observed,
neither Lessor nor any person acting by, through or under Lessor, shall take any
actions to interfere with Lessee's quiet enjoyment of the Equipment during the
Term.
VI. SERVICE
(a) Lessee will, at its sole expense, maintain each unit of Equipment
in good operating order, repair and condition and in accordance with Lessee's
customary practices, but in no event less than industry standards, normal wear
and tear excepted. Lessee agrees that the Equipment will be used and operated
solely in the conduct of its business, free from all contaminants (outside of
the reasonable and ordinary use for such Equipment by Lessee), and in compliance
with any and all insurance policy terms, conditions and provisions and with all
statutes, laws and regulations of any federal, state or local governmental
authority or instrumentality applicable to the use and operation of the
Equipment, including Environmental Laws and noise and pollution laws (including
notifications and reports). Lessee shall affix in a prominent position on each
unit of Equipment, and shall use its reasonable efforts to cause each Person
(other than Lessee) in possession of any Disbursement Equipment to affix in a
prominent position on that Disbursement Equipment, plates, tags or other
identifying labels showing the interest therein of Lessor. In addition, Lessee
will, at its sole expense, maintain the Equipment under a preventive maintenance
program by qualified professionals who possess a working knowledge of the
mechanical operation of the Equipment, including electrical systems, motors,
drives, controls, accessories, lubricants and all other items necessary to make
the Equipment operate to its original or enhanced specifications (and who may be
employees of Lessee). Lessee shall maintain a maintenance log with respect to
each item of the Equipment showing all routine and non-routine maintenance and
repairs. Such log shall list, in summary form, maintenance, repairs or
modifications performed on the Equipment, the date of any and all of such
service and by whom the service was performed. This log shall be made available
to Lessor at Lessor's request.
(b) Without the prior written consent of Lessor, Lessee will not and
will not permit any other person to affix or install any accessory, equipment or
device on any Equipment if such addition will impair the value, originally
intended function or use of such Equipment; provided that Lessee, at its own
expense, will affix or install any accessory, equipment or
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<PAGE> 12
device on any Equipment that may be necessary, from time to time, to comply in
all Material respects with any applicable laws or regulations or any provision
of any insurance policy required to be maintained under Section IX hereof. All
additions, repairs, parts, supplies, accessories, equipment, and devices
furnished, attached or affixed to any Equipment which are not readily removable
shall be made only in compliance with applicable law, shall be free and clear of
all Liens (except for Permitted Liens), and immediately, without further action,
upon being attached or affixed to the Equipment shall become the property of
Lessor. Lessee will not, without the prior written consent of Lessor and subject
to such conditions as Lessor may reasonably impose for its protection, affix or
install the Equipment to or in any other personal property. In addition, Lessee
will not, without the prior written consent of Lessor and subject to such
reasonable conditions as Lessor may impose for its protection, affix any
Equipment to any real property in such a manner as to become a fixture or part
of that real property. Lessor hereby declares its intent that, notwithstanding
the means of attachment, no Equipment attached to any real property shall be
deemed a fixture or part of that real property, which declaration shall be
irrevocable, without Lessor's consent.
(c) Any alterations or modifications to the Equipment that may, at any
time during the term of this Agreement, be required to comply with any
applicable law, rule or regulation shall be made by Lessee at the expense of
Lessee.
VII. STIPULATED LOSS VALUE AND CASUALTY OCCURRENCE:
On and after the Basic Term Commencement Date, Lessee shall promptly
and fully notify Lessor in writing if any unit of Equipment shall be or become
lost, stolen, destroyed, irreparably damaged in the reasonable determination of
Lessee, or permanently rendered unfit for use from any cause whatsoever (each
such occurrence being hereinafter called a "CASUALTY OCCURRENCE"). On the later
of the Rent Payment Date next succeeding a Casualty Occurrence or ninety (90)
days after such Casualty Occurrence (the "PAYMENT DATE"), Lessee shall either
(as selected by Lessee if no Default or Potential Default has then occurred, or
if a Default or Potential Default has occurred, as selected by Lessor, except
that in that case Lessee may be required to make replacement in accordance with
(a) below only with Lessee's consent):
(a) execute and deliver a purchase order to replace within a reasonable
period of time the unit of Disbursement Equipment or Equipment having suffered
the Casualty Occurrence with equipment having an equal or greater value and
utility, free and clear of all Liens, other than any Permitted Lien, and shall
deliver to Lessor an assignment of that purchase order in form satisfactory to
Lessor, an Equipment Schedule, such Uniform Commercial Code financing statements
or statements of amendment and such other documents, instruments, filings and
certificates as reasonably may be requested by Lessor with respect to any
replacement Disbursement Equipment or Equipment, or otherwise in accordance with
the provisions of Section V(d) hereof; or
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(b) pay Lessor the sum of (i) the Stipulated Loss Value of such unit
calculated in accordance with Annex D of the Equipment Schedule as of the Rent
Payment Date next preceding the date of such payment; (ii) all rental and other
amounts which are due hereunder as of the Payment Date; and (iii) the Break
Amount. For purposes hereof, "BREAK AMOUNT" shall mean the amount of any loss or
expense incurred by Lessor or any Participant relating in any way to its funding
of this Lease on a LIBOR Rate basis as a result of the moneys paid pursuant to
this Paragraph (b) on a date that is not a Rent Payment Date, and to pay Lessor
or that Participant, as the case may be, as liquidated damages for any such loss
or expense, an amount (discounted to the present value in accordance with
standard financial practice at a rate equal to the Treasury Yield) equal to
interest computed on the moneys paid pursuant to this Paragraph (b) from the
payment date thereof to the next Rental Payment Date at a rate equal to the
difference of the contract LIBOR Rate less the Treasury Yield, all as determined
by Lessor or that Participant, as the case may be, in its reasonable discretion.
Determinations by Lessor and each Participant for purposes hereof shall be
conclusive, absent manifest error. "TREASURY YIELD" means the annual yield on
direct obligations of the United States of America having a principal amount and
maturity similar to that of the amount being paid. Upon payment of all sums due
hereunder, the Term of this Lease as to such unit shall terminate and (except in
the case of the loss, theft or complete destruction of such unit) Lessor shall
be entitled to recover possession of such unit.
VIII. LOSS OR DAMAGE:
Lessee hereby assumes and shall bear the entire risk of any loss,
theft, damage to, or destruction of, any unit of Equipment from any cause
whatsoever (a) from the time the Equipment is shipped to Lessee, and (b) with
respect to any Disbursement Equipment, from the time that Lessee is obligated to
do so under the terms of the Purchase Order relating to that item of
Disbursement Equipment.
IX. INSURANCE:
Lessee agrees, at its own expense, to keep all Disbursement Equipment
and Equipment insured for such amounts, and with deductible amounts, as
specified in Paragraph D of the applicable Schedule and against such hazards as
Lessor may reasonably require, including, but not limited to, insurance for
damage to or loss of such Disbursement Equipment and Equipment ("CASUALTY
INSURANCE") and liability coverage for personal injuries, death or property
damage, with Lessor named as additional insured and with a loss payable clause
in favor of Lessor, as its interest may appear, irrespective of any breach of
warranty or other act or omission of Lessee. All such policies shall be with
companies, and on terms, reasonably satisfactory to Lessor. Lessee agrees to
deliver to Lessor evidence of insurance reasonably satisfactory to Lessor. In
the event that any of such insurance policies referred to in this Section IX
shall now or hereafter provide coverage on a "claims-made" basis, Lessee shall
continue to maintain such policies in effect for a period of not less than three
(3) years after the expiration of the Term. The provisions of co-insurance
clauses in Lessee's insurance policies shall not be in effect.
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Except as expressly provided otherwise in the second succeeding sentence, Lessee
hereby appoints Lessor as Lessee's exclusive attorney-in-fact to make proof of
loss and claim for insurance, and to make adjustments with insurers and to
receive payment of and execute or endorse all documents, checks or drafts in
connection with payments made as a result of such insurance policies. Any
expense of Lessor in adjusting or collecting insurance shall be borne by Lessee.
Lessee may make adjustments with insurers (a) so long as no Default or Potential
Default exists, with respect to claims for damage to any unit of Equipment where
the repair or replacement costs do not exceed Five Hundred Thousand Dollars
($500,000), or (b) with Lessor's prior written consent. Said policies shall
provide that the insurance may not be altered or cancelled by the insurer until
after thirty (30) days prior written notice to Lessor. Provided that no Default
or Potential Default has then occurred and is continuing, upon receipt of
evidence reasonably satisfactory to Lessor that repairs are being or have been
made to the Disbursement Equipment or the Equipment or that the Disbursement
Equipment or Equipment is being or has been replaced, as the case may be,
Lessor, at Lessee's option, will apply any insurance proceeds received by Lessor
on account of such loss to the cost of such repairs or replacement then having
been made or, if on or after the Basic Term Commencement Date a Casualty
Occurrence has then occurred hereunder with respect thereto, to Lessee's
obligation to pay the Stipulated Loss Value in accordance with Section VII(b)
hereof. During the existence of a Default or Potential Default, Lessor may, at
its option, apply proceeds of insurance, in whole or in part, to (i) repair or
replace Disbursement Equipment or Equipment or any portion thereof, or (ii)
satisfy any obligation of Lessee to Lessor hereunder. So long as no Default or
Potential Default exists and all amounts then due and owing to Lessor under this
Lease have been paid, any insurance proceeds remaining after the repair or
replacement of the damaged Disbursement Equipment or Equipment, or after the
application of insurance proceeds, in the case of Disbursement Equipment, to all
amounts disbursed by Lessor in respect of that Disbursement Equipment plus all
accrued and unpaid Interim Rent due in respect of that Disbursement Equipment,
and in the case of Equipment, to the Capitalized Lessor's Cost in respect of
that Equipment, will be made available to Lessee.
X. RETURN OF EQUIPMENT:
(a) Upon the expiration or termination of the Term of this Agreement,
unless Lessee shall have exercised its renewal option pursuant to Section
XVIII(b) hereof, or its purchase option pursuant to Section XVIII(d) hereof,
Lessee shall promptly, at its own cost and expense: (i) perform any testing and
repairs required to place the affected units of Equipment in Materially the same
condition as when received by Lessee (reasonable wear and tear excepted) and in
good working order for their originally intended purpose; (ii) if
deinstallation, disassembly or crating is required, cause such units to be
deinstalled, disassembled and crated by an authorized manufacturer's
representative or such other service person as is reasonably satisfactory to
Lessor; and (iii) return such units, free and clear of all Liens (except for
Permitted Liens arising pursuant to clause (1) of Section V(c) hereof), to a
location within the continental United States of America as Lessor shall direct.
Lessee acknowledges and agrees to the provisions set forth in Annex F to the
Equipment Schedule.
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(b) Until Lessee has paid all moneys due Lessor under Section XVIII(c),
Lessee's Rent payment obligation and all other obligations under this Agreement
shall continue from month to month notwithstanding any expiration or termination
of the Term. Lessor may terminate such continued leasehold interest upon ten
(10) days' prior written notice to Lessee. In addition to the Interim Rents and
Rents, Lessor shall have all of its other rights and remedies available as a
result of Lessee's failure to perform or observe those obligations.
XI. DEFAULT:
(a) The occurrence of any of the following shall constitute a default
("DEFAULT") under this Agreement:
(i) If any Rent or Interim Rent or any other amount due Lessor
or any Participant shall not be paid in full promptly when the same becomes due
and payable and shall remain unpaid for five (5) consecutive days thereafter or,
if earlier, on the expiration of the Term,
(ii) If any representation, warranty or statement made in this
Agreement or in any Schedule or any other Document or any other certificate,
report, notice or other writing delivered to Lessor in respect of this Agreement
shall be false or erroneous in any Material respect when made or deemed made,
(iii) If Lessee fails to perform or observe (1) any of its
obligations in Section IX or Section XXIII or Section XXIV, (2) any of its
obligations under the Assignment of Purchase Orders or any other Document or B.
W. Alloy, Ltd. shall fail to perform or observe any of its obligations under the
Assignment of Purchase Orders or any other Document to which it is a party, or
(3) or any of its other obligations in this Agreement (other than those referred
to in clauses (i) and (iii)(1) and (iii)(2) above) and that failure shall not
have been fully corrected within thirty (30) days after the giving of written
notice to Lessee by Lessor that it is to be remedied, provided, however, if
during that thirty-day period Lessee shall commence corrective action that, if
begun and prosecuted with due diligence, cannot be completed within a period of
thirty (30) days, then that thirty-day period shall be extended, but not more
than an additional forty (40) days, to the extent necessary to enable Lessee to
diligently complete that corrective action,
(iv) If, in respect of any existing or future Indebtedness for
Borrowed Money (regardless of maturity) or Funded Indebtedness now owing or
hereafter incurred by Lessee or any Subsidiary of Lessee, there should occur or
exist under its original provisions (except for any amendment made prior to the
date of this Agreement but without giving effect to any amendment, consent or
waiver after the date of this Agreement) any event, condition or other thing
which constitutes, or which with the giving of notice or the lapse of any
applicable grace period or both would constitute, a default which accelerates
(or permits any creditor or creditors or representative thereof to accelerate)
the maturity of
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any Indebtedness for Borrowed Money or Funded Indebtedness; or if any
Indebtedness for Borrowed Money (regardless of maturity) or Funded Indebtedness
(other than any payable on demand) shall not be paid in full at its stated
maturity; or if any Indebtedness for Borrowed Money or Funded Indebtedness
payable on demand shall not be paid in full on demand therefor,
(v) If (a) any Subsidiary of Lessee shall commence any
Insolvency Action of any kind or admit (by answer, default or otherwise) the
Material allegations of, or consent to any relief requested in, any Insolvency
Action of any kind commenced against that Subsidiary by its creditors or any
thereof, or (b) any creditor or creditors shall commence against that Subsidiary
any Insolvency Action of any kind which shall remain in effect (neither
dismissed nor stayed) for thirty (30) consecutive days,
(vi) If (a) Lessee shall discontinue operations, or (b) Lessee
shall commence any Insolvency Action of any kind or admit (by answer, default or
otherwise) the Material allegations of, or consent to any relief requested in,
any Insolvency Action of any kind commenced against Lessee by its creditors or
any thereof, or (c) any creditor or creditors shall commence against Lessee any
Insolvency Action of any kind which shall remain in effect (neither dismissed
nor stayed) for thirty (30) consecutive days,
(vii) If any person or group of persons acting in concert
shall beneficially own more than twenty percent (20%) of Lessee's outstanding
voting capital stock except that this subsection shall not apply to any person
who, with the associates and affiliates of that person, is the record and
beneficial owner of not less than five percent (5%) of Lessee's outstanding
voting capital stock at the date of this Agreement,
(viii) If any Equipment is illegally used, or if an Event
of Default shall have occurred under or in respect of the Credit Agreement,
(ix) One or more judgments for the payment of money (excluding
any judgment that is insured by an insurance carrier that has acknowledged in
writing, in form and substance satisfactory to Lessor, its liability for the
full amount of that judgment) shall have been entered against Lessee or any of
its Subsidiaries which judgment or judgments exceed Five Million Dollars
($5,000,000) in the aggregate, and such judgment or judgments shall have
remained undischarged and unstayed for a period of forty-five (45) consecutive
days,
(x) This Agreement or any Schedule or any Assignment of
Purchase Orders or other Document or term or provision hereof or thereof shall
cease to be in full force and effect, or Lessee shall purport to terminate
(except in accordance with the terms thereof), repudiate, declare voidable or
void or otherwise contest, this Agreement or any Schedule or any Assignment of
Purchase Orders or any other Document or term or provision hereof or thereof or
any obligation or liability of Lessee hereunder or thereunder, or
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(xi) Lessee shall abandon the construction or operation of the
Elmore Project, or the construction of the Elmore Project is not substantially
completed by the Basic Term Commencement Date, or the Elmore Project is not in
operation and producing product in commercially saleable quantities by June 15,
1999.
(b) Upon the occurrence of a Default
(i) other than a Default described in Paragraph (a)(v) or
(a)(vi) above, and in addition to all other rights and remedies which Lessor may
have, at law, in equity or otherwise, Lessor may, by written notice to Lessee
declaring a Default, require Lessee, or
(ii) described in Paragraph (a)(v) or (a)(vi) above, and in
addition to all other rights and remedies which Lessor may have, at law, in
equity or otherwise, a Default shall automatically be deemed declared and
without presentment, demand, protest or notice of any kind, all of which are
hereby waived, Lessee shall,
forthwith pay to Lessor (A) as liquidated damages for loss of a bargain and not
as a penalty, the Stipulated Loss Value of the Equipment (calculated in
accordance with Annex D to the applicable Schedule as of the Rent Payment Date
next preceding the declaration of acceleration or the acceleration, as the case
may be), or during the Interim Lease Period, an amount equal to all funds
disbursed by Lessor in respect of Disbursement Equipment, and (B) all accrued
and unpaid Interim Rents and all Rents and other sums then due hereunder. Upon
receipt by Lessor of all moneys described in the preceding sentence, Lessor
agrees, upon Lessee's reasonable request and at Lessee's expense, to execute any
instrument necessary to evidence Lessee's ownership of the Equipment, including
a bill of sale. If Lessee fails to pay the amounts specified in the preceding
sentence, then, at the request of Lessor, Lessee shall comply with the
provisions of Section X hereof, and for purposes of this Section XI(b), all
references to Equipment shall be deemed to include any Disbursement Equipment to
the extent of Lessee's interest therein. Lessee hereby authorizes Lessor to
enter, with or without legal process, any premises where any Equipment is
located and take possession thereof. Lessor may, but shall not be required to,
sell Equipment at private or public sale, in bulk or in parcels, with or without
notice, and without having the Equipment present at the place of sale; or Lessor
may, but shall not be required to, lease, otherwise dispose of or keep idle all
or part of the Equipment; and Lessor may use Lessee's premises (or Lessee will
assign in good faith its right to permit the use of any premises where any of
the Equipment is located, as applicable) for any or all of the foregoing without
liability for rent, costs, damages or otherwise. The proceeds of any sale, lease
(including any rentals, whether under any Sublease or otherwise, accruing and
received in good and indefeasible funds after a Default) or other disposition,
if any, of any Collateral shall be applied in the following order of priorities:
(1) to pay all of Lessor's costs, charges and expenses incurred in taking,
removing, holding, repairing and selling, leasing or otherwise disposing of any
Collateral; then, (2) to the extent not previously paid by Lessee, to pay Lessor
all sums due from Lessee under this Agreement; then (3) to reimburse to Lessee
any sums previously paid by Lessee as liquidated damages pursuant to the first
sentence of this Section XI(b); and (4) any surplus shall be paid to Lessee.
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Lessee shall pay any deficiency in clauses (1) and (2) upon demand of Lessor.
Lessee hereby agrees to use its reasonable efforts after a Default to cause any
sublessee under a Sublease or any party having an interest in the premises at
which the Equipment is located to permit Lessor to have a period of twelve (12)
months in which to sell the Equipment at any such site. During such period,
Lessee shall continue to insure and maintain the Equipment as provided herein
and shall provide Lessor and its authorized representatives and prospective
purchasers access to the Equipment for remarketing purposes in accordance with
Section IV(c). The parties acknowledge and agree that the second preceding
sentence shall not in any manner restrict Lessor's right to sell the Equipment
off site from the Equipment Locations, at any time after the occurrence of a
Default hereunder.
(c) In addition to the foregoing rights, after a Default Lessor may
terminate the lease as to any or all of the Equipment, and in the event of a
Default described in Paragraph (a)(v) or (a)(vi) in this Section XI prior to the
Basic Term Commencement Date, the Lease shall automatically terminate as to all
of the Equipment and Disbursement Equipment and any obligation of Lessor to fund
disbursements under Section XXVI shall automatically terminate.
(d) The foregoing remedies are cumulative, and any or all thereof may
be exercised in lieu of or in addition to each other or any remedies at law, in
equity, or under statute. To the extent permitted by law, Lessee waives notice
of sale or other disposition (and the time and place thereof), and the manner
and place of any advertising. If permitted by law, Lessee shall pay reasonable
attorneys' fees actually incurred by Lessor in enforcing the provisions of this
Lease and any ancillary documents. Waiver of any Default or Potential Default
shall not be a waiver of any other or subsequent Default or Potential Default.
XII. ASSIGNMENT:
(a) LESSEE SHALL NOT ASSIGN, MORTGAGE, SUBLET OR HYPOTHECATE ANY
DISBURSEMENT EQUIPMENT OR EQUIPMENT OR THE INTEREST OF LESSEE HEREUNDER WITHOUT
THE PRIOR WRITTEN CONSENT OF LESSOR. Notwithstanding the foregoing, Lessee may
sublease specific items of the Equipment to any Subsidiary or Affiliate of
Lessee or, with the prior written consent of Lessor, which will not be
unreasonably withheld, any other Person subject to the following terms and
conditions:
(1) each sublease or rental agreement in respect of any Equipment (a
"Sublease") must be in writing, must be in form and substance reasonably
satisfactory to Lessor, and must contain a provision pursuant to which that
Sublease may not be amended or modified without the prior written consent of
Lessor, which will not be unreasonably withheld;
(2) no Sublease shall extend beyond the Maximum Lease Term;
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(3) Lessee shall maintain in its possession an original executed copy
of each and every Sublease, and shall stamp the original executed copy of each
Sublease in its possession promptly upon execution thereof with a legend
reading: "This Agreement has been assigned for collateral security purposes to,
and is subject to a security interest in favor of, National City Bank, for
itself and as agent for certain participants";
(4) the Equipment subject to the Sublease must remain located at the
Equipment Location (specified in the applicable Schedule), or with the prior
written approval of Lessor, at any other location within the continental United
States of America, and if that Equipment is moved to another location, Lessee
shall provide to Lessor within fifteen (15) days after the end of each quarter,
a report that discloses the location of that Equipment; and
(5) Lessee shall, and shall cause any sublessee to, execute and deliver
such instruments (including Uniform Commercial Code financing statements or such
other instruments necessary to create and protect Lessor's security and other
interests in the Equipment) as may be reasonably requested by Lessor in
connection with any Sublease.
No subleasing by Lessee will reduce any of the obligations of Lessee hereunder
or the rights of Lessor hereunder, and all of the obligations of Lessee
hereunder shall be and remain primary and shall continue in full force and
effect as the obligations of a principal and not of a guarantor or surety.
Lessee promptly shall reimburse Lessor for all expenses incurred by Lessor in
connection with any Sublease.
(b) Lessor may, with the consent of Lessee (which consent will not be
unreasonably withheld), assign this Agreement or any Schedule, or the right to
enter into any Schedule or sell a participation interest in this Agreement or
any Schedule in an amount not less than five million dollars ($5,000,000);
provided that no consent of Lessee is necessary if the assignment or
participation is to be made or granted to an Affiliate of Lessor or to an
existing Participant. Lessee agrees that it will pay all Rent and other amounts
payable under each Schedule to Lessor named therein; provided, however, if
Lessee receives written notice of an assignment permitted hereby from Lessor,
Lessee will pay all Rent and other amounts payable under any assigned Schedule
to such assignee or as instructed by Lessor. Each Schedule, incorporating by
reference the terms and conditions of this Agreement, constitutes a separate
instrument of lease, and Lessor named therein or its assignee shall have all
rights as "Lessor" thereunder separately exercisable by such named Lessor or
assignee as the case may be, exclusively and independently of Lessor or any
assignee with respect to other Schedules executed pursuant hereto. Without
limiting the generality of the foregoing, the grant of security interest in
Section XVII(b) hereof shall, as it relates to the Equipment or Disbursement
Equipment leased under each Schedule (and to the proceeds and other Collateral
referred to in Section XVII(b)), be deemed to have been granted solely to Lessor
named therein, or to its assignee, as applicable and such Equipment and
Disbursement Equipment (and other related Collateral) shall not be deemed to
collateralize Lessee's obligations under any of the Schedules to which such
named Lessor or assignee, as the case may be, is not a party. Lessee further
agrees to confirm in writing receipt of a notice of assignment as reasonably may
be
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requested by assignee. Lessee hereby waives and agrees not to assert against
any such assignee any defense, set-off, recoupment, claim or counterclaim which
Lessee has or may at any time have against Lessor or any other person for any
reason whatsoever.
(c) Lessee acknowledges that it has been advised that National City
Bank is acting hereunder for itself and as agent for certain third parties (each
being herein referred to as a "PARTICIPANT" and, collectively, as the
"PARTICIPANTS"); that the interest of Lessor in this Agreement, the Schedules,
related instruments and documents and/or the Equipment and Disbursement
Equipment may be conveyed to, in whole or in part, and may be used as security
for financing obtained from, one or more third parties, subject to the
provisions of (b) above (the "SYNDICATION"). Lessee agrees reasonably to
cooperate with Lessor in connection with the Syndication, including the
execution and delivery of such other documents, instruments, notices, opinions,
certificates and acknowledgments as reasonably may be required by Lessor or such
Participant.
(d) Anything to the contrary set forth herein notwithstanding, no
assignee or Participant hereunder shall be a direct competitor of Lessee or an
Affiliate of such a competitor. As used herein, "AFFILIATE" shall mean any
person that directly or indirectly, through one or more intermediaries, controls
or is controlled by, or is under common control with, such person.
(e) Subject always to the foregoing, this Agreement inures to the
benefit of, and is binding upon, the permitted successors and assigns of the
parties hereto.
(f) Lessor, and any assignee or Participant by virtue of obtaining an
interest herein, hereby agrees to keep confidential (i) any manufacturing
procedures and processes and other trade secrets of Lessee and (ii) any other
manufacturing information of Lessee designated by it as confidential, provided
that the foregoing shall not preclude Lessor from furnishing any trade secret or
other information (i) as may be required by order of any court or requested by
any governmental agency, (ii) to any actual or prospective assignee of its
rights arising out of or in connection with this Agreement or actual or
prospective Participant, so long as such prospective assignee or Participant to
whom disclosure is made agrees to be bound by the provisions of this Section
XII(f), (iii) to anyone if it shall have been already publicly disclosed (other
than in contravention of this Section XII(f)), (iv) to the extent reasonably
required in connection with the exercise of any right or remedy under this
Agreement or applicable law, and (iv) to its legal counsel, auditors and
accountants.
XIII. NET LEASE; NO SET-OFF, ETC.:
This Agreement is a net lease. Lessee's obligation to pay Rent, Interim
Rent and other amounts due hereunder shall be absolute and unconditional. Lessee
shall not be entitled to any abatement or reductions of, or set-offs against,
Rent, Interim Rent or other amounts due hereunder, including, without
limitation, those arising or allegedly arising out of claims (present or future,
alleged or actual, and including claims arising out of strict
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liability in tort or negligence of Lessor) of Lessee against Lessor under this
Agreement or otherwise. This Agreement shall not terminate and the obligations
of Lessee shall not be affected by reason of any defect in or damage to, or loss
of possession, use or destruction of, any Equipment or Disbursement Equipment
from any cause whatsoever. It is the intention of the parties that Rents,
Interim Rents and other amounts due hereunder shall continue to be payable in
all events in the manner and at the times set forth herein unless the obligation
to do so shall have been terminated pursuant to the express terms hereof.
XIV. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor,
the Participants, their agents, employees, successors and assigns, from and
against any and all losses, damages, penalties, injuries, claims, actions and
suits, including court costs and reasonable legal expenses, of whatsoever kind
and nature, in contract or tort, and including, but not limited to, Lessor's
strict liability in tort, arising out of (i) the selection, manufacture,
purchase, acceptance or rejection of Equipment or Disbursement Equipment, the
ownership of Equipment or Disbursement Equipment during the Term, and the
delivery, lease, possession, maintenance, use, condition, return or operation of
the Equipment or Disbursement Equipment (including, without limitation, latent
and other defects, whether or not discoverable by Lessor or Lessee and any claim
for patent, trademark or copyright infringement or environmental damage), (ii)
the condition of Equipment or any Disbursement Equipment sold or disposed of
after use by Lessee, any sublessee or any employee of Lessee, or (iii) the
failure of Lessee to perform or observe any obligation under this Agreement or
any other Document, or otherwise in respect of any Equipment or Disbursement
Equipment or Document. Lessee shall, at its expense and upon request of Lessor,
defend any actions based on, or arising out of, any of the foregoing with
counsel reasonably satisfactory to Lessor. Lessee shall reimburse any
indemnified party for any amounts expended by it in connection with any of the
foregoing or pay such amounts directly within five (5) days after the date
Lessor sends notice to Lessee requesting payment thereof.
(b) Notwithstanding the foregoing Paragraph (a), in the event any
action described in Paragraph (a) is based on or involves exposure to beryllium
particles, then Lessee shall have the right, at its expense and upon notice to
the indemnified party, to assume the defense of that action with counsel
reasonably satisfactory to that indemnified party. In any such action, the
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless Lessee and the indemnified party shall have mutually agreed in writing to
the retention of such counsel.
(c) All of Lessor's rights, privileges and indemnities contained in
this Section shall survive the expiration or other termination of this Agreement
and the rights, privileges and indemnities contained herein are expressly made
for the benefit of, and shall be enforceable by, Lessor and its successors and
permitted assigns.
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XV. NO WARRANTY; DISCLAIMERS:
LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE EQUIPMENT AND DISBURSEMENT
EQUIPMENT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES. LESSEE
ACCEPTS ALL EQUIPMENT ON AN AS IS, WHERE IS BASIS. LESSOR DOES NOT MAKE, HAS NOT
MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION,
EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE EQUIPMENT OR
DISBURSEMENT EQUIPMENT LEASED HEREUNDER OR ANY COMPONENT THEREOF, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE WITH SPECIFICATIONS,
QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE,
USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE.
All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without
limiting the foregoing, Lessor shall have no responsibility or liability to
Lessee or any other person with respect to any of the following (i) any
liability, loss or damage caused or alleged to be caused directly or indirectly
by any Equipment or Disbursement Equipment, any inadequacy thereof, any
deficiency or defect (latent or otherwise) therein, or any other circumstance in
connection therewith; (ii) the use, operation or performance of any Equipment or
Disbursement Equipment or any risks relating thereto; (iii) any interruption of
service, loss of business or anticipated profits or consequential damages; or
(iv) the delivery, operation, servicing, maintenance, repair, improvement or
replacement of any Equipment or Disbursement Equipment. If, and so long as, no
Default under this Agreement has occurred, Lessee shall be, and hereby is,
authorized during the Term to assert and enforce, at Lessee's sole cost and
expense, from time to time, in the name of and for the account of Lessor or
Lessee or both, as their interests may appear, whatever claims and rights Lessor
may have against any supplier of the Equipment or Disbursement Equipment.
XVI. REPRESENTATIONS, WARRANTIES AND COVENANTS OF LESSEE:
Lessee hereby represents, warrants and covenants to Lessor that on the
date hereof and on the date of execution of each Schedule:
(a) Lessee has adequate power and authority to enter into, and perform
and observe its obligations under, this Agreement, each Schedule, each
Assignment of Purchase Orders to which it is a party and all other agreements,
instruments, documents and other writings related to this Agreement
(collectively, the "DOCUMENTS"). Lessee is a duly organized and validly existing
Ohio corporation in good standing. Lessee is duly qualified to do business
wherever necessary to carry on its present business and operations, including
the jurisdiction(s) where the Equipment is or is to be located except where
failure to be so qualified would not have a Material adverse effect on the
financial condition of Lessee or on the ability of Lessee to perform and observe
its obligations under this Agreement.
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(b) The Documents have been duly authorized, executed and delivered by
Lessee and constitute valid, legal and binding agreements, enforceable in
accordance with their terms, except to the extent that the enforcement of
remedies therein provided may be limited under applicable bankruptcy and
insolvency laws or under general principles of equity.
(c) No approval, consent, license, registration, or withholding of
objection is required from any governmental authority or instrumentality with
respect to the execution and delivery by Lessee of any of the Documents, or the
performance or observance by Lessee of any of its obligations under the
Documents, including, without limitation, the use and operation of the
Equipment.
(d) The execution and delivery by Lessee of any of the Documents, and
the performance or observance by Lessee of any of its obligations under the
Documents, will not: (i) violate any judgment, order, law or regulation
applicable to Lessee or any of its properties, or violate any provision of
Lessee's articles of incorporation, charter or code of regulations or by-laws;
or (ii) result in any breach of or constitute a default under, or result in the
creation of any Lien upon any Equipment or any Disbursement Equipment pursuant
to, any indenture, mortgage, deed of trust, bank loan or credit agreement or
other instrument (other than this Agreement) to which Lessee is a party or by
which any of its properties is bound.
(e) There is no litigation or proceeding pending or threatened in court
or before any commission, board, other administrative agency, or arbitrator
against or affecting Lessee or any of its properties, which if successful might
have a Material adverse effect on the ability of Lessee to fulfill its
obligations under this Agreement or have a Material adverse effect on Lessee.
(f) The Equipment or Disbursement Equipment, as the case may be,
accepted under any Certificate of Acceptance is and at all times will remain
tangible personal property.
(g) Lessee has delivered to Lessor Lessee's annual audit report
(including, without limitation, all financial statements therein and notes
thereto and the accompanying accountants' certificate) prepared as at December
31, 1995, and annual audit reports for each of Lessee's two (2) next preceding
fiscal years (each having been certified by Ernst & Young LLP) and Lessee's
unaudited interim financial statements prepared as of September 30, 1996. Each
of the financial statements referred to in the preceding sentence has been
prepared in accordance with GAAP applied on a basis consistent with those used
by it during its then next preceding full fiscal year except to the extent, if
any, specifically noted therein and fairly presents in all Material respects
(subject to routine year end audit adjustments in the case of the unaudited
financial statements) the consolidated financial condition of Lessee and its
Subsidiaries as of the date thereof (including a full disclosure of Material
contingent liabilities, if any) and the consolidated results of their
operations, if any, for the fiscal period then ended. There has been no Material
adverse
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change in the financial condition, properties or business of Lessee and
its Subsidiaries viewed on a consolidated basis since December 31, 1995 nor any
change in their accounting procedures or fiscal year since the end of Lessee's
latest full fiscal year covered by those statements.
(h) The Equipment will at all times be used for commercial or business
purposes. No portion of the Acquisition Cost or any other expense in respect of
any Equipment will be paid with proceeds of the Port Authority Bonds or the
proceeds of the State Loan. No provision of any Purchase Order may be amended,
modified or waived without the prior written consent of Lessor, which consent
may not be unreasonably withheld. There are no Liens on any of the real property
that constitutes a portion of the Elmore Project, except for a leasehold
mortgage on the property described in the Port Authority Lease securing the
payment and performance of the Port Authority Bonds and the State Loan.
(i) The operations of Lessee and its Subsidiaries are in full
compliance with all Material requirements imposed by law, whether federal, state
or local, and whether statutory, regulatory or other, including (without
limitation) all occupational safety and health laws and zoning ordinances, but
excluding Environmental Laws. Each of Lessee and each of its Subsidiaries is in
compliance in all Material respects with all Environmental Laws including,
without limitation, all Environmental Laws in all jurisdictions in which it owns
or operates, or has owned or operated, a facility or site, arranges or has
arranged for disposal or treatment of hazardous substances, solid waste or other
wastes, accepts or has accepted for transport any hazardous substances, solid
waste or other wastes or holds or has held any interest in real property. No
litigation or proceeding arising under, relating to or in connection with any
Environmental Law is pending or threatened against Lessee or any of its
Subsidiaries, or any real property in which any of them holds or has held an
interest or which is or has been operated by any of them, and no investigation
or inquiry which would subject Lessee or any Subsidiary to any liability under
any Environmental Law by any governmental agency or authority, individual or
other person or entity is pending or, to the best knowledge of any of them,
threatened against any of them, or any real property in which any of them holds
or has held an interest or which is or has been operated by any of them. No
release, threatened release or disposal of hazardous waste, solid waste or other
wastes is occurring, or has occurred, on, under or to any real property in which
Lessee or any of its Subsidiaries holds any interest or performs any of its
operations, in violation of any Environmental Law or which would subject Lessee
or any of its Subsidiaries to any liability under any Environmental Law, which
violation or liability, together with other outstanding liabilities of Lessee
and its Subsidiaries in respect of Environmental Laws, would Materially and
adversely affect the business, properties or financial condition of Lessee and
it Subsidiaries viewed on a consolidated basis. Further, no release, threatened
release or disposal of any hazardous substance is occurring, or has occurred,
on, under or to any real property in which Lessee or any of its Subsidiaries
holds any interest or performs any of its operations, in violation of any
Environmental Law which violation or liability, together with other outstanding
liabilities of all of them in respect of Environmental Laws, would Materially
and adversely affect the business, properties or financial condition of Lessee
and its Subsidiaries viewed on a consolidated basis. As used in this subsection,
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"litigation or proceeding" means any Material demand, claim, notice, suit, suit
in equity, action or administrative action whether brought by any governmental
agency or authority, individual or other person or entity or otherwise.
(j) No Material Accumulated Funding Deficiency exists in respect of any
of the Pension Plans of Lessee or any of its Subsidiaries. No Reportable Event
has occurred in respect of any such Pension Plan which is continuing and which
constitutes grounds either for termination of the plan or for court appointment
of a trustee for the administration thereof.
(k) Lessee is not an "investment company", or a company "controlled" by
an "investment company", within the meaning of the Investment Company Act of
1940, as amended.
(l) Lessee and each of its Subsidiaries has filed all federal, state
and local tax returns which are required to be filed by it and paid all taxes
due as shown thereon (except to the extent, if any, permitted by Section
XXIV(a)). The Internal Revenue Service has audited (or the relevant limitations
period has expired with respect to) Lessee's tax returns through the year ended
December 31, 1988 and the Internal Revenue Service has not alleged any Material
default by Lessee in the payment of any tax Material in amount or threatened to
make any assessment in respect thereof which has not been reflected in the
Financial Statements.
(m) Lessee has not changed within the six (6) months preceding the date
of this Agreement (i) the name or identity of Lessee or its corporate structure,
by reorganization or otherwise, or (ii) the address of Lessee referred to in the
following sentence. As of the date hereof, the chief place of business and chief
executive office of Lessee are located at 17876 St. Clair Avenue, Cleveland,
Ohio 44110.
VII. OWNERSHIP FOR TAX PURPOSES; GRANT OF SECURITY INTEREST; USURY
SAVINGS:
(a) Lessor and Lessee intend that for federal, state and local tax
purposes, including, without limitation, personal property taxes, Lessor will
treat Lessee as the owner of the Equipment and any Disbursement Equipment (to
the extent of its interest therein). Accordingly, Lessor agrees (i) to treat
Lessee as the owner of the Equipment and Disbursement Equipment (to the extent
of its interest therein) on its federal, state and local tax returns, (ii) not
to take actions or positions inconsistent with such treatment on or with respect
to its federal, state and local tax returns, and (iii) not claim any tax
benefits available to an owner of the Equipment or Disbursement Equipment on or
with respect to its federal, state and local tax returns, all so long as legally
permissible; the foregoing undertakings by Lessor shall not be violated by
Lessor's taking a tax position through inadvertence so long as such inadvertent
tax position is reversed by Lessor promptly upon its discovery. Lessor shall in
no event be liable to Lessee if Lessee fails to realize any of the tax or
accounting benefits available to the owner of the Equipment or Disbursement
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Equipment, unless (x) Lessor has breached its undertakings set forth in the
second sentence of this Section XVII(a), and (y) such breach is the direct cause
of Lessee's failure to secure any such benefits.
(b) In order to secure the prompt payment of the Rent, Interim Rent and
all of the other amounts from time to time outstanding under and with respect to
the Schedules, and the performance and observance by Lessee of all the
agreements, covenants and provisions of the Schedules (including, without
limitation, all of the agreements, covenants and provisions of this Lease that
are incorporated herein), this Agreement and the other Documents, Lessee hereby
grants to Lessor a first priority security interest in all of its right, title
and interest in and to, and assigns to Lessor for collateral security purposes
all of Lessee's right, title and interest in and to, the following, whether now
owned or hereafter existing and wherever located (the "COLLATERAL"): (1) the
Equipment and Disbursement Equipment described in the Schedules, together with
all additions, attachments, improvements, accessories and accessions thereto
whether or not furnished by the Vendor of the Equipment and any and all
substitutions, replacements or exchanges therefor, in each such case in which
Lessee shall from time to time acquire an interest and in each case only from
and after the date on which attached to the Equipment or Equipment substituted,
replaced or exchanged for the Equipment; (2) any Sublease of any of the
Equipment and all extensions and renewals thereof, and all rentals and other
sums due, now or hereafter, thereunder; (3) to the extent the Equipment or
Disbursement Equipment covered by this Agreement may constitute or be deemed to
be Lessee's inventory (solely to such extent, the "INVENTORY"), such Inventory;
(4) all Purchase Orders and general intangibles and contract rights in respect
of the Purchase Orders and the Equipment or Disbursement Equipment and the
maintenance, use and operation thereof (including, without limitation, all
rights of Lessee to receive monies due and to become due under or pursuant to
any Purchase Orders or such general intangibles and contract rights and all of
the rights of Lessee to terminate, and to perform, compel performance and
otherwise exercise all remedies under, such Purchase Orders, general intangibles
and contract rights); (5) all documents, books and records in respect of
Equipment, Disbursement Equipment and Inventory; and (6) all cash and noncash
proceeds and products of any and all of the foregoing (including, without
limitation, proceeds which constitute property of the types described in clauses
(1) through (5) above) and all payments under any insurance (whether or not
Lessor is the loss payee thereof), indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral. After a Default hereunder, Lessor may notify any sublessee of the
Equipment to pay directly to Lessor all rentals and other sums accrued and
payable after such Default, or to become payable, under the applicable Sublease,
and Lessee hereby authorizes and directs any such sublessee to pay such sums to
Lessor upon the giving of such notice. If, after the occurrence of a Default and
the giving of such notice by Lessor, any remittance with respect to any Sublease
of the Equipment is received by Lessee, such remittances immediately will be
delivered to Lessor endorsed to the order of Lessor and, to the extent any such
remittance is for an amount in excess of the sum payable pursuant to any
Sublease for the use or operation of the Equipment, such excess amount promptly
shall be remitted by Lessor to Lessee. If the remittance is in a form which
precludes an
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endorsement, Lessee shall hold all such funds in trust for Lessor
and immediately pay the amount of the remittance to Lessor. Lessee hereby
appoints Lessor its attorney-in-fact to negotiate any remittance which is
received by Lessor from any sublessee with respect to any Sublease of the
Equipment after a Default has occurred, and which is made payable to Lessee.
(c) It is the intention of the parties hereto to comply with any
applicable usury laws to the extent that any Schedule is determined to be
subject to such laws; accordingly, it is agreed that, notwithstanding any
provision to the contrary in any Schedule or this Lease, in no event shall any
Schedule require the payment or permit the collection of interest in excess of
the maximum amount permitted by applicable law. If any such excess interest is
contracted for, charged or received under any Schedule or this Lease, or in the
event that all of the principal balance shall be prepaid, so that under any of
such circumstances the amount of interest contracted for, charged or received
under any Schedule or this Lease shall exceed the maximum amount of interest
permitted by applicable law, then in such event (1) the provisions of this
paragraph shall govern and control, (2) neither Lessee nor any other person or
entity now or hereafter liable for the payment hereof shall be obligated to pay
the amount of such interest to the extent that it is in excess of the maximum
amount of interest permitted by applicable law, (3) any such excess which may
have been collected shall be either applied as a credit against the then unpaid
principal balance or refunded to Lessee, if no Default or Potential Default
exists, at the option of Lessee, and if a Default or Potential Default exists,
at the option of Lessor, and (4) the effective rate of interest shall be
automatically reduced to the maximum lawful contract rate allowed under
applicable law as now or hereafter construed by the courts having jurisdiction
thereof. It is further agreed that, without limitation of the foregoing, all
calculations of the rate of interest contracted for, charged or received under
any Schedule or this Lease which are made for the purpose of determining whether
such rate exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by applicable law, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the indebtedness
evidenced hereby, all interest at any time contracted for, charged or received
from Lessee or otherwise by Lessor in connection with such indebtedness;
provided, however, that if any applicable state law is amended or the law of the
United States of America preempts any applicable state law, so that it becomes
lawful for Lessor to receive a greater interest per annum rate than is presently
allowed, Lessee agrees that, on the effective date of such amendment or
preemption, as the case may be, the lawful maximum hereunder shall be increased
to the maximum interest per annum rate allowed by the amended state law or the
law of the United States of America (but not in excess of the interest rate
contemplated hereunder).
(d) Lessee shall notify Lessor in writing at least forty-five (45) days
prior to any change in the name or corporate structure of Lessee. Lessee shall
keep its chief place of business and chief executive office, at the location
therefor specified in Section XVI(m), or upon forty-five (45) days' prior
written notice to Lessor, at such other location in a jurisdiction in which all
actions reasonably required by Lessor to protect its interest in the Collateral
have been taken.
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XVIII. END OF LEASE OPTIONS:
Provided that no Default or Potential Default has occurred under this
Agreement, Lessee shall have the option, upon the expiration of the Term, to
return, or to purchase, or to renew the Term of this Agreement with respect to,
all (but not less than all) of the Equipment leased under all Schedules executed
hereunder upon and subject to the following terms and conditions.
(a) [Intentionally omitted]
(b) Renewal. So long as Lessee shall not have exercised its option to
return the Equipment or its purchase option pursuant to this Section, Lessee
shall have the option, upon the expiration of the Basic Term of the first
Schedule to be executed under this Agreement, or upon the expiration of each
Renewal Term (excluding the seventh Renewal Term), to renew the Agreement with
respect to all, but not less than all, of the Equipment leased under all
Schedules executed hereunder for a Renewal Term at the Renewal Term Rent.
(c) Return. So long as Lessee shall not have exercised its option to
renew the Agreement or its purchase option pursuant to this Section, Lessee
shall have the option, upon the expiration of the Term, to return all (but not
less than all) of the Equipment described on all Schedules executed hereunder,
to Lessor upon the following terms and conditions: If Lessee desires to exercise
this option, Lessee shall (i) pay to Lessor on the last day of the Term with
respect to each individual Schedule, in addition to the scheduled Rent then due
on such date and all other sums then due hereunder, a terminal rental adjustment
amount equal to the Fixed Purchase Price of such Equipment, and (ii) return the
Equipment to Lessor in accordance with Section X hereof. Thereafter, upon return
of all of the Equipment described on all Schedules executed hereunder, Lessor
and Lessee shall arrange for the commercially reasonable sale, scrap or other
disposition of the Equipment. Upon satisfaction of the conditions specified in
this Paragraph (c), Lessor will transfer, on an AS IS, WHERE IS BASIS, without
recourse or warranty, express or implied, of any kind whatsoever, all of
Lessor's interest in and to the Equipment. Lessor shall not be required to make
and may specifically disclaim any representation or warranty as the condition of
such Equipment and other matters (except that Lessor shall warrant that it has
conveyed whatever interest it received in the Equipment free and clear of any
Liens created by Lessor). Lessor, at Lessee's expense, shall execute and deliver
to Lessee such Uniform Commercial Code statements of termination and any other
documents as reasonably may be requested by Lessee in order to terminate any
interest of Lessor in and to the Equipment. Upon the sale, scrap or other
disposition of the Equipment contemplated by this Section XVIII(c), Lessor shall
promptly thereafter pay to Lessee an amount equal to the Residual Risk Amount
(as specified in the Equipment Schedule or Equipment Schedules, as the case may
be) of the Equipment (less all reasonable costs, expenses and fees, including
storage, reasonable and necessary maintenance and other remarketing fees
incurred in connection with the sale, scrap, or disposition of such Equipment as
described
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in writing to Lessee) plus all proceeds, if any, of such sale, scrap or other
disposition in excess of the applicable Residual Risk Amount of the Equipment
and applicable taxes, if any. In the event that the proceeds of such sale, scrap
or other disposition of such Equipment are less than the applicable Residual
Risk Amount of that Equipment and applicable taxes, if any (for purposes of this
Paragraph, a "shortfall"), Lessor shall also pay to Lessee an amount equal to
the shortfall multiplied by .07095 multiplied by a fraction, the numerator of
which is equal to the number of days from and including the expiration of the
Term to, but excluding, the date of such sale, scrap or other disposition and
the denominator of which is equal to 360. If the sale, scrap or disposition of
any Equipment has not occurred within twelve (12) months after the expiration of
the Term, then at Lessee's option, to be exercised by notice to Lessor within
thirty (30) days after the end of that twelve-month period, Lessor agrees (i) to
pay promptly to Lessee an amount equal to the Residual Risk Amount (as specified
in the Equipment Schedule or Equipment Schedules, as the case may be) of that
Equipment plus interest thereon in an amount equal to that Residual Risk Amount
multiplied by .07095 multiplied by a fraction, the numerator of which is equal
to the number of days from and including the expiration of the Term to, but
excluding, the date such amount is paid and the denominator of which is equal to
360 (less all reasonable costs, expenses and fees, including storage, reasonable
and necessary maintenance and other remarketing fees incurred by Lessor as
described in writing to Lessee), in which case Lessor thereafter shall be
entitled to retain all proceeds from the sale, scrap or other disposition of
that Equipment, or (ii) to transfer that Equipment to Lessee in full
satisfaction of any obligation of Lessor to pay Lessee an amount equal to the
Residual Risk Amount for that Equipment.
(d) Purchase. So long as Lessee shall not have exercised its option to
renew the Agreement or its option to return the Equipment pursuant to this
Section, Lessee shall have the option, upon the expiration of the Term, to
purchase all (but not less than all) of the Equipment described on all Schedules
executed hereunder upon the following terms and conditions: If Lessee desires to
exercise this option with respect to the Equipment, Lessee shall pay to Lessor
on the last day of the Term with respect to each individual Schedule, in
addition to the scheduled Rent (if any) then due on such date and all other sums
then due hereunder, in cash the purchase price for the Equipment so purchased,
determined as hereinafter provided. The purchase price of the Equipment shall be
an amount equal to the Fixed Purchase Price of such Equipment (as specified on
the Schedule), plus all taxes and charges upon such sale and all other
reasonable and documented expenses incurred by Lessor in connection with such
sale, including, without limitation, any such expenses incurred based on a
notice from Lessee to Lessor that Lessee intended to return any such items of
Equipment. Upon satisfaction of the conditions specified in this Paragraph,
Lessor will transfer, on an AS IS, WHERE IS BASIS, without recourse or warranty,
express or implied, of any kind whatsoever, all of Lessor's interest in and to
the Equipment. Lessor shall not be required to make and may specifically
disclaim any representation or warranty as to the condition of such Equipment
and other matters (except that Lessor shall warrant that it has conveyed
whatever interest it received in the Equipment free and clear of any Lien
created by Lessor). Lessor shall execute and deliver to Lessee such Uniform
Commercial Code statements of termination and any other
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documents as reasonably may be requested by Lessee in order to terminate any
interest of Lessor in and to the Equipment.
(e) Notice of Election. Lessee shall give Lessor and each Participant
written notice of its election of the options specified in this Section not less
than one hundred eighty (180) days nor more than three hundred sixty-five (365)
days before the expiration of the Basic Term or any Renewal Term of the first
Schedule to be executed under this Agreement. Such election shall be effective
with respect to all Equipment described on all Schedules executed hereunder. If
Lessee fails timely to provide such notice, without further action Lessee
automatically shall be deemed to have elected (1) to renew the Term of this
Agreement pursuant to Paragraph (b) of this Section if a Renewal Term is then
available hereunder, or (2) to purchase the Equipment pursuant to Paragraph (d)
of this Section if a Renewal Term is not then available hereunder.
XIX. MISCELLANEOUS:
(a) EACH OF LESSEE AND LESSOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF,
DIRECTLY OR INDIRECTLY, THIS LEASE, ANY OF THE OTHER DOCUMENTS, ANY DEALINGS
BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR
ANY RELATED TRANSACTIONS, OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN
LESSEE AND LESSOR, OR BOTH. The scope of this waiver is intended to be all
encompassing of any and all disputes that may be filed in any court (including,
without limitation, contract claims, tort claims, breach of duty claims, and all
other common law and statutory claims). THIS WAIVER IS IRREVOCABLE, MEANING THAT
IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
LEASE, ANY OTHER DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO
THIS TRANSACTION OR ANY RELATED TRANSACTION. In the event of litigation, this
Agreement may be filed as a written consent to a trial by the court.
(b) Any cancellation or termination by Lessor, pursuant to the
provision of this Agreement, any Schedule, supplement or amendment hereto, or
the lease of any Equipment or Disbursement Equipment hereunder, shall not
release Lessee from any then outstanding obligations to Lessor hereunder.
(c) All Equipment and Disbursement Equipment shall at all times remain
personal property of Lessee regardless of the degree of its annexation to any
real property and shall not by reason of any installation in, or affixation to,
real or personal property become a part thereof.
(d) Time is of the essence of this Agreement. Lessor's failure at any
time to require strict performance by Lessee of any of the provisions hereof
shall not waive or diminish Lessor's right thereafter to demand strict
compliance therewith.
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(e) Lessee agrees, upon Lessor's reasonable request, to execute any
instrument necessary or expedient for filing, recording or perfecting the
interest of Lessor under this Agreement. Lessor shall, to the extent requested
by Lessee and at Lessee's expense, cooperate with Lessee to allow Lessee to
obtain the contemplated tax benefits of this Agreement, including, without
limitation, the filing of any statement with respect to tax abatements or other
requirements.
(f) Except to the extent otherwise expressly permitted hereunder or
thereunder, all notices, requests, demands, directions and other communications
(collectively "notices") under this Agreement shall be in writing (including
telexed and telecopied communication) and shall be sent by first-class mail,
return receipt requested, or by nationally-recognized next-day courier, or by
telex or telecopier (with confirmation in writing mailed first-class or sent by
such an overnight courier), or by personal delivery. All notices shall be sent
to the applicable party at the address stated above or in accordance with the
last unrevoked written direction from such party to the other party hereto, in
all cases with postage or other charges prepaid; and all notices and other
deliveries to any Participant shall be made to the address for that Participant
most recently provided by Lessor in writing to Lessee. Any such properly given
notice to Lessor or Lessee shall be effective on the earliest to occur of
receipt, telephone confirmation of receipt of telex or telecopy communication,
one (1) Business Day after delivery to a nationally-recognized next-day courier,
or three (3) Business Days after deposit in the mail.
(g) This Agreement and any Schedule and Annexes thereto constitute the
entire agreement of the parties with respect to the subject matter hereof. NO
VARIATION OR MODIFICATION OF THIS AGREEMENT, OR ANY WAIVER OF ANY OF ITS
PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN
AUTHORIZED REPRESENTATIVE OF THE PARTIES HERETO. 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, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
(h) The representations, warranties and covenants of Lessee herein
shall be deemed to survive the closing hereunder. On and prior to the Basic Term
Commencement Date, Lessor's obligations to fund and lease specific items of
Equipment and Disbursement Equipment shall be conditioned upon Lessee providing
to Lessor such information with respect to Lessee's financial condition as
Lessor may reasonably require, and Lessor being satisfied that there shall have
been no Material adverse change in the business or financial condition of Lessee
from the date of execution hereof. The obligations of Lessee under Sections III,
X, XIV, XIX(a), XIX(l) and XIX(m), those obligations of Lessee that accrue
during the term of this Agreement, and obligations which by their express terms
survive the termination of this Agreement, shall survive the termination of this
Agreement.
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(i) In case of a failure of Lessee to comply with any provision of this
Agreement, Lessor shall have the right, but shall not be obligated, to effect
such compliance, in whole or in part; and all moneys spent and expenses and
obligations incurred or assumed by Lessor in effecting such compliance (together
with interest thereon at the rate specified in Paragraph (j) of this Section)
shall constitute additional Rent due to Lessor within five (5) days after the
date Lessor sends written notice to Lessee requesting payment. Lessor's
effecting such compliance shall not be a waiver of Lessee's default.
(j) Any Rent, Interim Rent or other amount not paid to Lessor when due
hereunder (after any applicable grace period therefor) shall bear interest, both
before and after any judgment or termination hereof, at the lesser of the Daily
Lease Rate Factor then in effect plus two percent (2%) per annum or the maximum
rate allowed by law.
(k) Any provisions in this Agreement and any Schedule or other Document
which are in conflict with any statute, law or applicable rule shall be deemed
omitted, modified or altered to conform thereto. Furthermore, if any provision
in this Agreement or any Schedule or any other Document shall for any reason be
or become illegal, void or unenforceable, that illegality, voiding or
unenforceability shall not affect any other provision hereof or thereof.
(l) Lessee agrees to pay on demand all reasonable costs and expenses
incurred by Lessor in connection with the preparation, execution, delivery,
filing, recording, amendment and administration of any of the Documents,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for Lessor, and all costs and expenses, if any, in connection with the
enforcement of any of the Documents. In addition, Lessee shall pay any and all
stamp and other taxes and fees payable or determined to be payable in connection
with the execution, delivery, filing and recording of any of the Documents and
the other documents to be delivered under the Documents, and agrees to save
Lessor harmless from and against any and all liabilities with respect to or
resulting from any delay attributed to Lessee in paying or failing to pay such
taxes and fees.
(m) If there shall occur and be continuing any Default or if this Lease
is terminated, Lessor and each Participant shall have the right at any time to
set off against and to appropriate and apply toward the payment of the
obligations of Lessee then owing, whether or not the same shall then have
matured, any and all deposit balances then owing by Lessor or that Participant
to or for the credit or account of the Companies or any thereof, including but
not limited to all deposits (whether time or demand, general or special,
provisionally credited or finally credited, whether or not evidenced by a
certificate of deposit) and whether now or hereafter maintained, all without
notice to or demand upon Lessee or any other person, all such notices and
demands being hereby expressly waived.
XX. CHOICE OF LAW; JURISDICTION
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND
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CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF OHIO (WITHOUT
REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS
OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE
EQUIPMENT OR DISBURSEMENT EQUIPMENT EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, IN RESPECT OF ANY PARTICULAR
PROPERTY, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF
OHIO.
(b) EACH OF LESSEE AND LESSOR HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED
STATES FEDERAL OR OHIO STATE COURT SITTING IN CUYAHOGA COUNTY, OHIO, IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY SCHEDULE OR ANY DOCUMENT AND HEREBY IRREVOCABLY AGREES THAT ALL
CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT
MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. NOTHING HEREIN SHALL IMPAIR THE RIGHT OF LESSOR TO
BRING PROCEEDINGS AGAINST LESSEE IN THE COURTS OF ANY OTHER
JURISDICTION TO ENFORCE ANY INTEREST OR CLAIM IN RESPECT OF ANY ITEM OF
EQUIPMENT OR DISBURSEMENT EQUIPMENT, IN WHICH CASE LESSEE SHALL HAVE NO
RIGHT TO ASSERT ANY COUNTERCLAIM IF THE PROCEEDING IS IN ANY COURT
LOCATED OUTSIDE OF CUYAHOGA COUNTY, OHIO; and
(ii) CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT
OR OTHER LEGAL PROCESS BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE
PREPAID, TO THE PARTIES IN ACCORDANCE WITH SECTION XIX(f), AND CONSENTS
AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID
AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR
EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW).
(c) LESSEE HEREBY IRREVOCABLY AND UNCONDITIONALLY CONSENTS AND AGREES
THAT ANY JUDICIAL PROCEEDING BY LESSEE AGAINST LESSOR OR ANY AFFILIATE THEREOF
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED
TO, OR CONNECTED WITH THIS AGREEMENT OR ANY SCHEDULE OR ANY DOCUMENT SHALL BE
BROUGHT ONLY IN A COURT IN CUYAHOGA COUNTY, OHIO.
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XXI. CHATTEL PAPER:
To the extent that any Schedule would constitute chattel paper, as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction, no security interest therein may be created through the transfer
or possession of this Agreement in and of itself without the transfer or
possession of the original of a Schedule executed pursuant to this Agreement and
incorporating this Agreement by reference; and no security interest in this
Agreement and a Schedule may be created by the transfer or possession of any
counterpart of the Schedule other than the original thereof, which shall be
identified as the document marked "Original" and all other counterparts shall be
marked "Duplicate".
XXII. EARLY TERMINATION
On or after the second anniversary of the date of this Agreement,
Lessee may, so long as no Default or Potential Default hereunder has occurred
and is continuing, terminate this Agreement as to all (but not less than all) of
the Equipment described on all Schedules executed hereunder, as of a Rent
Payment Date ("TERMINATION Date") upon at least thirty (30) days' prior written
irrevocable notice to Lessor.
(a) On the Termination Date, Lessee shall pay to Lessor in cash the
purchase price for the Equipment, determined as hereinafter provided. The
purchase price of the Equipment shall be an amount equal to the sum of (A) the
Termination Value (calculated as of the Termination Date) for the Equipment,
plus (B) all taxes and charges upon sale, plus (C) all Rent and other sums due
and unpaid as of the Termination Date. Upon satisfaction of the conditions
specified in this Paragraph (a), Lessor will transfer, on an AS IS, WHERE IS
BASIS, all of Lessor's interest in and to the Equipment. Lessor shall not be
required to make and may specifically disclaim any representation or warranty as
to the condition of such Equipment and other matters (except that Lessor shall
warrant that it has conveyed whatever interest it received in such Equipment
free and clear of any Lien created by Lessor). Lessor shall execute and deliver
to Lessee such Uniform Commercial Code statements of termination as reasonably
may be required in order to terminate any interest of Lessor in and to the
Equipment.
(b) For the purposes of this Section XXII, the terms "expenses" and
"charges upon sale" as used in Paragraph (a) shall include, without limitation,
all reasonable legal fees, commissions, filing costs, administrative charges (as
described below) and other charges incurred or payable by Lessor in connection
with the transactions contemplated therein. Lessor agrees to provide Lessee with
a written statement detailing such amounts if so requested by Lessee. Lessee
acknowledges and agrees that it shall pay and otherwise be fully responsible for
all such amounts.
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XXIII. GENERAL FINANCIAL STANDARDS:
Lessee agrees that so long as this Agreement remains in effect and
thereafter until all obligations of Lessee hereunder shall have been paid and
performed in full, Lessee will observe each of the following:
(a) Lessee will not suffer or permit the consolidated Tangible Net
Worth of the Companies at any time to be less than one hundred seventy million
six hundred ninety-six thousand dollars ($170,696,000) plus an amount equal to
forty percent (40%) of the Company's annual earnings for the four fiscal
quarters ending December 31, 1996 and each December 31 thereafter; provided,
that if annual earnings for any fiscal year are a negative figure, the annual
earnings for the fiscal year in question shall be treated as zero (0) for the
purposes of this Paragraph (a).
(b) Lessee will not suffer or permit the Companies' Funded Indebtedness
at any time to exceed an amount equal to the Leverage Multiplier (as hereinafter
defined) times the Companies' EBITDA for the four consecutive fiscal quarters
most recently ended, all as determined on a consolidated basis. As used herein,
"LEVERAGE MULTIPLIER" means (i) from the date of this Agreement to December 30,
1999, inclusive, 3.00, and (ii) on and after December 31, 1999, 2.75.
(c) Lessee will not at any time suffer or permit the ratio of (a) the
aggregate of the EBITDA of the Companies for the four consecutive fiscal
quarters most recently ended, to (b) the aggregate Interest Expense of the
Companies for that period, to be less than 5.00 to 1:00, all as determined on a
consolidated basis.
(d) Lessee will not suffer or permit the Funded Indebtedness of the
Companies, at any time, to exceed an amount equal to the Required Multiplier (as
hereinafter defined) times the sum of the Funded Indebtedness of the Companies
plus the Tangible Net Worth of the Companies, all as determined on a
consolidated basis. As used herein, "REQUIRED MULTIPLIER" means (i) from the
date of this Agreement to December 31, 2000, inclusive, 0.50, and (ii) on and
after January 1, 2001, 0.45.
XXIV. COVENANTS
Lessee agrees that so long as this Agreement remains in effect and
thereafter until all obligations of Lessee hereunder shall have been paid and
performed in full, Lessee will perform and observe, and will cause each
Subsidiary of Lessee to perform and observe, each of the following provisions on
their respective parts to be complied with, namely:
(a) Each Company will pay in full
(i) prior in each case to the date when penalties for the
nonpayment thereof would attach, all taxes, assessments and
governmental charges and levies for which it may be or become subject;
and
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(ii) prior in each case to the date the claim would become
delinquent for non-payment, all other lawful claims (whatever their
kind or nature) which, if unpaid, might become a Lien upon its
property;
provided, that no item need be paid so long as and to the extent that (1) it is
contested in good faith and by timely and appropriate proceedings which are
effective to stay enforcement thereof or (2) with respect to items not exceeding
five hundred thousand dollars ($500,000) in the aggregate, it is being
negotiated in good faith with the relevant governmental authority.
(b) Each Company will at all times keep true and complete financial
records in accordance with GAAP and, without limiting the generality of the
foregoing, make appropriate accruals to reserves for estimated and contingent
losses and liabilities, and will maintain a fiscal year ending December 31.
(c) Each Company will permit Lessor at all reasonable times
(i) to examine that Company's properties and its
financial records and to make copies of and extracts from such records
and
(ii) to consult with that Company's officers, employees,
accountants, actuaries, trustees and plan administrators in respect of
its financial condition, properties and operations and the financial
condition of its Pension Plans, each of which parties is hereby
authorized to make such information available to Lessor to the same
extent that it would to that Company.
(d) Each Company will
(i) keep itself and all of its insurable properties insured at
all times to such extent, with such deductibles, by such insurers and
against such hazards and liabilities as is generally and prudently done
by other business enterprises respectively similar to the Companies,
except that if a more specific standard is provided in any Schedule or
other Document, the more specific standard shall prevail; and
(ii) forthwith upon Lessor's written request, cause an
appropriate officer to deliver to Lessor a certificate setting forth,
in form and detail satisfactory to Lessor, such information about that
insurance, all as Lessor may from time to time reasonably request.
(e) Each Company will at all times maintain its corporate existence,
rights and franchises; provided, however, that this Paragraph shall not prevent
any dissolution and liquidation of any Subsidiary or any merger or consolidation
permitted by Section XXIV(k).
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(f) Each Company will comply with all applicable occupational safety
and health laws and Environmental Laws and every other law (whether statutory,
administrative, judicial or other and whether federal, state or local) and every
lawful governmental order if non-compliance with such law or order would
Materially and adversely affect the business, properties or financial condition
of the Companies viewed on a consolidated basis; provided, that in the event of
any alleged non-compliance, no Company shall be in default under this Paragraph
(f) if and to the extent that it notifies Lessor and
(i) within thirty (30) days after the non-compliance becomes
apparent or is alleged, appropriate corrective measures are commenced
and such measures are diligently pursued to the satisfaction of Lessor,
or
(ii) the alleged non-compliance is contested in good faith by
timely and appropriate proceedings which are effective to stay
enforcement thereof.
No Company will cause or permit the release or disposal of hazardous waste,
solid waste or other wastes on, under or to any real property in which such
Company holds any interest, or performs any of its operations, in violation of
any Environmental Law. Lessee shall defend, indemnify and hold Lessor harmless
from and against any and all liabilities, losses, damages, costs and expenses of
any kind (including, without limitation, the reasonable fees and disbursements
of counsel) arising out of or resulting from any Company's non-compliance with
any Environmental Law.
(g) Each Company will maintain all fixed assets necessary to its
continuing operations in good working order and condition, ordinary wear and
tear excepted.
(h) No Company will
(i) make or keep any investment in any notes, bonds or other
obligations of any kind for the payment of money or make or have
outstanding at any time any advance or loan to anyone, or
(ii) be or become a Guarantor of any kind;
provided, that this Paragraph shall not apply to
(A) any existing or future advance to an officer or
employee of any Company in the normal course of
business and consistent with past practice,
(B) any endorsement of a check or other medium of payment
for deposit or collection, or any similar transaction
in the normal course of business,
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(C) any investment in an existing or future Subsidiary,
(D) any Guaranty by Lessee of Funded Indebtedness of any
Company to the extent that such Funded Indebtedness
of that Company is otherwise permitted by this
Agreement,
(E) investments in notes, bonds or other obligations of
persons (other than Subsidiaries) in which Lessee
has an equity investment, provided that the
aggregate amount of such investments, excluding any
equity investments permitted by Paragraph (k) below,
do not exceed fifteen million dollars ($15,000,000),
(F) guarantees not otherwise permitted hereby, in an
amount not to exceed twenty million dollars
($20,000,000) outstanding at any time,
(G) any existing or future Receivable of any Company so
long as such Receivable arises from the sale of
goods or services in the normal course of such
Company's business and is consistent with such
Company's past practice, or
(H) any existing or future investment in Eligible
Investments.
(i) No Company will create, assume or have outstanding at any time any
Indebtedness for Borrowed Money or any Funded Indebtedness of any kind if after
giving effect to such Indebtedness for Borrowed Money or Funded Indebtedness,
Lessee would be in non-compliance with any of the financial standards set forth
in Section XXIII.
(j) No Company will
(i) lease any property as lessee or acquire or hold any
property subject to any land contract, inventory consignment (except
for any Company that deals in precious metals which are subject to any
consignment arrangement in effect as of the date of this Agreement, and
replacements, renewals or extensions thereof) or other title retention
contract, or
(ii) sell or otherwise transfer any Receivables, whether
with or without recourse, or
(iii) suffer or permit any property (whether real, personal or
mixed and whether tangible or intangible, including, without
limitation, inventory and accounts receivable) now owned or hereafter
acquired by it to be or become encumbered by any Lien, except that the
Equipment may be subject to the Permitted Liens, as described in
Section V(c);
provided, that this Paragraph shall not apply to
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(A) any tax Lien, or any Lien securing workers' compensation or
unemployment insurance obligations, or any mechanics', carrier's
or landlord's Lien, or any Lien arising under ERISA, or any
security interest arising under article four (bank deposits and
collections) or five (letters of credit) of the Uniform Commercial
Code, or any similar Lien, except that this clause (A) shall apply
only to Liens arising by operation of law (whether statutory or
common law) and in the ordinary course of business and shall not
apply to any Lien that secures any indebtedness for borrowed money
or any guaranty thereof or any obligation that is in Material
default in any manner (other than any default contested in good
faith by timely and appropriate proceedings effective to stay
enforcement of the Lien in question),
(B) zoning or deed restrictions, public utility easements, minor title
irregularities and similar matters having no adverse effect as a
practical matter on the ownership or use of any of the property in
question,
(C) any Lien securing or given in lieu of surety, stay, appeal or
performance bonds, or securing performance of contracts or bids
(other than contracts for the payment of money borrowed), or
deposits required by law or governmental regulations or by any
court order, decree, judgment or rule or as a condition to the
transaction of business or the exercise of any right, privilege or
license, except that this clause (C) shall not apply to any
Lien or deposit securing an obligation that is in Material default
in any manner (other than any default contested in good faith by
timely and appropriate proceedings effective to stay enforcement
of the Lien in question),
(D) any lien securing only the Rent, Interim Rent or other obligations
of Lessee hereunder,
(E) any Lien (each, a "Purchase Money Security Interest") which is
created or assumed in purchasing, leasing, constructing or
improving any real property or equipment or to which any such
property is subject when purchased, provided that (1) the Purchase
Money Security Interest shall be confined to the aforesaid
property, (2) the indebtedness secured thereby does not exceed
the total cost of the purchase, construction or improvement,
(3) any such indebtedness, if repaid in whole or in part, cannot
be reborrowed and (4) the aggregate amount of such indebtedness
incurred in any fiscal year cannot exceed ten million dollars
($10,000,000),
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(F) any lease, other than any capitalized lease (it
being agreed that a capitalized lease is a Lien
rather than a lease for the purposes of this
Agreement) or the Port Authority Lease, so long as
the aggregate annual rentals under all such leases
of all the Companies do not exceed six million five
hundred thousand dollars ($6,500,000),
(G) any Lien which (together with the indebtedness
secured thereby) is fully disclosed in the Financial
Statements,
(H) any financing statement perfecting a security
interest that would be permissible under this
Paragraph, or
(I) the sale by Brush Wellman Japan Ltd. of any of its
Receivables provided the sale of such Receivables
occurs in the normal course of its business and is
consistent with its past practice and that any
indebtedness arising in connection therewith is
permitted by Paragraph (i) above.
(k) No Company will
(i) be a party to any merger or consolidation, or
(ii) be or become a party to any joint venture or partnership,
or make or keep any investment in any other stocks or other equity
securities of any kind or otherwise acquire all or substantially all of
the assets of another person, except that this clause (ii) shall not
apply to (A) Lessee's existing investments in the stocks and other
equity securities of existing or future Subsidiaries, (B) any other
investment reflected in the Financial Statements, or (C) acquisitions
of assets of persons or equity investments made in persons, other than
Subsidiaries, after the date of this Agreement in an aggregate amount,
excluding investments permitted by Paragraph (h) above, not to exceed
forty-five million dollars ($45,000,000) in the aggregate during any
fiscal year of Lessee, provided, that of that amount not more than
twenty million dollars ($20,000,000) in the aggregate is paid by the
Companies in cash during any fiscal year, or
(iii) lease as lessor, sell, sell-leaseback or otherwise
transfer (whether in one transaction or a series of transactions) all
or any substantial part of its fixed assets (other than in respect of
the Port Authority Lease and chattels that shall have become obsolete
or no longer useful in its present business with a fair market value
not exceeding ten million dollars ($10,000,000) in the aggregate during
any fiscal year), or the capital stock of any Subsidiary of Lessee
(other than the sale of all of the capital stock of one or more
Subsidiaries of Lessee that own assets with a fair market value not
exceeding ten million dollars ($10,000,000) in the aggregate during any
fiscal
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year so long as Lessor, within ten (10) Business Days of receipt of
notice of the proposed sale, notifies Lessee in writing that Lessor
believes the proposed sale could have a Material adverse effect on the
consolidated financial condition of the Companies);
provided, that if no Default or Potential Default shall then exist and if none
would thereupon begin to exist, this Paragraph (k) shall not apply (y) to any
merger or consolidation of any Subsidiary of Lessee with any other Subsidiary of
Lessee so long as a Subsidiary of Lessee is the surviving entity or to any
merger or consolidation of any wholly owned Subsidiary of Lessee with Lessee so
long as Lessee is the surviving corporation, or (z) to any dissolution and
liquidation of a Subsidiary of Lessee, or any transfer of assets between
Subsidiaries of Lessee or from any Subsidiary of Lessee to Lessee.
XXV. CERTAIN DEFINITIONS
(a) Any accounting term used in this Agreement shall have the meaning
ascribed thereto by GAAP, subject, however, to such modification, if any, as may
be provided in this Section XXV or elsewhere in this Agreement.
(b) As used in this Agreement and in any Schedule and other
Document, except where the context clearly requires otherwise,
Accumulated Funding Deficiency shall have the meaning ascribed thereto
in section 302(a)(2) of ERISA;
Acquisition Cost of each item of Equipment or Disbursement Equipment,
as the case may be, means an amount equal to the sum of (i) the total
cost paid by Lessor for such item of Equipment, plus (ii) all costs and
expenses approved and paid by Lessor in connection with the
engineering, delivery and installation of such item of Equipment;
Business Day means (a) with respect to the LIBOR Rate, a day on which
banks in the London Interbank Market deal in United States of America
dollar deposits and on which banking institutions are generally open
for domestic and international business in Cleveland, Ohio, and in New
York City and (b) in any other case, any day other than a Saturday or a
Sunday or a public holiday or other day on which banking institutions
located in Cleveland, Ohio, are authorized by law or other governmental
action to close;
Company refers to Lessee or to a Subsidiary of Lessee, as the
case may be, and Companies refers to Lessee and its Subsidiaries;
Contingent Obligation means any direct or indirect liability,
contingent or otherwise, with respect to any Funded Indebtedness,
lease, dividend, letter of credit, banker's acceptance or other
obligation of another Person incurred to provide assurance to
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the obligee of such obligation that such obligation will be paid or
discharged, that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected (in
whole or in part) against loss in respect thereof;
Credit Agreement means the Amended and Restated Credit Agreement, dated
as of December 13, 1994, among Lessee, Lessor, in its capacity as
Agent, and the banks parties thereto, as the same may be amended or
modified from time to time;
Default is defined in Section XI;
EBIT means for any period, with respect to Lessee and its Subsidiaries,
the sum of (a) the Net Income for such period plus (b) the Interest
Expense for such period plus (c) charges against income for taxes for
such period, all on a consolidated basis;
EBITDA means for any period, with respect to Lessee and its
Subsidiaries, the sum of (a) EBIT plus (b) the charges against income
for depreciation for such period plus (c) the charges against income
for amortization for such period, plus (d) other non-cash charges for
such period, minus (e) any and all non-cash credits to Net Income, all
as determined on a consolidated basis in accordance with GAAP;
Eligible Investments means any of the following investments (each
reference to a "rating category" of either Moody's or Standard & Poor's
shall refer to a rating category of such corporation without regard to
gradations within ratings):
(i) obligations issued or guaranteed as to full and timely
payment by the United States of America or by any person controlled or
supervised by or acting as an instrumentality of the United States of
America pursuant to authority granted by Congress;
(ii) obligations issued or guaranteed by any state or
political subdivision thereof and rated in the highest rating category
(if rated as short-term obligations) or the second highest rating
category (if rated as long-term obligations) by Moody's or Standard &
Poor's;
(iii) commercial or finance paper rated in the highest rating
category by Moody's or Standard & Poor's;
(iv) deposit accounts, bankers' acceptances, certificates of
deposit or bearer deposit notes in any bank that is a party to the
Credit Agreement or any bank affiliated with any such bank or any other
financial institution reasonably acceptable to Lessor and with a
reported capital and surplus of not less than $50,000,000, the debt
obligations (or, in the case of the principal bank in a bank holding
company, debt obligations of the bank holding company) of which are
rated by Moody's or Standard & Poor's not lower than the second highest
rating category (if rated as long-term
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obligations) or the second highest rating category (if rated as
short-term obligations);
(v) repurchase agreements secured fully by obligations of the
type specified in clause (i) and issued by any government bond dealer
reporting to, trading with and recognized as a primary dealer by, the
Federal Reserve Bank of New York;
(vi) interests in a unit investment trust composed of
obligations rated in the highest rating category, whether rated as
short-term or long-term obligations, by Moody's or Standard & Poor's;
(vii) money market mutual funds, rated in the highest rating
category by Moody's or Standard & Poor's, and invested solely in
obligations or securities described in clause (i), (ii), (iii) or (v)
above; and
(viii) investment agreements other than repurchase agreements
with banks or bank holding companies or other qualified providers which
have ratings assigned to their long-term unsecured obligations by
Moody's or Standard & Poor's which are not lower than the second
highest rating category for long-term debt or which have ratings
assigned to their short-term obligations by Moody's or Standard &
Poor's in the highest rating category for short-term debt;
Elmore Project means the construction and equipping of an alloy
strip mill to be leased by Lessee from the Toledo-Lucas County Port
Authority and located at 14710 West Portage River S. Road, Harris
Township, Ottawa County, Ohio 43416;
Environmental Laws mean all laws, ordinances, rules and regulations
pertaining to environmental matters, including, without limitation,
solid waste disposal, toxic substances, hazardous substances, hazardous
materials, hazardous waste, toxic chemicals, pollutants, contaminants,
and air or water pollution and to the storage, use, handling,
transportation, discharge and disposal (including spills and leaks) of
gaseous, liquid, semi-solid or solid materials (all terms pertaining to
Environmental Laws not defined in this Agreement shall have the
meanings ascribed thereto in the respective Environmental Laws);
ERISA means the Employee Retirement Income Security Act of 1974 (P.L.
93-406) as amended from time to time; and in the event of any amendment
affecting any section thereof referred to in this Agreement, that
reference shall be a reference to that section as amended,
supplemented, replaced or otherwise modified;
Financial Statements means the financial statements of the Companies
described in Section XVI(g);
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Funded Indebtedness of a Person shall mean, without duplication:
(a) all Indebtedness for Borrowed Money of such Person and all
other obligations of such Person for the deferred purchase price of
property or services (including, without limitation, all obligations
contingent or otherwise of such Person in connection with acceptance,
letter of credit or similar facilities and in connection with any
agreement to purchase, redeem or otherwise acquire for value any
capital stock of such Person, or agreement to purchase, redeem or
otherwise acquire for value any rights or options to acquire such
capital stock, now or hereafter outstanding);
(b) all indebtedness created or arising under any sale and
leaseback arrangement, conditional sale or other title retention
agreement with respect to property owned or acquired by such Person
(whether or not the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or
sale of such property);
(c) All obligations secured by a Lien on property owned by
such Person (whether or not assumed) (without regard to any limitation
of the rights and remedies of the holder of such Lien or the lessor
under any lease to repossession or sale of such property), excluding
the State Loan and the Port Authority Lease; and
(d) All obligations of such Person under a product financing
or similar arrangement described in paragraph 8 of FASB Statement of
Accounting Standards No. 49 or any similar requirement of GAAP;
GAAP means generally accepted accounting principles applied in a manner
consistent with those used in the Financial Statements;
Guarantor means any Person that is liable for any Contingent
Obligation; and Guaranty or guaranty means the obligation of a
Guarantor; provided, however, that the amount of any Guaranty shall be
deemed to be equal to the outstanding amount of the obligation that is
guaranteed thereby or such lesser amount to which the maximum exposure
of the Guarantor may be contractually limited in writing;
Indebtedness for Borrowed Money of a Person shall mean at any time, all
indebtedness required by GAAP to be reflected as indebtedness on such
Person's balance sheet, including as appropriate, all indebtedness (i)
in respect of any money borrowed; (ii) under or in respect of any
Guaranty (whether direct or indirect) of any money borrowed; (iii)
evidenced by any loan or credit agreement, promissory note, debenture,
bond, or other similar written obligation for borrowed money or (iv)
arising under any lease that is, or is required under GAAP to be,
capitalized on the balance sheet of such Person at such time, and any
obligations of such Person under any Synthetic Lease;
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Insolvency Action means either (a) a pleading of any kind filed by the
person, corporation or entity (an "insolvent") in question to seek
relief from the insolvent's creditors, or filed by the insolvent's
creditors or any thereof to seek relief of any kind against that
insolvent, in any court or other tribunal pursuant to any law (whether
federal, state or other) relating generally to the rights of creditors
or the relief of debtors or both, or (b) any other action of any kind
commenced by an insolvent or the insolvent's creditors or any thereof
for the purpose of marshalling the insolvent's assets and liabilities
for the benefit of the insolvent's creditors; and "Insolvency Action"
includes (without limitation) a petition commencing a case pursuant to
any chapter of the federal bankruptcy code, any application for the
appointment of a receiver, trustee, liquidator or custodian for the
insolvent or any substantial part of the insolvent's assets, and any
assignment by an insolvent for the general benefit of the insolvent's
creditors;
Interest Expense means, for any period, with respect to Lessee and its
Subsidiaries, the aggregate amount of interest expense for such period
on the aggregate principal amount of any Funded Indebtedness, including
capitalized interest, as determined on a consolidated basis in
accordance with GAAP;
Material means material as determined by Lessor in its reasonable
exercise of its discretion;
Maximum Acquisition Cost means with respect to the aggregate
Acquisition Cost of the Equipment under all of the Schedules,
$56,080,000;
Moody's means Moody's Investors Service, Inc., and its successors and
assigns;
Net Income means net income as determined on a consolidated basis in
accordance with GAAP, after taxes and after extraordinary items, but
without giving effect to any gain from any re-appraisal or write-up of
any asset;
Pension Plan means a defined benefit plan (as defined in section 3(35)
of ERISA) of the Companies or any thereof and includes, without
limitation, any such plan that is a multi-employer plan (as defined in
section 3(37) of ERISA) applicable to any of the Companies' employees;
Person or persons means any individual, corporation, company, entity,
partnership, joint venture, association, joint stock company, trust,
trustee(s) of a trust, unincorporated organization, or governmental
authority or agency;
Port Authority Bonds means the Taxable Project Development Revenue
Bonds, Series 1996 (Brush Wellman Inc. Project) issued, sold and
delivered by the Toledo-Lucas County Port Authority to The Prudential
Insurance Company of America in the principal amount of $13,100,000;
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Port Authority Lease means the Lease, dated as of October 1, 1996,
between the Toledo-Lucas County Port Authority, as lessor, and Lessee,
as lessee, relating to certain real and personal property located at
the Elmore Project;
Potential Default means an event, condition or thing which constitutes,
or which with the lapse of any applicable grace period or the giving of
notice or both would constitute, a Default referred to in Section XI
and which has not been appropriately waived in writing in accordance
with this Agreement or fully corrected, prior to becoming an actual
Default, to the full satisfaction of Lessor;
Purchase Order means any and all purchase orders, agreements, documents
or other writings that evidence or otherwise relate to the purchase of
any item of Equipment;
Receivable means a claim for money due or to become due, whether
classified as an account, instrument, chattel paper, general
intangible, incorporeal hereditament or otherwise, and any proceeds of
the foregoing;
Reportable Event has the meaning ascribed thereto by ERISA;
Standard & Poor's means Standard & Poor's Rating Service, a Division of
The McGraw-Hill Companies, Inc., and its successors and assigns;
State Loan means the Taxable State of Ohio Revenue Note (Brush Wellman
Inc. Project) (the "Note") in the principal amount of $5,000,000
issued, sold and delivered by the Toledo-Lucas County Port Authority to
the Director of Development of the State of Ohio pursuant to the Loan
Agreement, dated as of October 1, 1996, between those Persons;
Subsidiary means a corporation or other business entity of which shares
constituting a majority of its outstanding capital stock (or other form
of ownership) or constituting a majority of the voting power in any
election of directors (or shares constituting both majorities) are (or
upon the exercise of any outstanding warrants, options or other rights
would be) owned directly or indirectly at the time in question by the
corporation in question or another "subsidiary" of that corporation or
any combination of the foregoing;
Synthetic Lease means any lease that is considered a financing for
federal income tax purposes, but is considered an operating lease for
purposes of GAAP, including, without limitation, this Lease;
Tangible Net Worth means (a) book net worth, less (b) such assets of
the Companies, on a consolidated basis, as consist of good will, costs
of businesses over net assets acquired, patents, copyrights,
trademarks, mailing lists, catalogues, bond discount, underwriting
expense, organizational expenses and intangibles
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(except that intangibles such as treasury stock which shall have
already been deducted from book net worth shall not be deducted
again), all as determined on a consolidated basis in accordance with
GAAP; and
Vendor means the manufacturer or other seller of any item of
Equipment.
The foregoing definitions shall be applicable to the respective plurals of the
foregoing defined terms.
(c) The following terms are defined in the text of this Agreement
where indicated:
Affiliate has the meaning set forth in Section XII(d).
Assignment of Purchase Orders has the meaning set forth in Section
XXVI(a)(viii), or means an Assignment of Purchase Orders otherwise
attached to any Schedule, or means both, as the context may require.
Break Amount has the meaning set forth in Section VII(b).
Casualty Insurance has the meaning set forth in Section IX.
Casualty Occurrence has the meaning set forth in Section VII.
Collateral has the meaning set forth in Section XVII(b)
Default has the meaning set forth in Section XI.
Disbursement Commencement Date has the meaning set forth in Section
II(b).
Disbursement Equipment has the meaning set forth in Section I.
Disbursement Funding Notice has the meaning set forth in Section
XXVI(b).
Disbursement Schedule has the meaning set forth in Section I.
Documents has the meaning set forth in Section XVI(a)
Equipment has the meaning set forth in Section I.
Equipment Schedule has the meaning set forth in Section I.
Excluded Disbursement Equipment has the meaning set forth in Section
I(c).
Excluded Disbursement Equipment Payment has the meaning set forth in
Section I(e).
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Inventory has the meaning set forth in Section XVII(b).
Leverage Multiplier has the meaning set forth in Section XXIII(b).
Lien has the meaning set forth in Section IV(a).
Participant has the meaning set forth in Section XII(c).
Payment Date has the meaning set forth in Section VII.
Permitted Liens has the meaning set forth in Section V(c).
Rent has the meaning set forth in Section II(b).
Replacement Item has the meaning set forth in Section V(d).
Required Multiplier has the meaning set forth in Section XXIII(d).
Schedule has the meaning set forth in Section I.
Sublease has the meaning set forth in Section XII(a).
Substituted Item has the meaning set forth in Section V(d).
Syndication has the meaning set forth in Section XII(c).
Taxes has the meaning set forth in Section III(b).
Term has the meaning set forth in Section II(a).
Termination Date has the meaning set forth in Section XXII.
Treasury Yield has the meaning set forth in Section VII(b).
XXVI. CONDITIONS TO FUNDING
(a) Lessor shall have no obligation to make the initial disbursement
for the Acquisition Cost for any Equipment or any Disbursement Equipment unless
each of the following conditions is fulfilled to the satisfaction of Lessor:
(i) Lessor shall have received a written opinion of counsel to
Lessee dated the date of such initial disbursement, in form and
substance satisfactory to Lessor;
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(ii) Lessor shall have received: (1) a copy of Lessee's
articles of incorporation, certified by the Secretary of State of the
State of Ohio, no earlier than the tenth (10th) day prior to the date
of such initial disbursement, and Code of Regulations accompanied by a
Secretary's or Assistant Secretary's certificate, dated the date of
such initial disbursement stating that such articles of incorporation
and Code of Regulations are in full force and effect and have not been
amended since the date thereof; (2) a certificate of good standing from
the Secretary of State of the State of Ohio, dated no earlier than the
tenth (10th) day prior to the applicable date, with respect to Lessee;
and (3) a copy of resolutions of Lessee's board of directors
authorizing the execution, delivery and performance by Lessee of this
Lease and all other transactions herein contemplated and each of the
documents, instruments and agreements required or contemplated hereby
or thereby to which it is or will be a party, accompanied by a
Secretary's or Assistant Secretary's certificate of Lessee dated such
applicable date (A) stating that each of such resolutions are in full
force and effect and has not been amended since the date of their
adoption and (B) certifying as to the incumbency and specimen
signatures of the officers of Lessee, who are authorized to execute and
deliver on behalf of Lessee this Lease and the documents, instruments
and agreements contemplated hereby or thereby, as applicable;
(iii) Lessor shall have received a certificate from the chief
executive officer or chief financial officer of Lessee to the effect
that the representations and warranties of Lessee contained herein and
in any certificate of Lessee delivered pursuant hereto are true and
correct on and as of such date with the same effect as though made on
and as of such date and that no Default or Potential Default shall have
occurred;
(iv) Lessor shall have received certificates of insurance,
loss payable endorsements and other evidence that Lessee has complied
with the provisions of Section IX;
(v) Lessor shall have received evidence satisfactory to it
that appropriate instruments have been filed in all jurisdictions
necessary to perfect properly the security interest in the Equipment
and other Collateral created by this Lease including, without
limitation, Section XVII(b) (including financing statements and fixture
filings under the Uniform Commercial Code naming Lessee as debtor and
naming B.W. Alloy, Ltd. as debtor), subject to no recorded Liens with
respect to the Equipment (other than those Liens created by Lessor) and
such other collateral in such jurisdictions;
(vi) Lessor shall have received an Agreement from the
Toledo-Lucas County Port Authority and a Mortgagee's Agreement from
National City Bank, as trustee, and The Prudential Life Insurance
Company of America and a Mortgagee's Agreement from the Director of
Development of the State of Ohio, which
46
<PAGE> 50
agreements, among other matters, waive any lien or security interest
in the Equipment, all in form and substance satisfactory to Lessor;
(vii) Each of the applicable Documents shall have been
executed and delivered and shall be in full force and effect according
to its respective terms and all fees due and payable to Lessor have
been paid;
(viii) Lessor shall have received a signed Assignment of
Purchase Orders in substantially the form of Exhibit 6 hereto (the
"ASSIGNMENT OF PURCHASE ORDERS") from B.W. Alloy, Ltd. and Lessee; and
(ix) Lessor shall have received such other documents,
opinions, certificates and waivers, in form and substance satisfactory
to Lessor, as Lessor may reasonably require.
(b) Lessor shall have no obligation to make a disbursement for the
Acquisition Cost for any item of Disbursement Equipment or Equipment unless the
conditions set forth in (a) above and each of the following conditions is
fulfilled to the satisfaction of Lessor:
(i) No Default or Potential Default has occurred;
(ii) All representations and warranties of Lessee are true and
correct, including the representations and warranties set forth in the
applicable Schedule, as of the date thereof as though made on that
date, and there has been no Material adverse change in the financial
condition, properties or business of Lessee;
(iii) Such item constitutes part of the Equipment described on
Exhibit 4 hereto, is free from damage and free of all Liens, other than
any Lien specifically excepted in Section V(c);
(iv) The disbursement date is not later than the Last Delivery
Date, and if any part of that disbursement will constitute the final
payment for an item of equipment that has been accepted by Lessee,
Lessor has received a Certificate of Acceptance executed and delivered
by Lessee relating to that equipment;
(v) The Acquisition Cost of such item, when added to the
aggregate Acquisition Cost of all other Disbursement Equipment and
Equipment disbursed under this Agreement shall not exceed the Maximum
Acquisition Cost;
(vi) Lessor has received an appropriate Disbursement Schedule
for such item of Disbursement Equipment, in form and substance
satisfactory to Lessor, duly executed by Lessee, and which is covered
by the fully signed Assignment of Purchase Orders, which assignment has
been consented to by the Vendor of that
47
<PAGE> 51
Equipment in a form reasonably satisfactory to Lessor, together with a
copy of the Purchase Order or Purchase Orders relating to that
Disbursement Equipment;
(vii) All licenses, registrations, permits, consents and
approvals required by federal, state or local laws or by any
governmental authority or instrumentality in connection with Lessor's
ownership of, and the delivery, acquisition, installation, use and
operation of, such Equipment or Disbursement Equipment that are
receivable on the proposed date of disbursement and that are necessary
at the stage of installation, use or operation of the Equipment on that
date shall have been obtained to the satisfaction of Lessor, and Lessee
knows of no reason why any permits, consents or approvals not
receivable or not necessary on that date will not be issued when
receivable and necessary; and
(viii) Lessor shall have received a fully executed
Disbursement Funding Notice in the form of Exhibit 5 (each being a
"DISBURSEMENT FUNDING NOTICE") with respect to such Disbursement
Equipment or Equipment not later than ten (10) Business Days prior to
the proposed date of the disbursement with the amount to be disbursed
in respect of any Disbursement Funding Notice not being less than one
million dollars ($1,000,000); provided that (A) the day of the
disbursement shall occur on a Business Day that is not later than the
Last Delivery Date, and (B) such Disbursement Funding Notice shall
specify the proposed date of the disbursement, the aggregate
Acquisition Cost to be funded on such date and the list of Disbursement
Equipment or Equipment to be funded by Lessor on such date, and is
accompanied by invoices supporting the Acquisition Cost of the
Disbursement Equipment or Equipment designated in such Disbursement
Funding Notice.
Lessor may not submit more than one (1) Disbursement Funding Notice during each
calendar month.
(c) On or prior to the Basic Term Commencement Date, Lessor shall have
received a written opinion of counsel to Lessee dated the date of the Basic Term
Commencement Date, in form and substance reasonably satisfactory to Lessor and
at Lessee's expense, to the effect that the Equipment Schedule dated as of that
date has been executed and delivered by a duly authorized officer of Lessee and
constitutes the legal, valid and binding obligation of Lessee, enforceable
against Lessee in accordance with its terms.
48
<PAGE> 52
IN WITNESS WHEREOF, Lessee and Lessor have caused this Master Lease
Agreement to be executed by their duly authorized representatives as of the date
first above written.
LESSOR: LESSEE:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR
CERTAIN PARTICIPANTS
By: By:
Name: Name:
Title: Title:
49
<PAGE> 53
EXHIBIT NO. 1
DISBURSEMENT SCHEDULE
SCHEDULE NO. ______
DATED THIS ________ DAY OF _____________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
Lessor & Mailing Address: Lessee & Mailing Address:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR 17876 St. Clair Avenue
CERTAIN PARTICIPANTS Cleveland, Ohio 44110
1900 East 9th Street
Cleveland, Ohio 44114
This Disbursement Schedule is executed pursuant to, and incorporates by
reference the terms and conditions of, and capitalized terms not defined herein
shall have the meanings assigned to them in, the Master Lease Agreement
identified above ("Agreement;" said Agreement and this Schedule being
collectively referred to as "Lease"). This Disbursement Schedule, incorporating
by reference the Agreement, constitutes a separate instrument of lease.
A. Disbursement Equipment.
Pursuant to the terms of the Lease, Lessor agrees to fund disbursements
in respect of the Disbursement Equipment listed on Annex A attached hereto and
made a part hereof.
B. Financial Terms.
1. Capitalized Lessor's Cost: $
----------------------------
(on the date of this Schedule)
2. Daily Lease Rate Factor: LIBOR Rate plus sixty (60) basis
points per annum
3. Basic Term: The three-year period commencing on the Basic
Term Commencement Date
4. Basic Term Commencement Date: The earlier of (a) the date
that Lessee designates as the Basic Term Commencement Date
in a written notice to Lessor, or (b) December 15, 1998.
1
<PAGE> 54
5. Equipment Location: Lessee's plant at 14710 W. Portage River
South Road, Harris Township, Ottawa County, Ohio 43416.
6. Lessee Federal Tax ID No.: 34-0119320
7. Maximum Lease Term: The Term shall not exceed twelve (12)
years.
8. Last Delivery Date: The earlier of November 15, 1998 or the
Basic Term Commencement Date.
C. Interim Term and Interim Rent.
1. Interim Rent. For the period from and including the Disbursement
Commencement Date to the Basic Term Commencement Date ("Interim Lease Term"),
rent ("Interim Rent") shall accrue on the Capitalized Lessor's Cost in an amount
equal to the product of the Daily Lease Rate Factor times the Capitalized
Lessor's Cost of the Disbursement Equipment times the number of days in the
Interim Interest Period. Interest shall be calculated on the basis of a 360 day
year for the actual number of days elapsed. Interim Rent shall accrue during
each Interim Interest Period and, at the end of each Interim Interest Period,
shall be added to and become part of the Lessor's Capitalized Cost outstanding
under this Disbursement Schedule, unless otherwise paid as provided in the
Agreement.
2. Disbursement Equipment. Lessee represents, warrants and
covenants as follows with respect to the Disbursement Equipment listed on Annex
A attached hereto:
(i) To the best of its knowledge, the Disbursement
Equipment will be completed, shipped and delivered to
Lessee, and installed at the Equipment Location on or
prior to the Last Delivery Date;
(ii) Each item of Disbursement Equipment constitutes a
portion or unit of the Equipment described on Annex A
attached hereto; and
(iii) The Purchase Order or Purchase Orders relating to
that Disbursement Equipment require the disbursement
of funds in an amount equal to the Capitalized
Lessor's Cost, and Lessee has received invoices for
those funds.
As used in this Schedule, the following terms shall have the following
meanings:
"Interim Interest Period" or "Interest Period" shall mean the period
beginning on the date of this Schedule and ending on the same day of each month
thereafter during the Interim Lease Term.
2
<PAGE> 55
"Interest Rate" shall mean that percentage per annum calculated as the
sum of the LIBOR Rate redetermined monthly, plus sixty (60) basis points.
"LIBOR Rate" shall mean, with respect to any Interim Interest Period
occurring during the term of the Lease, an interest rate per annum equal at all
times during such Interim Interest Period to the quotient of (1) the rate per
annum as determined by Lessor at which deposits of U.S. Dollars in immediately
available and freely transferable funds are offered at 11:00 a.m. (London,
England time) two (2) Business Days before the commencement of such Interim
Interest Period to major banks in the London interbank market for a period of
one (1) month and in an amount equal or comparable to the Capitalized Lessor's
Cost, divided by (2) a number equal to 1.00 minus the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of the LIBOR Reserve
Requirements current on the date three (3) Business Days prior to the first day
of the Interim Interest Period.
"LIBOR Reserve Requirements" shall mean the daily average for the
applicable Interest Period of the maximum rate applicable to Lessor or its
Participants at which reserves (including, without limitation, any supplemental,
marginal and emergency reserves) are imposed during such Interest Period by the
Board of Governors of the Federal Reserve System (or any successor) on
"Eurocurrency liabilities", as defined in such Board's Regulation D (or in
respect of any other category of liabilities that include deposits by reference
to which the interest rates on Eurodollar loans is determined or any category of
extensions of credit or other assets that include loans by non-United States
offices of any lender to United States residents), having a term equal to such
Interest Period, subject to any amendments of such reserve requirement by such
Board or its successor, taking into account any transitional adjustments
thereto.
If at any time Lessor or any Participant (or, without duplication, the
bank holding company of which such Participant is a subsidiary) determines that
either adequate and reasonable means do not exist for ascertaining the LIBOR
Rate, or it becomes impractical for Lessor or any Participant to obtain funds to
make or maintain the financing hereunder with interest at the LIBOR Rate, or
Lessor or any Participant reasonably determines that, as a result of changes to
applicable law after the date of execution of the Agreement, or the adoption or
making after such date of any interpretations, directives or regulations
(whether or not having the force of law) by any court, governmental authority or
reserve bank charged with the interpretation or administration thereof, it shall
be or become unlawful or impossible to make, maintain, or fund the transaction
hereunder at the LIBOR Rate, then Lessor promptly shall give notice to Lessee of
such determination and Lessor and Lessee shall negotiate in good faith a
mutually acceptable alternative method of calculating the Interest Rate and
shall execute and deliver such documents as reasonably may be required to
incorporate such alternative method of calculating the Interest Rate in this
Schedule, within thirty (30) days after the date of Lessor's notice to Lessee.
If the parties are unable mutually to agree to such alternative method of
calculating the Interest Rate in a timely fashion, (a) effective on the
commencement of the next succeeding Interest Period or the date that it becomes
impractical for Lessor or any Participant to maintain the financing
3
<PAGE> 56
hereunder with interest at the LIBOR Rate as aforesaid, as the case may be, the
Interest Rate shall become a floating rate equal to the Federal Funds Rate plus
sixty (60) basis points, and (b) on the Rent Payment Date next succeeding the
expiration of such thirty (30) day period Lessee shall purchase all (but not
less than all) of the Disbursement Equipment described on all Disbursement
Schedules executed pursuant to the Agreement and shall pay to Lessor, in cash,
the purchase price for the Disbursement Equipment so purchased, determined as
hereinafter provided. (As used herein, "Federal Funds Rate" means the rate of
interest, as reasonably determined by Lessor, paid by or available to Lessor for
the purchase of "federal funds" at the time or times in question on a daily
overnight basis.) The purchase price of the Disbursement Equipment shall be an
amount equal to all amounts disbursed by Lessor in respect of that Disbursement
Equipment, together with all rent and other sums then due on such date, plus all
taxes and charges upon sale and all other reasonable and documented expenses
incurred by Lessor in connection with such sale. Upon satisfaction of the
conditions specified in this Paragraph, Lessor will transfer, on an AS IS, WHERE
IS BASIS, all of Lessor's interest in and to the Disbursement Equipment. Lessor
shall not be required to make and may specifically disclaim any representation
or warranty as to the condition of the Disbursement Equipment and other matters
(except that Lessor shall warrant that it conveyed whatever interest it received
in such Disbursement Equipment free and clear of any Lien created by Lessor).
Lessor shall execute and deliver to Lessee such Uniform Commercial Code
statements of termination as reasonably may be required in order to terminate
any interest of Lessor in and to the Disbursement Equipment.
3. Lessee shall pay to Lessor, for the account of each Participant,
from time to time, the amounts as such Participant may determine to be necessary
to compensate it for any costs which such Participant determines are
attributable to its making or maintaining its interest in the Lease and the
Disbursement Equipment (the "Interest") or any reduction in any amount
receivable by such Participant in respect of any such Interest (such increases
in costs and reductions in amounts receivable being herein called "Additional
Costs"), resulting from any Regulatory Change (as defined below) which:
(i) changes the basis of taxation of any amounts payable to
Lessor for the account of such Participant in respect of such Interest
(other than taxes imposed on or measured by the overall net income of
such Participant in respect of the interest by the jurisdiction in
which such Participant has its principal office or its lending office);
or
(ii) imposes or modifies any reserve, special deposit or
similar requirements relating to any extensions of credit or other
assets of, or any deposits with or other liabilities of, such
Participant; or
(iii) imposes any other condition affecting this Lease or
any Interest.
For purposes hereof, "Regulatory Change" shall mean any change after the date of
this Lease in United States federal, state or foreign law or regulations
(including, without limitation, Regulation D of the Board of Governors of the
Federal Reserve System (or any
4
<PAGE> 57
successor), as amended or supplemented from time to time) or the adoption or
making after such date of any interpretation, directive or request applying to a
class of banks including any Participant or under any United States federal,
state or foreign law and whether or not failure to comply therewith would be
unlawful) by any court or governmental or monetary authority charged with the
interpretation or administration thereof. In addition, whenever Lessee shall
revoke any Disbursement Funding Notice or shall for any other reason fail to
take a disbursement pursuant thereto or shall fail otherwise to comply
therewith, then, in each case on the demand of Lessor or any Participant, Lessee
shall pay that Person such amount as will compensate it for any loss, cost or
loss of profit incurred by it by reason of its liquidation or reemployment of
deposits or other funds.
Without limiting the effect of the foregoing Paragraph (but without
duplication), Lessee shall pay to Lessor, for the account of each Participant,
from time to time on request such amounts as such Participant may determine to
be necessary to compensate such Participant (or, without duplication, the bank
holding company of which such Participant is a subsidiary) for any costs which
it determines are attributable to the maintenance by such Participant (or any
lending office or such bank holding company), pursuant to any law or regulation
or any interpretation, directive or request (whether or not having the force of
law) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or
requirement (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) heretofore or hereafter issued by
any government or governmental or supervisory authority implementing at the
national level the Basle Accord (including, without limitation, the Final
Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the
Final Risk-Based Capital Guidelines of the Office of the Comptroller of the
Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of such
Participant's Interest (such compensation to include, without limitation, an
amount equal to any reduction of the rate of return on assets or equity of such
Participant (or any lending office or bank holding company) to a level below
that which such Participant (or any lending office or bank holding company)
could have achieved but for such law, regulation, interpretation, directive or
request). For purposes of this Paragraph, "Basle Accord" shall mean the
proposals for risk-based capital framework described by the Basle Committee on
Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.
Each Participant shall notify Lessee of any event occurring after the
date of this Lease that will entitle such Participant to compensation under the
preceding two Paragraphs as promptly as practicable, but in any event within
thirty (30) days, after such Participant obtains actual knowledge thereof;
provided, that (i) if such Participant fails to give such notice within thirty
(30) days after it obtains actual knowledge of such an event, such Participant
shall, with respect to compensation payable pursuant to the preceding two
Paragraphs in respect of any costs resulting from such event, only be entitled
to payment under the referenced Paragraphs for costs incurred from and after the
date thirty (30) days
5
<PAGE> 58
prior to the date that such Participant does give such notice, and (ii) such
Participant will designate a different lending office for the Interest if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the sole opinion of such Participant, be disadvantageous to
such Participant. Each Participant will furnish to Lessee a certificate setting
forth the basis and amount of each request by such Participant for compensation
under the preceding two Paragraphs. Determinations and allocations by each
Participant for purposes of the preceding two Paragraphs shall be conclusive,
absent manifest error.
D. Insurance.
1. Public Liability: $1,000,000 total liability per occurrence and
$2,000,000 in the aggregate, with excess liability in umbrella form of
$10,000,000 per occurrence and in the aggregate, with a maximum deductible
amount of (a) $1,500,000 per occurrence or (b) an amount equal to $1,500,000 per
occurrence plus the amount of any reserves specifically allocated by Lessee for
this type of liability that are satisfactory to Lessor, but in no event greater
than $2,500,000 per occurrence.
2. Casualty and Property Damage: An amount equal to the higher of the
full replacement cost of each unit of Disbursement Equipment or the amounts
disbursed by Lessor in respect of each unit of Disbursement Equipment, with a
maximum deductible amount of $1,000,000 per occurrence.
This Schedule is not binding or effective with respect to the Agreement
or Equipment until executed on behalf of Lessor and Lessee by an authorized
representative of Lessor and Lessee, respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR
CERTAIN PARTICIPANTS
By: By:
Name: Name:
Title: Title:
<PAGE> 59
ANNEX A
TO
DISBURSEMENT SCHEDULE NO. ______
DATED THIS ______ DAY OF ______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
DESCRIPTION OF DISBURSEMENT EQUIPMENT
Type and
Serial Model of Number Cost per
Vendor Numbers Equipment of Units Unit
Initials:
-------------- -----------
Lessor Lessee
1
<PAGE> 60
EXHIBIT NO. 2
EQUIPMENT SCHEDULE
SCHEDULE NO. ______
DATED THIS ________ DAY OF _____________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
Lessor & Mailing Address: Lessee & Mailing Address:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR 17876 St. Clair Avenue
CERTAIN PARTICIPANTS Cleveland, Ohio 44110
1900 East 9th Street
Cleveland, Ohio 44114
This Equipment Schedule is executed pursuant to, and incorporates by reference
the terms and conditions of, and capitalized terms not defined herein shall have
the meanings assigned to them in, the Master Lease Agreement identified above
("Agreement;" said Agreement and this Schedule being collectively referred to as
"Lease"). This Equipment Schedule, incorporating by reference the Agreement,
constitutes a separate instrument of lease.
A. Equipment.
Pursuant to the terms of the Lease, Lessor agrees to acquire and lease
to Lessee the Equipment listed on Annex A attached hereto and made a part
hereof.
B. Financial Terms.
1. Capitalized Lessor's Cost: $
------------------------------
(being an amount equal to funds disbursed and Interim
Rent accrued and unpaid in respect of the Equipment and its
parts and components during the Interim Lease Period)
2. Daily Lease Rate Factor: LIBOR Rate plus sixty (60) basis
points per annum
3. Basic Term: The three-year period commencing on the Basic
Term Commencement Date
1
<PAGE> 61
4. Basic Term Commencement Date: The earlier of (a) the date that Lessee
designates as the Basic Term Commencement Date in a written notice to
Lessor, or (b) December 15, 1998.
5. Equipment Location: Lessee's plant in 14710 W. Portage River South
Road, Harris Township, Ottawa County, Ohio 43416.
6. Lessee Federal Tax ID No.: 34-0119320
7. Lessee agrees and acknowledges that the Capitalized Lessor's Cost of
the Equipment as stated on the Schedule is equal to the fair market
value of the Equipment on the date hereof.
8. Renewal Term: Each Renewal Term will consist of a one-year period, and
subject to Section XVIII(b), Lessee may elect up to seven (7) Renewal
Terms.
9. Maximum Lease Term: The Term shall not exceed twelve (12) years.
10. Stipulated Loss Values: See Annex D.
11. Termination Values: See Annex D.
12. Assumed Interest Rate: __________% (which will be determined three (3)
Business Days before the date of execution of this Schedule).
13. Last Delivery Date: The earlier of November 15, 1998 or the Basic Term
Commencement Date.
C. Term and Rent.
1. Basic Term and Renewal Term Rent. Commencing on the Basic Term
Commencement Date and payable, in arrears, on the same day of each quarter
thereafter (each, a "Rent Payment Date") during the Basic Term ("Basic Term
Rent") and any Renewal Term ("Renewal Term Rent"), Lessee shall pay as Rent
quarterly installments of (a) interest on the unamortized portion of the unpaid
Capitalized Lessor's Cost as of the immediately preceding Rent Payment Date
(after application of the Rent paid on such date) at the Interest Rate for the
Interest Period following such immediately preceding Rent Payment Date and (b)
of principal in the principal amounts described on the Amortization Schedule
attached as Annex E. Interest shall be calculated on the basis of a 360 day year
for the actual number of days elapsed. Said Rent consists of principal and
interest components, such principal components being as provided in the
Amortization Schedule attached hereto as Annex E.
As used herein, the following terms shall have the following meanings:
2
<PAGE> 62
"Interest Period" shall mean the period beginning on the Basic Term
Commencement Date and ending on the next Rent Payment Date, and each subsequent
quarterly period.
"Interest Rate" shall mean that percentage per annum calculated as the
sum of the LIBOR Rate redetermined quarterly, plus sixty (60) basis points.
"LIBOR Rate" shall mean, with respect to any Interest Period occurring
during the term of the Lease, an interest rate per annum equal at all times
during such Interest Period to the quotient of (1) the rate per annum as
determined by Lessor at which deposits of U.S. Dollars in immediately available
and freely transferable funds are offered at 11:00 a.m. (London, England time)
two (2) Business Days before the commencement of such Interest Period to major
banks in the London interbank market for a period of three (3) months and in an
amount equal or comparable to the Capitalized Lessor's Cost, divided by (2) a
number equal to 1.00 minus the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of the LIBOR Reserve Requirements current on
the date three (3) Business Days prior to the first day of the Interest Period.
"LIBOR Reserve Requirements" shall mean the daily average for the
applicable Interest Period of the maximum rate applicable to Lessor or its
Participants at which reserves (including, without limitation, any supplemental,
marginal and emergency reserves) are imposed during such Interest Period by the
Board of Governors of the Federal Reserve System (or any successor) on
"Eurocurrency liabilities", as defined in such Board's Regulation D (or in
respect of any other category of liabilities that include deposits by reference
to which the interest rates on Eurodollar loans is determined or any category of
extensions of credit or other assets that include loans by non-United States
offices of any lender to United States residents), having a term equal to such
Interest Period, subject to any amendments of such reserve requirement by such
Board or its successor, taking into account any transitional adjustments
thereto.
If at any time Lessor or any Participant (or, without duplication, the
bank holding company of which such Participant is a subsidiary) determines that
either adequate and reasonable means do not exist for ascertaining the LIBOR
Rate, or it becomes impractical for Lessor or any Participant to obtain funds to
make or maintain the financing hereunder with interest at the LIBOR Rate, or
Lessor or any Participant reasonably determines that, as a result of changes to
applicable law after the date of execution of the Agreement, or the adoption or
making after such date of any interpretations, directives or regulations
(whether or not having the force of law) by any court, governmental authority or
reserve bank charged with the interpretation or administration thereof, it shall
be or become unlawful or impossible to make, maintain, or fund the transaction
hereunder at the LIBOR Rate, then Lessor promptly shall give notice to Lessee of
such determination and Lessor and Lessee shall negotiate in good faith a
mutually acceptable alternative method of calculating the Interest Rate and
shall execute and deliver such documents as reasonably may be required to
incorporate such alternative method of calculating the Interest Rate in this
Schedule, within thirty (30) days after the date of Lessor's notice to Lessee.
If the parties
3
<PAGE> 63
are unable mutually to agree to such alternative method of calculating the
Interest Rate in a timely fashion, (a) effective on the commencement of the next
succeeding Interest Period or the date that it becomes impractical for Lessor or
any Participant to maintain the financing hereunder with interest at the LIBOR
Rate as aforesaid, as case may be, the Interest Rate shall become a floating
rate equal to the Federal Funds Rate plus sixty (60) basis points, and (b) on
the Rent Payment Date next succeeding the expiration of such thirty (30) day
period Lessee shall purchase all (but not less than all) of the Equipment
described on all Schedules executed pursuant to the Agreement and shall pay to
Lessor, in cash, the purchase price for the Equipment so purchased, determined
as hereinafter provided. (As used herein, "Federal Funds Rate" means the rate of
interest, as reasonably determined by Lessor, paid by or available to Lessor for
the purchase of "federal funds" at the time or times in question on a daily
overnight basis.) The purchase price of the Equipment shall be an amount equal
to the Stipulated Loss Value of such Equipment calculated in accordance with
Annex D as of the date of payment, together with all rent and other sums then
due on such date, plus all taxes and charges upon sale and all other reasonable
and documented expenses incurred by Lessor in connection with such sale. Upon
satisfaction of the conditions specified in this Paragraph, Lessor will
transfer, on an AS IS, WHERE IS BASIS, all of Lessor's interest in and to the
Equipment. Lessor shall not be required to make and may specifically disclaim
any representation or warranty as to the condition of the Equipment and other
matters (except that Lessor shall warrant that it conveyed whatever interest it
received in such Equipment free and clear of any Lien created by Lessor). Lessor
shall execute and deliver to Lessee such Uniform Commercial Code statements of
termination as reasonably may be required in order to terminate any interest of
Lessor in and to the Equipment.
2. If the Rent Payment Date or any Rent Payment Date is not a Business
Day, the Rent otherwise due on such date shall be payable on the immediately
preceding Business Day.
3. Lessee shall pay to Lessor, for the account of each Participant,
from time to time the amounts as such Participant may determine to be necessary
to compensate it for any costs which such Participant determines are
attributable to its making or maintaining its interest in the Lease and the
Equipment (the "Interest") or any reduction in any amount receivable by such
Participant in respect of any such Interest (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"),
resulting from any Regulatory Change (as defined below) which:
(i) changes the basis of taxation of any amounts payable to
Lessor for the account of such Participant in respect of such Interest
(other than taxes imposed on or measured by the overall net income of
such Participant in respect of the interest by the jurisdiction in
which such Participant has its principal office or its lending office);
or
4
<PAGE> 64
(ii) imposes or modifies any reserve, special deposit or
similar requirements relating to any extensions of credit or other
assets of, or any deposits with or other liabilities of, such
Participant; or
(iii) imposes any other condition affecting this Lease or
any Interest.
For purposes hereof, "Regulatory Change" shall mean any change after the date of
this Lease in United States federal, state or foreign law or regulations
(including, without limitation, Regulation D of the Board of Governors of the
Federal Reserve System (or any successor), as amended or supplemented from time
to time) or the adoption or making after such date of any interpretation,
directive or request applying to a class of banks including any Participant or
under any United States federal, state or foreign law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
Without limiting the effect of the foregoing Paragraph (but without
duplication), Lessee shall pay to Lessor, for the account of each Participant,
from time to time on request such amounts as such Participant may determine to
be necessary to compensate such Participant (or, without duplication, the bank
holding company of which such Participant is a subsidiary) for any costs which
it determines are attributable to the maintenance by such Participant (or any
lending office or such bank holding company), pursuant to any law or regulation
or any interpretation, directive or request (whether or not having the force of
law) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or
requirement (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) heretofore or hereafter issued by
any government or governmental or supervisory authority implementing at the
national level the Basle Accord (including, without limitation, the Final
Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the
Final Risk-Based Capital Guidelines of the Office of the Comptroller of the
Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of such
Participant's Interest (such compensation to include, without limitation, an
amount equal to any reduction of the rate of return on assets or equity of such
Participant (or any lending office or bank holding company) to a level below
that which such Participant (or any lending office or bank holding company)
could have achieved but for such law, regulation, interpretation, directive or
request). For purposes of this Paragraph, "Basle Accord" shall mean the
proposals for risk-based capital framework described by the Basle Committee on
Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.
Each Participant shall notify Lessee of any event occurring after the
date of this Lease that will entitle such Participant to compensation under the
preceding two Paragraphs as promptly as practicable, but in any event within
thirty (30) days, after such Participant obtains actual knowledge thereof;
provided, that (i) if such Participant fails to
5
<PAGE> 65
give such notice within thirty (30) days after it obtains actual knowledge of
such an event, such Participant shall, with respect to compensation payable
pursuant to the preceding two Paragraphs in respect of any costs resulting from
such event, only be entitled to payment under the referenced Paragraphs for
costs incurred from and after the date thirty (30) days prior to the date that
such Participant does give such notice, and (ii) such Participant will designate
a different lending office for the Interest if such designation will avoid the
need for, or reduce the amount of, such compensation and will not, in the sole
opinion of such Participant, be disadvantageous to such Participant. Each
Participant will furnish to Lessee a certificate setting forth the basis and
amount of each request by such Participant for compensation under the preceding
two Paragraphs. Determinations and allocations by each Participant for purposes
of the preceding two Paragraphs shall be conclusive, absent manifest error.
D. Insurance.
1. Public Liability: $1,000,000 total liability per occurrence and
$2,000,000 in the aggregate, with excess liability in umbrella form of
$10,000,000 per occurrence and in the aggregate, with a maximum deductible
amount of (a) $1,500,000 per occurrence or (b) an amount equal to $1,500,000 per
occurrence plus the amount of any reserves specifically allocated by Lessee for
this type of liability that are satisfactory to Lessor, but in no event greater
than $2,500,000 per occurrence.
2. Casualty and Property Damage: An amount equal to the higher of
the Stipulated Loss Value or the full replacement cost of the Equipment, with a
maximum deductible amount of $1,000,000 per occurrence.
E. Fixed Purchase Price and Residual Risk Amount
<TABLE>
<CAPTION>
Fixed Purchase Price Residual Risk Amount
(Percent of Capitalized (Percent of Capitalized
End of Lessor's Cost) Lessor's Cost)
<S> <C> <C>
Basic Term 100.0000% 12.3800%
Renewal Term 1 92.1681% 10.7393%
Renewal Term 2 83.7655% 9.8982%
Renewal Term 3 74.7508% 8.9959%
Renewal Term 4 64.8705% 8.1000%
Renewal Term 5 54.0542% 6.9760%
Renewal Term 6 42.4499% 5.8051%
Renewal Term 7 30.0000% 4.5588%
</TABLE>
The Fixed Purchase Price and Residual Risk Amount are each expressed as a
percentage of the Capitalized Lessor's Cost of the Equipment.
6
<PAGE> 66
This Schedule is not binding or effective with respect to the Agreement
or Equipment until executed on behalf of Lessor and Lessee by an authorized
representative of Lessor and Lessee, respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR
CERTAIN PARTICIPANTS
By: By:
Name: Name:
Title: Title:
7
<PAGE> 67
ANNEX A
TO
SCHEDULE NO. ______
DATED THIS ______ DAY OF ______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
<TABLE>
<CAPTION>
DESCRIPTION OF EQUIPMENT
<S> <C> <C> <C> <C>
Type and
Serial Model of Number Cost per
Vendor Numbers Equipment of Units Unit
</TABLE>
Initials:
------------- -----------
Lessor Lessee
1
<PAGE> 68
ANNEX B
TO
SCHEDULE NO. ______
DATED THIS ______ DAY OF _______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
ASSIGNMENT OF PURCHASE ORDERS
[See Exhibit No. 6 to Master Lease Agreement]
1
<PAGE> 69
ANNEX C
TO
SCHEDULE NO. ______
DATED THIS _______ DAY OF __________________, 199___
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
CERTIFICATE OF ACCEPTANCE
To: National City Bank,
for Itself and as Agent for Certain Participants
Pursuant to the provisions of the above Schedule and Master Lease
Agreement (collectively, the "LEASE"; capitalized terms used but not defined
herein have the meanings ascribed thereto in the Lease), Lessee hereby certifies
and warrants that (a) all equipment listed in the attached invoice or invoices
(the "Equipment") is in good condition, installed (if applicable), and in
working order; and (b) Lessee accepts the Equipment for all purposes of the
Lease, each Purchase Order relating to the Equipment and all attendant
documents.
Lessee does further certify that as of the date hereof (i) no Default
or Potential Default has occurred; and (ii) the representations and warranties
made by Lessee pursuant to or under the Lease are true and correct on the date
hereof.
BRUSH WELLMAN INC.
By:
Name:
Authorized Representative
Dated: , 199__
---------------------
1
<PAGE> 70
<TABLE>
<CAPTION>
ANNEX D
TO
SCHEDULE NO. _________
DATED THIS ______ DAY OF ______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
STIPULATED LOSS AND TERMINATION VALUE TABLE
NO. OF RENT PAYMENT DATE STIPULATED LOSS AND
(after Basic Term Commencement Date) TERMINATION VALUE*
<S> <C>
1 100.0000%
2 100.0000%
3 100.0000%
4 100.0000%
5 100.0000%
6 100.0000%
7 100.0000%
8 100.0000%
9 100.0000%
10 100.0000%
11 100.0000%
12 100.0000%
13 98.0934%
14 96.1529%
15 94.1780%
16 92.1681%
17 90.1225%
18 88.0407%
19 85.9219%
20 83.7655%
21 81.5709%
22 79.3374%
23 77.0642%
24 74.7508%
25 72.3963%
26 70.0000%
27 67.4578%
28 64.8705%
29 62.2373%
30 59.5574%
31 56.8300%
32 54.0542%
33 51.2292%
34 48.3540%
35 45.4279%
36 42.4499%
37 39.4190%
38 36.3344%
39 33.1950%
40 30.0000%
Initials:
------------ ---------------
Lessor Lessee
<FN>
- - ------------------------
*The Stipulated Loss Value and Termination Value for any unit of
Equipment shall be equal to the Capitalized Lessor's Cost of such unit
multiplied by the appropriate percentage derived from the above table. In the
event that the Lease is for any reason extended, then the last percentage figure
shown above shall control throughout any such extended term.
</TABLE>
<PAGE> 71
ANNEX E
TO
SCHEDULE NO. _________
DATED THIS _____ DAY OF ______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
NO. OF RENT
PAYMENT DATE PERCENT OF PERCENT OF
(after Basic Term PRINCIPAL REMAINING PRINCIPAL
Commencement Date) PAYABLE* BALANCE*
<S> <C> <C> <C>
1 0.0000% 100.0000%
2 0.0000% 100.0000%
3 0.0000% 100.0000%
4 0.0000% 100.0000%
5 0.0000% 100.0000%
6 0.0000% 100.0000%
7 0.0000% 100.0000%
8 0.0000% 100.0000%
9 0.0000% 100.0000%
10 0.0000% 100.0000%
11 0.0000% 100.0000%
12 0.0000% 100.0000%
13 1.9066% 98.0934%
14 1.9405% 96.1529%
15 1.9749% 94.1780%
16 2.0099% 92.1681%
17 2.0456% 90.1225%
18 2.0818% 88.0407%
19 2.1188% 85.9219%
20 2.1564% 83.7655%
21 2.1946% 81.5709%
22 2.2335% 79.3374%
23 2.2732% 77.0642%
24 2.3135% 74.7508%
25 2.3545% 72.3963%
26 2.3963% 70.0000%
27 2.5422% 67.4578%
28 2.5873% 64.8705%
29 2.6332% 62.2373%
30 2.6799% 59.5574%
31 2.7274% 56.8300%
32 2.7758% 54.0542%
33 2.8250% 51.2292%
34 2.8751% 48.3540%
35 2.9261% 45.4279%
36 2.9780% 42.4499%
37 3.0309% 39.4190%
38 3.0846% 36.3344%
39 3.1393% 33.1950%
40 3.1950% 30.0000%
Initials:
------------ -----------
Lessor Lessee
<FN>
- - ------------------------
*The Principal, and the Outstanding Principal Balance as of any Rent
Payment Date payment (assuming the principal payments due on each Rental Payment
Date are paid when due), shall be equal to the Capitalized Lessor's Cost of the
Equipment multiplied by the appropriate percentage derived from the above table.
</TABLE>
<PAGE> 72
ANNEX F
TO
SCHEDULE NO. _________
DATED THIS ______ DAY OF ______________, 199___
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
RETURN PROVISIONS: In addition to the provisions provided for in Section X of
this Lease, and provided that Lessee has elected not to exercise its purchase
option pursuant to Section XVIII(d) of the Lease, Lessee shall, at its expense:
(a) at least one hundred eighty (180) days and not more than three
hundred sixty-five (365) days prior to expiration or earlier termination of the
Lease, provide to Lessor a detailed inventory of all components of the
Equipment. The inventory should include, but not be limited to, a listing of
models and serial numbers for all components comprising the Equipment;
(b) at least one hundred eighty (180) days prior to expiration or
earlier termination of the Lease, upon receiving reasonable notice from Lessor,
provide or cause the vendor(s) or manufacturer(s) to provide to Lessor the
following documents: (i) one set of service manuals, blueprints, process flow
diagrams and operating manuals including replacements and/or additions thereto,
such that all documentation is completely up-to-date; (ii) one set of documents,
detailing Equipment configuration, operating requirements, maintenance records,
and other mechanical data concerning the set-up and operation of the Equipment,
including replacements and/or additions thereto, such that all documentation is
completely up-to-date;
(c) at least one hundred eighty (180) days prior to expiration or
earlier termination of the Lease, upon receiving reasonable notice from Lessor,
make the Equipment available for on-site operational inspections by potential
purchasers, under power, and provide personnel, power and other requirements
necessary to demonstrate electrical and mechanical systems for each item of the
Equipment;
(d) at least ninety (90) days prior to expiration or earlier
termination of the Lease, cause the manufacturer's representative or qualified
equipment maintenance provider, acceptable to Lessor (the "Authorized
Inspector"), to perform a comprehensive physical inspection, including testing
all material and workmanship of the Equipment and if during such inspection,
examination and test, the Authorized Inspector finds any of the material or
workmanship to be defective or the Equipment not operating within the
manufacturer's specifications, then Lessee shall repair or replace such
defective material and, after corrective measures are completed, Lessee will
provide for a follow-up inspection of the Equipment by the Authorized Inspector
as outlined in the preceding Paragraph;
(e) have each item of Equipment returned with an in-depth field service
report detailing said inspection as outlined in Subsection (d) above. The report
shall certify that
1
<PAGE> 73
the Equipment has been properly inspected, examined and tested and is operating
within the manufacturer's specifications;
(f) permit Lessor to videotape the Equipment "under power" at Lessee's
or at any facility where any Equipment is located at a time during normal
working hours mutually agreeable to Lessor and Lessee prior to deinstallation;
(g) have any repairs made to the Equipment in a professional and
workmanlike manner. Any Equipment enhancements or additions will revert to
Lessor upon expiration or earlier termination of the Lease and shall not affect,
in an adverse manner, the Fair Market Value of the Equipment at Lease
expiration. Such additions or enhancements shall be made only with prior written
approval of Lessor (whose approval shall not unreasonably be withheld);
(h) have the Equipment returned in good appearance with adequate
protective coatings over all surfaces as originally painted or coated, and the
Equipment shall be free from rust, and shall be in good, complete working order;
(i) have the Equipment cleaned (including the removal of all beryllium)
and approved by the necessary governmental agencies which regulate the use and
operation of such Equipment so as to be available for immediate use;
(j) properly remove all Lessee installed markings which are not
necessary for the operation, maintenance or repair of the Equipment; and
(k) provide for the deinstallation and packing of the Equipment to
include, but not be limited to, the following: (i) all process fluids shall be
removed from the Equipment and disposed of in accordance with the then current
waste disposal laws and regulations. At no time are materials which could be
considered hazardous waste by any regulatory authority to be shipped with
machinery; (ii) all internal fluids such as lube oil and hydraulic fluid are to
be filled to operating levels; filler caps are to be secured and disconnected
hoses are to be sealed to avoid spillage; (iii) the manufacturer's
representative shall deinstall and match mark all Equipment in accordance with
the specifications of the manufacturer; (iv) the Equipment shall be packed
properly and in accordance with the manufacturer's recommendations; (v) Lessee
shall provide for the transportation of the Equipment in a manner consistent
with the manufacturer's recommendations and practices to any locations within
the United States of America as Lessor shall direct; and shall have the
Equipment unloaded at such locations; and (vi) Lessee shall obtain and pay for a
policy of transit insurance for the redelivery period in an amount equal to the
replacement value of the Equipment, and Lessor shall be named as the loss payee
on all such policies of insurance.
2
<PAGE> 74
EXHIBIT NO. 3
COMPLIANCE CERTIFICATE
-----------, ----
To: National City Bank, for itself and as
Agent for certain Participants
1900 East Ninth Street
Cleveland, Ohio 44114
Subject: Master Lease Agreement, dated as of December 30, 1996, between
National City Bank, for itself and as Agent for certain
Participants, as lessor, and Brush Wellman Inc., as lessee
(the "Lease Agreement")
Greetings:
Pursuant to Section IV(b)(iii) of the Lease Agreement and in
my capacity as the chief financial officer of Brush Wellman Inc., I hereby
certify that to the best of my knowledge and belief (capitalized terms used, but
not defined herein shall have the meanings ascribed thereto in the Lease
Agreement):
1. The financial statements of the Companies accompanying this letter
are true and complete and fairly present in all Material respects their
consolidated financial condition as of _____________________, _____
(the "Closing Date") and the consolidated results of their operations
for the fiscal period then ending,
2. No Default or Potential Default under the Lease Agreement
exists *[except for those which, together with our intentions in
respect thereof, are set forth in Exhibit One to this Certificate],
and
3. As indicated by the calculations below, the Companies are
*[not] in full compliance with Sections XXIII(a) through (d),
inclusive.
[* - In (b) and (c), delete the bracketed language if inapplicable.]
(a) The actual amount of the Companies' Tangible Net Worth at
the Closing Date is equal to or is greater than the required amount.
1
<PAGE> 75
$170,696,000
plus $__________ 40% of $_________ annual earnings
accumulated from
December 31, 1996 to the
end of the preceding
fiscal year(see Section
XXIII(a))
sum $__________ required amount
$__________ actual Tangible Net Worth as of the Closing
Date
(b) The Funded Indebtedness of the Companies does not exceed
an amount equal to the Leverage Multiplier times the Companies' EBITDA for the
four consecutive fiscal quarters most recently ended -- the Leverage Multiplier
being (i) from the date of the Lease Agreement to December 30, 1999, inclusive,
3.00, and (ii) on and after December 31, 1999, 2.75.
$__________ Funded Indebtedness
divided by $__________ EBITDA
$______________ EBIT
$______________ Depreciation
$______________ Amortization
quotient __________
(c) The ratio of (i) the aggregate of the Companies' EBITDA
for the four consecutive fiscal quarters most recently ended, to (ii) the
aggregate Interest Expense of the Companies for that period, to be less 5.00 to
1:00, all as determined on a consolidated basis.
ratio of $__________ EBITDA
$______________ EBIT
$______________ Depreciation
$______________ Amortization
to $__________ Interest Expense
ratio ______ to ______
(d) The Funded Indebtedness of the Companies does not exceed
an amount equal to the Required Multiplier times the sum of the Companies'
Funded Indebtedness plus the Companies' Tangible Net Worth -- the Required
Multiplier being (i) from the date of the Lease Agreement to December 31, 2000,
inclusive, 0.50, and (ii) on and after January 1, 2001, 0.45.
2
<PAGE> 76
$_________ Funded Indebtedness
divided by $_________ Funded Indebtedness plus Tangible Net Worth
quotient _________
BRUSH WELLMAN INC.
By:
Title:
3
<PAGE> 77
EXHIBIT NO. 4
LIST OF EQUIPMENT AND ACQUISITION COST
<TABLE>
<CAPTION>
TOTAL
PURCHASE ORDER NO. ACQUISITION
EQUIPMENT AND VENDOR COST
<S> <C> <C>
1. Walking Beam Furnace EX90006/Seco-Warwick $2,130,000.00
2. Hot Mill EX90003/Griset Engineering $14,600,000.00
3. Bell Aging Furnace EX90012/RAD-CON Inc. $2,400,000.00
4. Slab Mill EX90007/Integrated Industrial Systems $7,750,000.00
5. Finish Pickle Line EX90010/SMS Process Lines $5,270,000.00
6. Four-High Rolling Mill EX90002/Griset Engineering $9,590,000.00
7. Anneal/Pickle Line 1. EX90009/SMS Process $11,150,000.00
Lines
Anneal/Pickle Line
2. EX90008/Drever Company
Cont. Anneal Line
8. Degreasing Line EX90011/SMS Process Lines $3,190,000.00
TOTAL $56,080,000.00
</TABLE>
<PAGE> 78
EXHIBIT NO. 5
FORM OF FUNDING NOTICE
National City Bank, for itself and as Agent
1900 East 9th Street, 10th Floor
Cleveland, Ohio 44114
Attention: ______________
Gentlemen and Ladies:
Reference is made to the Master Lease Agreement, dated as of
December 30, 1996 (as amended and supplemented from time to time, the "Lease")
between NATIONAL CITY BANK, FOR ITSELF AND AS AGENT FOR CERTAIN PARTICIPANTS, as
Lessor, and BRUSH WELLMAN INC., as Lessee. Capitalized terms used herein and not
otherwise defined shall have the meaning set forth in the Lease.
The undersigned hereby gives notice to Lessor pursuant to
Section XXVI(b) of the Lease of its request for a disbursement of funds. In
connection with therewith, Lessee sets forth the following information:
(i) Date of disbursement:
(ii) Acquisition Cost to be funded:
(iii) Items of equipment to be funded by Lessor on
the date of disbursement and identification of those
items that have been accepted by Lessee: See Annex A
(iv) True and correct copies of invoices, or other such
evidence approved in advance by Lessor, for items of
Disbursement Equipment described in clause (iii)
above are attached hereto.
(v) True and correct wire transfer instructions for, and
the funds to be disbursed to, each Vendor are set
forth in Annex B hereto.
Very truly yours,
BRUSH WELLMAN INC., as Lessee
By:
Name:
<PAGE> 79
Title:
<PAGE> 80
EXHIBIT NO. 6
FORM OF ASSIGNMENT OF PURCHASE ORDERS
ASSIGNMENT OF PURCHASE ORDERS
THIS ASSIGNMENT OF PURCHASE ORDERS (this "Agreement"), dated
as of December 30, 1996, made by B.W. ALLOY, LTD., an Ohio limited liability
company ("BWA"), and BRUSH WELLMAN INC., an Ohio corporation ("Lessee") (BWA and
Lessee hereinafter sometimes collectively referred to as "Assignors" and
individually as an "Assignor"), in favor of NATIONAL CITY BANK, FOR ITSELF AND
AS AGENT FOR CERTAIN PARTICIPANTS (hereinafter called, together with its
successors and assigns, if any, "Lessor").
Recitals:
A. Lessee and Lessor have entered into a Master Lease
Agreement, dated as of December 30, 1996 (together with all schedules and
exhibits thereto and as the same may be amended, modified, supplemented,
renewed, extended, substituted or replaced from time to time, the "Equipment
Lease"), whereby Lessor, subject to certain conditions, will lease to Lessee
from time to time certain equipment described in the Schedules (as defined in
the Equipment Lease) executed and delivered by Lessee to Lessor from time to
time (collectively, the "Equipment") (capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to them in the
Equipment Lease); and
B. To secure the payment of rent and the payment and
performance of all of Lessee's obligations and liabilities under the Equipment
Lease, including all Schedules thereto (collectively, the "Liabilities"), Lessor
has required that Lessee grant to Lessor a security interest in all of Lessee's
right, title and interest in and to, and assign to Lessor for collateral
security purposes all of Lessee's right, title and interest in and to, the
Collateral (as defined in the Equipment Lease and herein); and
C. BWA (the membership interests of which are owned by Lessee
and a wholly owned subsidiary of Lessee) has entered into the Purchase Orders
described on Exhibit A hereto (as amended, modified or supplemented from time to
time, collectively the "Purchase Orders" and individually a "Purchase Order"),
and the Purchase Orders relate to the Equipment that is to be subject to the
Equipment Lease; and
D. Under the Equipment Lease and subject to certain conditions
therein, Lessor has agreed to disburse funds to the various vendors under the
Purchase Orders (collectively, the "Vendors") when and as requested by Lessee;
and
<PAGE> 81
E. The Equipment is to be delivered to an alloy strip mill
located at 14710 West Portage River S. Road, Harris Township, Ottawa County,
Ohio 43416, the real property on which such mill is located is owned by Lessee,
subject to a ground lease and the Port Authority Lease, and Lessee has
guaranteed to the Vendors the performance by BWA of its obligations under the
Purchase Orders; and
F. The obligations of Lessor to lease the Equipment to Lessee
under the Equipment Lease are subject to the condition precedent, among others,
that Assignors execute and deliver this Agreement.
NOW, THEREFORE, as an inducement to Lessor to lease the
Equipment to Lessee under the Equipment Lease, and intending to be legally bound
hereby, Assignors hereby agree with Lessor as follows:
1. Assignment of Rights under Purchase Orders. Each Assignor
hereby assigns, transfers, conveys and sets over to Lessor all of Assignor's
rights in, to and under the Purchase Orders, including any liens and security
interests granted to or for the benefit of Assignor securing the obligations of
any Vendor or any other Person to Assignor under any Purchase Orders and any
guarantees of or letters of credit securing any such obligations, and including,
without limitation, the following:
(a) the right to take title to the Equipment;
(b) all amounts payable to Assignor under or with respect to
any Purchase Order or as a result of the exercise of any claim, right,
privilege or remedy in respect thereof, including cash and non-cash
proceeds;
(c) all claims, rights, privileges and remedies on the part of
Assignor, whether arising by contract or by statute or at law or in
equity or otherwise, arising under or in connection with any Purchase
Order; and
(d) all rights of Assignor to exercise any election or option
or to give or receive any notice, consent, waiver or approval under or
in respect of the Purchase Orders, and the right (but not the
obligation) to do any and all other things Assignor is entitled to do
thereunder;
together with full power and authority, in the name of Assignors or otherwise,
to enforce, collect, receive and receipt for any and all of the foregoing;
provided, however, that until a Default or Potential Default has occurred and is
continuing, Assignors may exercise all of their respective rights, powers,
privileges and remedies under the Purchase Orders to the extent not prohibited
by this Agreement or any other Document, and in connection therewith, Lessor
agrees to execute such agreements, instruments and other documents and otherwise
take any action reasonably requested by Lessee, all at the expense of Assignors.
<PAGE> 82
The assignment of rights provided for herein shall be
effective immediately upon the execution and delivery of this Agreement and
shall not be conditioned upon the occurrence of any Default or Potential Default
or any default under the Purchase Orders or of any other contingency or event.
In order to secure the prompt payment of the Liabilities from
time to time outstanding, and the performance and observance by Assignors of all
the obligations of Assignors hereunder and under the other Documents, each
Assignor hereby grants to Lessor a first priority security interest in all of
its right, title and interest in and to, and assigns to Lessor for collateral
security purposes all of that Assignor's right, title and interest in and to,
the following, whether now or hereafter acquired and wherever located (the
"Collateral"): (1) The Purchase Orders, and any and all other purchase orders,
agreements, documents or other writings that evidence or otherwise relate to the
purchase of any item of Equipment, and any general intangibles and contract
rights in respect of the Equipment, the maintenance, use and operation of the
Equipment, and the Purchase Orders (including, without limitation, all rights of
Assignor to receive monies due and to become due under or pursuant to any
Purchase Orders, general intangibles and contract rights and all of the rights
of Assignor to terminate, and to perform, compel performance and otherwise
exercise all remedies under the Purchase Orders, general intangibles and
contract rights); (2) The Equipment described in the Purchase Orders and the
equipment otherwise subject to the Equipment Lease, or otherwise described in
any Disbursement Schedule or Equipment Schedule to the Equipment Lease,
including, without limitation, the equipment described in Exhibit B hereto, and
any components, parts and work-in-process in respect thereof, whether or not in
the possession or control of any Assignor, together with all additions,
attachments, improvements, accessories and accessions thereto and any and all
substitutions, replacements or exchanges therefor; (3) Any sublease of any of
the Equipment and all extensions and renewals thereof, and all rentals and other
sums due, now or hereafter, thereunder; (4) To the extent the Equipment may
constitute or be deemed to be inventory (solely to such extent, the
"Inventory"), such Inventory; (5) All documents, books and records in respect of
the Equipment and Inventory; and (6) All cash and non-cash proceeds and products
of any and all of the foregoing (including, without limitation, proceeds which
constitute property of the types described in clauses (1) through (5) above and
all payments under any insurance (whether or not Lessor is the loss payee
thereof), indemnity, warranty or guaranty, payable by reason of loss or damage
to or otherwise with respect to any of the foregoing property).
2. Payment of Assigned Sums. Assignors hereby presently,
unconditionally and irrevocably direct each Vendor, upon receipt of notice from
Lessor directing such Person to do so, to pay all moneys assigned pursuant to
Section 1 to Lessor at such place as Lessor shall direct in writing to such
Person and to Lessee.
3. Appointment of Lessor as Attorney with Respect to Purchase
Orders. Each Assignor hereby irrevocably (to the fullest extent permitted under
applicable law) constitutes Lessor, its successors and assigns, the true and
lawful attorney in fact of Assignor, coupled with an interest, with full power
(in the name of Assignor or otherwise),
<PAGE> 83
during the existence of any Default or Potential Default: (a) to exercise any
rights, powers and remedies of Assignor under or relating to any Purchase Order,
(b) to make any payment to any other party to any Purchase Order as Lessor may
deem necessary or appropriate thereunder, (c) to require, demand, receive and
give acquittance for any sums or moneys payable to Assignor under or in
connection with any Purchase Order, or any letter of credit or other security
therefor or guarantee thereof, and to endorse any checks or other instruments or
orders in connection therewith, (d) to file any claims or to take any action or
institute any proceedings on behalf of any Assignor which Lessor may deem to be
necessary or advisable under the circumstances, and (e) generally, to do,
execute and perform any other act, matter, document or thing whatsoever that in
the opinion of Lessor ought to be done, executed or performed under or in
connection with any Purchase Order, as fully as Assignor could do in such
situation. Any and all reasonable sums expended by or on behalf of Lessor for
any of the foregoing purposes shall be part of the Liabilities secured by the
Collateral, shall be described in writing to Lessee, and shall be repaid by
Assignors, on a joint and several basis, to Lessor within five (5) days of the
date Lessor sends written notice to Lessee requesting payment, with interest
thereon at the rate provided in Section XIX(j) of the Equipment Lease until
paid. Assignors agree that, upon the occurrence and during the continuation of a
Default or Potential Default, Lessor may exercise any election or option or give
any notice, consent, waiver or approval under, or deliver any requisition for
payment under, or take any other action in respect of, any of the Purchase
Orders without requirement of any approval of or action by either of them, but
each Assignor will nevertheless execute and deliver any instrument reasonably
requested by Lessor to be executed and delivered by Assignor in connection with
the exercise by Lessor of any such election or option or the giving by Lessor of
any such notice, consent, waiver or approval or the taking by Lessor of any such
other action.
4. Rights and Duties of Assignors. Notwithstanding any other
provision of this Agreement, Assignors shall have the right, but not to the
exclusion of Lessor, to receive from the parties to each Purchase Order all
notices and other communications and copies of all documents and all information
which such parties are permitted or required to give or furnish to any Assignor.
Each Assignor will furnish to Lessor copies of all such notices, communications,
documents and information (other than routine items delivered in the ordinary
course of business) promptly after receipt thereof by Assignor. Assignors at
their expense will perform and comply in all material respects with all the
terms of each Purchase Order to be performed or complied with by them, will
maintain each Purchase Order (so long as no Default or Potential Default has
occurred and is continuing) in full force and effect, will do all things
necessary to keep unimpaired all of their respective material rights, powers and
remedies thereunder and to prevent any forfeiture or impairment thereof, will
enforce each Purchase Order in all material respects in accordance with its
respective terms to the extent such enforcement will not require unreasonable
efforts on the part of Assignors, and will take all such action to that end or
to enforce any Purchase Order as from time to time may be reasonably requested
by Lessor. Without the prior written consent of Lessor, which consent will not
be unreasonably withheld, Assignor will not (a) amend, supplement, modify,
cancel, terminate or otherwise change any term or provision of any Purchase
Order, (b) give or join in any waiver or consent in respect of any
<PAGE> 84
Purchase Order, (c) subordinate or surrender any Purchase Order or consent to or
accept any subordination or surrender thereof, or permit any condition or event
to exist or occur which would, or would entitle any other party to any Purchase
Order to, terminate, cancel or surrender the same, (d) settle or compromise any
claim against any party to any Purchase Order or any other Person arising out of
or in respect of any Purchase Order, or submit or consent to the submission to
arbitration of any dispute or disagreement arising out of or in respect of any
Purchase Order (except to the extent the terms of such Purchase Order obligate
an Assignor to submit to arbitration), (e) waive any material default under or
material breach of any Purchase Order or (f) take any other action in connection
with any Purchase Order which would have the effect of impairing the value of
the rights of Assignors or Lessor thereunder or interest therein.
5. No Release or Assumption, etc.; Lessor Not Liable Under
Purchase Orders. Anything contained herein or in the Purchase Orders to the
contrary notwithstanding, (a) Assignors shall at all times remain solely liable
under the Purchase Orders to perform all of the duties and obligations of any
Assignor thereunder to the same extent as if this Agreement had not been
executed, (b) neither this Agreement nor any action or inaction on the part of
any Assignor or Lessor shall constitute an assumption of any obligations of any
Assignor under the Purchase Orders by Lessor, and (c) Lessor shall not have any
obligation or liability under the Purchase Orders or otherwise by reason of or
arising out of this Agreement (other than to the extent due to the gross
negligence or intentional misconduct of Lessor), nor shall Lessor be required or
obligated in any manner to perform or fulfill any obligation of any Assignor
under or in respect of the Purchase Orders.
6. Representations, Warranties and Covenants. Each Assignor
represents and warrants to Lessor that (a) it has not assigned, transferred,
mortgaged, pledged or otherwise encumbered any of its right, title and interest
hereby assigned to any other Person and no part of such right, title and
interest hereby assigned is subject to any Lien, (b) each Purchase Order is a
legal, valid and binding obligation of BWA and, to its knowledge, the Vendor
that is party thereto, enforceable in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or other similar
laws of general application affecting the enforcement of creditors' rights or by
general principles of equity limiting the availability of equitable remedies,
(c) no Purchase Order has been amended, modified or supplemented except for such
amendments, modifications or supplements specifically described in Exhibit A
hereto, and (d) it has paid all sums required to be paid by it prior to the date
hereof under the terms of the Purchase Orders and no default exists by BWA or,
to its knowledge, any other party under any of the Purchase Orders. Each
Assignor covenants that, so long as this Agreement shall not have been
terminated, it will not assign or pledge, or create or suffer to exist any Lien
on any of its right, title or interest hereby assigned.
7. Further Assurances, Compromise, etc. At any time and from
time to time, upon the request of Lessor, each Assignor, at its expense, shall
promptly and duly execute and deliver any and all such further instruments and
documents as Lessor may
<PAGE> 85
reasonably deem desirable in order to obtain the full benefits of this Agreement
and of the rights, powers and remedies herein granted.
8. Amendments and Waivers. This Agreement may not be
amended, waived, discharged or terminated except to the extent specifically set
forth in a writing manually signed by or on behalf of Assignors and Lessor in
accordance with Section XIX(g) of the Equipment Lease.
9. Remedies Cumulative. The rights and remedies of Lessor
under this Agreement are cumulative and not exclusive of any other rights or
remedies available to Lessor hereunder, under the Equipment Lease or any other
Document, at law, or otherwise (including without limitation the rights and
remedies of a secured party under the Ohio Uniform Commercial Code, which
Assignors agree Lessor shall have).
10. Location; Notice of Change of Address. The chief place of
business and chief executive office of each Assignor and the office where
Assignor keeps its records concerning the Purchase Orders, the original copies
of the Purchase Orders and each item are located at 17876 St. Clair Avenue,
Cleveland, Ohio 44110. Each Assignor shall keep its chief place of business and
chief executive office at the location therefor specified in this Section 10, or
upon forty-five (45) days' prior written notice to Lessor, at such other
location in a jurisdiction in which all actions required by Section 7 shall have
been taken with respect to the Purchase Orders.
11. Consent of BWA, as Sublessee. With respect to the
Sublease, dated as of October 1, 1996 (as the same may be amended, modified or
extended from time to time, the "Sublease"), between Lessee, as sublessor, and
BWA, as sublessee, BWA covenants, agrees, represents and warrants as follows:
(a) BWA waives all rights which it now or hereafter may have,
under the laws of the State of Ohio or by virtue of the Sublease, to claim or
assert any lien on or right, claim or title to, any of the Collateral which now
or hereafter may be located on the premises subject to the Sublease (the
"Premises").
(b) BWA agrees that (i) the Equipment is and shall remain
personal property of Lessee notwithstanding the manner or mode of the attachment
of any item of Equipment to the Premises and (ii) the Equipment is not and shall
not become or be deemed to be fixtures.
(c) In the event of any Default, Lessor may (subject to the
terms and provisions of the Equipment Lease and this Agreement and in accordance
with applicable law) remove the Equipment and any other item of Collateral or
any part thereof from the Premises without objection, delay, hindrance or
interference by BWA and, in such case, BWA will make no claim or demand
whatsoever against any of the Collateral. In the event of any Default, BWA
agrees that, without any charge, expense, rent or fee being charged to Lessor,
BWA will (i) cooperate with Lessor in its efforts to assemble or remove or
assemble
<PAGE> 86
and remove any or all of the Collateral located on the Premises; (ii)
permit Lessor to enter and occupy the Premises to remove, appraise, display,
maintain, prepare for sale or lease or other disposition, repair, or lease,
transfer, sell or otherwise dispose of, or to do any combination of the
foregoing in respect of, the Collateral; and (iii) not hinder Lessor's actions
in enforcing its security interest in any or all of the Collateral.
(d) BWA acknowledges and agrees that Lessor shall not be
deemed a lessee of the Premises for purposes of the Sublease and shall have no
further responsibility to BWA under the Sublease or other agreement or
instrument for any obligation or liability of Lessee thereunder.
(e) Lessor may, without affecting the validity of this
Agreement, extend, amend or in any way modify the terms of payment or
performance of the Equipment Lease and any of the obligations without the
consent of BWA and without giving notice thereof to BWA.
12. Miscellaneous. All notices under the provisions of this
Agreement shall be given and shall be effective as provided in Section XIX(f) of
the Equipment Lease and any notice to BWA shall be deemed given if delivered to
Lessee. This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument. This Agreement shall be governed by,
construed, and enforced in accordance with the laws of the State of Ohio,
without regard to conflict of laws principles, except as required by mandatory
provisions of law.
[Remainder of page intentionally left blank]
<PAGE> 87
IN WITNESS WHEREOF, Assignors have caused this Agreement to be
duly executed and delivered as of the date first above written.
B.W. ALLOY, LTD.
By:
--------------------------------
Title:
-----------------------------
BRUSH WELLMAN INC.
By:
-------------------------------
Title:
----------------------------
ACCEPTED:
NATIONAL CITY BANK, FOR ITSELF
AND AS AGENT FOR CERTAIN PARTICIPANTS
By:
----------------------------
Title:
--------------------------
<PAGE> 88
EXHIBIT A TO ASSIGNMENT OF PURCHASE ORDERS
1. Purchase Order No. EX90006, dated 5 November, 1996, of B.W. Alloy, Ltd. and
Seco-Warwick, as the vendor, and related documents referenced therein.
2. Purchase Order No. EX90008, dated 4 December, 1996, of B.W. Alloy, Ltd. and
Drever Company, as the vendor, and related documents referenced therein.
3. Purchase Order No. EX90009, dated 25 November, 1996, of B.W. Alloy, Ltd. and
SMS Process Lines, as the vendor, and related documents referenced therein.
4. Purchase Order No. EX90010, dated 25 November, 1996, of B.W. Alloy, Ltd. and
SMS Process Lines, as the vendor, and related documents referenced therein.
5. Purchase Order No. EX90011, dated 25 November, 1996, of B.W. Alloy, Ltd. and
SMS Process Lines, as the vendor, and related documents referenced therein.
6. Purchase Order No. EX90012, dated 6 December, 1996, of B.W. Alloy, Ltd. and
RAD-CON Inc., as the vendor, and related documents referenced therein.
7. Purchase Order No. EX90007, dated 23 October, 1996, as amended by Change
Order #001, dated 9 December, 1996, of B.W. Alloy, Ltd. and Integrated
Industrial Systems, as the vendor, and related documents referenced therein.
8. Purchase Order No. EX90002, dated 10 December, 1996, of B.W. Alloy, Ltd. and
Griset Engineering, as the vendor, and related documents referenced therein.
9. Purchase Order No. EX90003, dated 10 December, 1996, of B.W. Alloy, Ltd. and
Griset Engineering, as the vendor, and related documents referenced therein.
<PAGE> 89
<TABLE>
<CAPTION>
EXHIBIT B TO ASSIGNMENT OF PURCHASE ORDERS
EQUIPMENT PURCHASE ORDER NO. TOTAL PRICE
AND VENDOR
<S> <C> <C>
1. Walking Beam Furnace EX90006/Seco-Warwick $2,130,000
2. Hot Mill EX90003/Griset Engineering $14,600,000
3. Bell Aging Furnace EX90012/RAD-CON Inc. $2,400,000
4. Slab Mill EX90007/Integrated Industrial Systems $7,750,000
5. Finish Pickle Line EX90010/SMS Process Lines $5,270,000
6. Four-High Rolling Mill EX90002/Griset Engineering $9,590,000
7. Anneal/Pickle Line 1. EX90009/SMS Process Lines $11,150,000
Anneal/Pickle Line
2. EX90008/Drever Company
Cont. Anneal Line
8. Degreasing Line EX90011/SMS Process Lines $3,190,000
TOTAL $56,080,000
</TABLE>
<PAGE> 90
GRM0446\01278\96008\LEASE15
<PAGE> 1
EXHIBIT 11
BRUSH WELLMAN INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ---------
Primary:
<S> <C> <C> <C>
Average shares outstanding 15,975,337 16,198,575 16,102,350
Dillutive stock options based
on the treasury stock method
using the higher of average
or closing market price 172,357 206,360 80,484
----------- ----------- -----------
TOTALS 16,147,694 16,404,935 16,182,834
=========== =========== ===========
Net Income $24,491,000 $20,689,000 $18,550,000
Per share amount $ 1.52 $ 1.26 $ 1.15
=========== =========== ===========
Fully diluted:
Average shares outstanding 15,975,337 16,198,575 16,102,350
Dillutive stock options based
on the treasury stock method
using the highest of average
or closing market price 172,894 209,978 140,983
----------- ----------- -----------
TOTALS 16,148,231 16,408,553 16,243,333
=========== =========== ===========
Net Income $24,491,000 $20,689,000 $18,550,000
Per share amount $ 1.52 $ 1.26 $ 1.14
=========== =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 13
BRUSH WELLMAN INC. 1996 ANNUAL REPORT
BLUEPRINT FOR GROWTH
[PHOTO]
<PAGE> 2
[PHOTO]
Brush Wellman has completed a major transition which began in the early 1990's.
For the future, the Company's Blueprint for Growth involves improving the base
business, expanding alloy capabilities, and building a microelectronics
business. Brush Wellman products are described below.
Alloy Products are tailored metallurgically to specific customer performance
requirements. Copper berylium alloys exhibit high electrical and thermal
conductivities, high strength and hardness, good formability and excellent
resistance to corrosion, wear and fatigue. These properties make the alloys
ideal choices for a variety of demanding applications in computers,
telecommunications, automotive electronics, energy systems, plastic molds and
consumer products.
Berylium is a unique material exhibiting physical and mechanical properties
unmatched by any other metal. It is one of the lightest structural materials
known, has specific stiffness six times greater than steel. It possesses high
heat absorbing capability and has dimensional stability over a wide range of
temperatures. Beryllium Products, including AlbeMet(R) and Brush Wellman's new
E-Materials, are used primarily in defense and commercial aerospace
applications.
Ceramic products offer unique solutions for thermal management applications.
Beryllia ceramic is an effective electrical insulator and it has excellent
thermal conductivity. It has high strength and hardness, and a low dielectric
constant. Ceramic Products are used in automotive and power electronic systems,
wireless telecommunications, thermoelectric cooling systems, and lasers.
Engineered Material Systems, manufactured by technical Materials, Inc. are
combinations of precious and non-precious metals in continuous strip form and
are used in complex electronic and electrical components in telecommunications
systems, automobiles and computers.
Precious Metal Products are produced by Williams Advanced Materials Inc. for a
variety of high reliability applications in electrical and electronic
interconnection, packaging and processing markets, principally in North America
and the Far East.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Dollars in millions except per share amounts) 1996 1995 % Change
-------- --------- ---------
<S> <C> <C> <C>
Sales ...................................................... $376.3 $369.6 +2%
Net Income................................................... 24.5 20.7 +18%
Net Income per share ........................................ 1.52 1.26 +21%
Dividends per share.......................................... 0.42 0.36 +16%
Shareholders' equity per share............................... 13.46 12.46 +8%
</TABLE>
<TABLE>
<CAPTION>
[GRAPH]
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales
(in millions) $265.0 $295.5 $345.9 $369.6 $376.3
Net Income
(in millions) $10.5 $6.5 $18.6 $20.7 $24.5
Net Income
Per Share $0.65 $0.40 $1.14 $1.26 $1.52
Return On
Shareholders' Equity 6.2% 3.8% 9.9% 10.3% 11.2%
</TABLE>
<PAGE> 3
[LOGO] Brush Wellman Inc.
is a leading supplier of high performance engineered materials. Since its
founding in 1931, the Company has concentrated its operations and skills on the
advancement of beryllium-based materials. Today, Brush Wellman is the only fully
integrated supplier of beryllium, beryllium-containing alloys and beryllia
ceramic in the world. Brush Wellman also supplies high quality specialty metal
systems and precious metal products. Brush Wellman markets its products around
the world through Company-owned service, distribution and technical centers in
England, Germany, Japan and the United States, as well as through a worldwide
network of independent distributors. In addition, Brush Wellman recycles
beryllium and copper through its Resource Recovery operations.
Brush Wellman is headquartered in Cleveland, Ohio. Its stock is traded on
the New York Stock Exchange and identified by the symbol BW.
[LOGO]
To Our Shareholders
The employees of Brush Wellman can take pride in achieving another annual sales
and production record, as well as a 21% increase in earnings per share in 1996.
Sales have now increased for four consecutive years, and have established record
levels in each of the last three years. Clearly, we are succeeding in developing
new applications for our products, and are effectively delivering high quality
products, on time, to our customers. To equip the Company to fully capitalize on
future opportunities to grow, the Board of Directors during 1996 approved a plan
to significantly modernize and expand the alloy strip capabilities at the our
Elmore, Ohio facility. This major investment is a part of Brush Wellman's
Blueprint for Growth.
1996 FINANCIAL RESULTS
For the year 1996, Brush Wellman Inc. achieved earnings per share of $1.52,
and net income of $24.5 million. This represents an increase of 21% over 1995
earnings of $1.26 per share, and an 18% improvement in net income compared with
$20.7 million net income in 1995. Sales during 1996 totaled a record $376
million, a 2% increase over 1995 sales of $370 million.
Sales of Alloy Products in North America continued to grow in 1996,
reflecting high levels of demand for these materials in electronics
applications, and our continuing success in developing new applications in
automotive electronics, appliances, telecommunications, commercial aircraft and
sporting goods markets. International Sales were down relative to last year, due
to softer overseas markets and the translation effects from a stronger dollar.
However, we were encouraged by the strengthening of demand from international
markets during the fourth quarter.
Technical Materials, Inc. (TMI) sales of Engineered Material Systems, also
increased, reflecting continued success in marketing and production of this
unique line of specialty materials. Over the past four years TMI has
consistently contributed to Brush Wellman's growth and profitability.
Beryllium Products sales declined compared with last year due to continuing
weakness in aerospace and defense applications. In addition, particularly over
the past two years, Beryllium Products sales have been adversely affected by
imports of beryllium from Kazakstan at prices which we believe to be far below
fair market value. In March 1996, the Company filed a petition with the United
States International Trade Commission seeking government intervention in this
matter. In February 1997, the International Trade Commission ruled that the
Company was not sufficiently damaged by these imports to warrant the imposition
of sanctions, and Brush Wellman's petition on this case was denied. Despite the
fact that Beryllium Products represent less than 10% of the Company's total
sales, they remain an important part of Brush Wellman's business. Moreover,
these products are critical to many defense, aerospace and commercial
applications. While the decision from the ITC is disappointing to us, it does
not diminish our strategy to develop new markets and new applications for
Beryllium, AlBeMet(R) and E-Materials.
Ceramic Products sales also declined in 1996 due to reduced demand from the
telecommunications market and product mix shifts. We are, however, encouraged by
recent progress in the development of direct bond copper products.
Williams Advanced Materials Inc. (WAM) sales declined in 1996. However, all
of the sales decline occurred during the first half of the year, compared with a
very strong
<PAGE> 4
performance in the first half 1995. The decline was caused by the redesign of a
major microprocessor application, which had been anticipated by management.
Williams Advanced Materials sales increased in the second half 1996, led by
sales of new products, including vapor deposition products and fine wire. As
well, due to effective planning and hard work by the team at WAM, the
profitability of this business unit increased in 1996, despite lower sales for
the year.
Additional details of sales and financial performance during 1996 are
contained in Management's Discussion and Analysis, beginning on page 19.
STRATEGIC REVIEW
By 1996, Brush Wellman had successfully completed a major transition which began
in the early 1990's. At the beginning of the decade, defense, aerospace and
mainframe computer applications represented nearly 70% of the Company's sales.
The end of the Cold War and the major structural changes in mainframe computer
design resulted in dramatic reductions in demand for our materials. By adopting
new strategies, Brush Wellman successfully met the challenge created by these
changes in the marketplace.
Over the past five years our sales have grown by 42%, after declining from
1988 through 1992. This growth has been achieved fundamentally by developing new
applications in new markets, worldwide, as our traditional markets --
defense/aerospace and mainframe computers -- declined precipitously. Target
markets, such as automotive electronics, personal computers, appliances,
telecommunications, commercial aerospace, plastic molds and high performance
sporting goods have all contributed to the Company's growth. Most of the growth
the Company has achieved in recent years has been in new or improved products.
As a world leader in the production of high-performance engineered materials, we
realize that our success in the future depends on our ability to remain a
technology leader, and to develop a continuing stream of ever improving products
and processes to meet the changing needs of a dynamic marketplace.
International marketing has been another major strategic effort, and overseas
sales have contributed greatly to the Company's growth. The largest overseas
customer concentrations are in Germany, Japan, the United Kingdom, Switzerland
and Singapore. After attaining an all-time high in 1995, Brush Wellman sales
outside the United States declined in 1996, due to softer market conditions and
the translation effects of a stronger dollar. Despite this decline overseas,
total Company sales increased for the fourth year in a row.
THE FUTURE: BRUSH WELLMAN'S BLUEPRINT FOR GROWTH
Brush Wellman is the world's leading producer of beryllium materials. Any
strategy for the future must recognize and build upon this unique core
competency. Our materials can simultaneously provide light weight and strength,
or thermal conductivity and electrical insulating properties. They can withstand
high temperatures, readily conduct electricity and resist stress and fatigue.
Because of their unique combinations of properties, materials produced by Brush
Wellman can enable our customers to produce safer, smaller, more reliable and
more efficient products, improve productivity, and reduce costs, over the life
of their products. Given the continuing trends toward miniaturization, weight
reduction, increased electronic content, and the heightened awareness of the
costs of component failure and repair-related downtime, we are convinced that
our materials have the potential to capture a far greater portion of the
worldwide specialty materials market.
Brush Wellman's performance has been strong in recent years, but our returns
to shareholders have not yet reflected the improved results. To increase returns
to our shareholders, we believe that we must build on our successes, and grow
the business faster and
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Long-Term Debt
% of Capital at Year-End
EBITDA
(Earnings Before Interest,
Taxes, Depreciationa and
Amortization - in millions)
2
</TABLE>
<PAGE> 5
more consistently in the future. To do this, we will be focusing efforts on
three major Strategic Thrusts:
- - -- First, improve the base business,
- - -- Second, expand alloy capabilities, and
- - -- Third, build a microelectronics business.
Despite our increased sales and higher earnings, significant opportunities
still exist to IMPROVE THE BASE BUSINESS. Each business team has identified
places for improving profitability. Yield, productivity and working capital
management are all targets for improvement through our BrushBREAKTHRU program
and other efforts. In particular, many opportunities for improvement have been
identified at our Elmore operation, and focused improvement efforts are
underway.
We are also addressing attention to two underperforming units, Ceramic and
Beryllium Products. Ceramic profitability improvement efforts will be focused on
cost reduction through yield improvement, and the pursuit of new opportunities
for growth. Direct Bond Copper and copper tungsten are two technologies which
offer interesting potential for growth. Beryllium Products profitability should
be enhanced through a combination of cost reduction efforts, product and process
improvements, and growth in sales of AlBeMet(R).
Our second strategic thrust involves EXPANDING OUR ALLOY CAPABILITIES, with
a goal to become the global leader in non-ferrous specialty alloys. Brush
Wellman's Alloy Products have enjoyed good growth over the past five years. As
this has happened, our patented Alloy 174 has become a more significant part of
the Alloy Product mix, in terms of dollar sales, and an even larger portion of
alloy production in terms of pounds. Traditional alloy strip, while at a lesser
rate, has also continued to grow. The Alloy business serves markets around the
world, in a wide variety of end-use applications, yet copper beryllium
represents a small proportion of the worldwide non-ferrous alloy sales. We are
convinced that our products have the potential to capture a larger share of this
market, if we make some fundamental changes. Specifically, the keys to
positioning Alloy to become a world leader in specialty/high performance
non-ferrous alloys are to: expand capacity, introduce new alloys, broaden
international marketing capabilities, reduce costs and cycle time and add
non-beryllium-containing alloys to our product line.
In May 1996, the Board of Directors approved a plan for a major expansion and
upgrading of our alloy strip capabilities, involving the investment of $110
million at our Elmore, Ohio facility. The goals of this investment are to
increase strip production capacity, reduce production costs, improve quality,
reduce delivery lead-times, and optimize working capital utilization. In
addition, the new capacity will incorporate the best available environmental,
health and safety technology, so as to be the safest possible work place, and
have minimal impact on the external environment.
The expansion involves three major phases. Phase one is a
new cast shop. The new cast shop is intended to increase capacity, improve
quality and reduce the cost of all our alloy products. The cast shop involves
$35 million of capital expense. Phase two and three are heavy gauge and
finishing equipment for alloy strip. These two phases involve $75 million of
capital.
This project is not simply an expansion of existing capabilities. Rather, it
is designed to allow Brush Wellman to reposition itself in the materials
marketplace, and thereby create major opportunities for growth. Brush Wellman
has historically done an outstanding job as a supplier of premium alloys. We are
recognized as the industry leader in terms of quality and technical support.
But, our cost structure and capacity have limited us to the highest end, premium
niche of the materials market. By
===========================================
1. improve the base business,
2. expand alloy capabilities, and
3. build a microelectronics business.
=============================================
reducing our costs and allowing us to produce strip in much larger coils, the
new capacity should enable Brush Wellman to compete for many applications which
were not accessible to us before. The combination of our quality, technical
abilities and the properties of our materials with world class production
facilities, a lower cost structure and greater casting and rolling capacity
should position Brush Wellman to be a formidable competitor in the worldwide
copper based specialty alloys market as we approach the 21st century.
Ground was officially broken on the expansion in June 1996. The new capacity
should be fully operational in 1998. It is being financed by a combination of
operating leases, and traditional debt and cash flow (See Notes E and F on pages
10 and 11). Our long-term debt at the end of 1996 was less than 8% of capital.
3
<PAGE> 6
In financing the expansion, we are confident that the project will not result in
over leveraging the Company's balance sheet. Over the long run, the expansion
should significantly enhance the Company's ability to provide a superior return
on investment, and thus improve shareholder value.
The expansion is obviously a major and necessary step, but to maximize growth
potential in the non-ferrous alloys market, we are also introducing new alloys.
Our new product development process focuses on target markets, listening to the
voice of the customer to develop products representing value innovation. Through
a combination of product development and capacity expansion, we are taking steps
to offer products with significant competitive advantages for the larger,
"specialty" segment of the market. We are now introducing a new alloy family,
Alloy 171, directed at large volume users in the automotive, and appliance
markets. Thus far, the interest in this new alloy system among potential users
is very strong.
We also continue to broaden international marketing capabilities. We have
been successful in Europe and Japan in recent years. Our work in these markets
will intensify as we move forward. In addition, we are broadening our efforts in
the ASEAN region and South America.
Our efforts to reduce costs and cycle time are continuous, and should be
significantly enhanced by our strip expansion and capabilities upgrade.
We intend to exploit opportunities in non-beryllium-containing alloys. In
August, the Board of Directors approved a plan for the Company to produce Brush
Engineered Bronze, a family of specialty alloys in rod, bar and tube form. This
new endeavor will involve the investment of over $10 million for a new plant,
equipment and working capital. The new plant will be a 50,000 square foot
facility located in Lorain, Ohio. Construction of the new facility commenced
during the fourth quarter 1996, with a target completion date in 1997. The
addition of Brush
"OUR GOAL IS TO BECOME THE WORLD'S LEADING SUPPLIER OF HIGH QUALITY, SPECIALTY
NON-FERROUS ALLOYS."
COMMON STOCK PRICE
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
</TABLE>
Engineered Bronze to our product line further strengthens our position in the
specialty alloys business. It represents another step toward our goal to become
the world's leading producer of high quality, specialty non-ferrous alloys.
Our Third Strategic Thrust involves BUILDING A MICROELECTRONICS BUSINESS.
Microelectronics is currently a multi-billion dollar market, worldwide. Alloy,
Precious Metals, Specialty Metal Strip, Ceramic and even Beryllium Products all
offer properties which are attractive to designers of sophisticated
semiconductor packages, lead frames, connectors and other microelectronic
components. Today, nearly one fifth of Brush Wellman's sales are to
microelectronics applications. We have an established marketing/sales presence
in this business, and believe by executing a more coordinated strategy, we will
be able to significantly expand our presence in these attractive, fast growing
worldwide markets.
As part of our strategy to expand the range of products serving the
microelectronics market, during the fourth quarter 1996 Brush Wellman acquired
Circuits Processing Technology Incorporated (CPT), in exchange for common stock.
CPT is a San Diego based producer of thick film circuits. CPT primarily serves
the commercial and satellite telecommunications markets and also supplies parts
to military, aerospace, and medical markets. CPT has been supplying the
microelectronics industry with high quality precious metal thick film circuits
for the past 14 years.
The addition of CPT augments Brush Wellman's position as a supplier of
value-added microelectronic materials, circuits, and sub-assemblies. At the same
time, CPT's ability to continue its rapid growth and extend their unique
technology into new markets should be enhanced by Brush Wellman's sales and
marketing resources. CPT contributed to sales and profitability in the fourth
quarter 1996.
4
<PAGE> 7
SHARE REPURCHASE
In December 1995, The Board of Directors authorized a program to repurchase up
to one million shares of the Company's common stock. The Company repurchased
over 500,000 shares under this program through April 1996. In May, the Board of
Directors suspended the repurchase authority until the financing needs for the
alloy strip expansion project were determined, and the financing package was put
in place.
DIVIDEND INCREASE
In August, the Board of Directors approved a 10% increase in the quarterly
cash dividend to a rate of 11 cents per share. This raised the annualized
dividend rate to 44 cents per share from the previous rate of 40 cents.
ORGANIZATION
In October, Brush Wellman announced the appointment of Mr. James P. Mooney
to its Board of Directors. Mr. Mooney is currently Chairman and Chief Executive
Officer of OM Group, Inc. He has been a member of the OM Group Board of
Directors since 1991. He joins the Brush Wellman Board of Directors as part of a
class of Directors whose term ends in 1998.
In December, we were saddened to learn of the passing of Nathan Winthrop
(Nate) Bass, at the age of 79. Mr. Bass was one of the pioneers of the beryllium
industry, who, from 1945 until he retired in 1985, played a major role in the
development of the Brush Beryllium Company, and eventually Brush Wellman Inc.
Mr. Robert H. Rozek, Senior Vice President International will retire at the
end of March 1997, following a long and distinguished career with Brush Wellman.
In over 38 years with the Company, Mr. Rozek was involved, at a senior level, in
nearly all aspects of the business. Under his leadership, our international
subsidiaries were established, thus positioning the Company to be an effective
worldwide competitor in Alloy Products.
ENVIRONMENTAL, HEALTH AND SAFETY ISSUES
For nearly fifty years, it has been known that inhalation of very fine
airborne particles of beryllium may cause a lung disorder, known as chronic
beryllium disease. Chronic beryllium disease is a lung condition that occurs in
that minority of persons whose immune systems react to beryllium in the lungs.
The large majority of people do not have an adverse reaction to beryllium
exposure. In solid form, beryllium and beryllium alloys pose no special health
risk. Thus, the risk of CBD is generally confined to workplaces in which
operations are performed that generate beryllium-containing dust or fumes. As
the world's leading producer of beryllium we are committed to remain the leader
in knowledge about the health effects of beryllium exposure, and are determined
to work to develop more effective prevention methods and treatments. We are also
committed to openly communicate our knowledge about the issue, so that all
parties are properly informed and so as to encourage a continuing, open dialogue
on scientific and medical knowledge. In 1996 we completed surveillance blood
testing of employees in Ohio and presented results of this work and a related
Epidemiological Study to all employees. In addition, we expanded the blood
testing program to our Utah facilities. We also continue to support the work of
the Beryllium Industry Science Advisory Committee.
Unfortunately, our efforts to learn more may also have led
to an increase in litigation, as well as some negative publicity during 1996. We
will continue to vigorously defend Brush Wellman against these lawsuits, while
we proceed in our efforts to protect workers from the risk of adverse health
effects, and work to increase medical knowledge regarding chronic beryllium
disease.
OUTLOOK
Looking forward, for 1997, our goal is to produce improved returns to our
shareholders. We will strive for continued growth in earnings, and increases in
our sales penetration in the worldwide specialty materials market. Recognizing
that this is a year of investment for the future, it is not realistic to expect
significant growth in 1997, but we remain determined to do all in our power to
continue improving sales and earnings this year.
For the longer term, we recognize that, fundamentally, sales growth remains
the key to our success. We are committed to a major expansion of our alloy strip
capability. This investment is designed to enable the Company to significantly
expand sales, reduce production costs, improve working capital management and
offer better quality and service to our customers of alloy strip products. By
implementing this capabilities expansion and upgrade, and by executing the other
aspects of our strategic plan, Brush Wellman will be equipped to show
consistent, strong growth in sales and earnings, and produce superior returns
for our shareholders.
/s/ Gordon D. Harnett
Gordon D. Harnett
Chairman of the Board
President and Chief Executive Officer
March 1997
<PAGE> 8
Consolidated Statements of Income
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1996, 1995 and 1994
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net Sales .......................................... $ 376,279 $ 369,618 $ 345,878
Cost of sales ................................... 267,713 268,732 253,938
------------ ------------ ------------
Gross Margin ....................................... 108,566 100,886 91,940
Selling, administrative and general expenses .... 64,991 62,736 55,502
Research and development expenses ............... 8,309 7,814 8,754
Other-- net ..................................... 961 1,250 2,586
------------ ------------ ------------
Operating Profit ................................... 34,305 29,086 25,098
Interest expense ................................ 1,128 1,653 2,071
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 33,177 27,433 23,027
Income taxes:
Currently payable ............................... 9,825 9,547 6,270
Deferred ........................................ (1,139) (2,803) (1,793)
------------ ------------ ------------
8,686 6,744 4,477
------------ ------------ ------------
NET INCOME . $ 24,491 $ 20,689 $ 18,550
============ ============ ============
Net Income Per Share of Common Stock ............ $ 1.52 $ 1.26 $ 1.14
============ ============ ============
Average number of shares of Common Stock outstanding 16,148,231 16,408,553 16,243,333
</TABLE>
See notes to consolidated financial statements
6
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income ....................................................................... $ 24,491 $ 20,689 $ 18,550
Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities:
Depreciation, depletion and amortization ....................................... 18,537 18,042 17,588
Amortization of mine development ............................................... 4,417 2,869 2,031
Decrease (Increase) in accounts receivable ..................................... (557) (308) (4,610)
Decrease (Increase) in inventory ............................................... (2,946) 874 (7,058)
Decrease (Increase) in prepaid and other current assets ........................ (460) (1,951) 565
Increase (Decrease) in accounts payable and accrued expenses ................... 1,158 (1,856) 8,389
Increase (Decrease) in interest and taxes payable .............................. (1,327) 1,050 809
Increase (Decrease) in deferred income tax ..................................... (1,189) (1,284) (1,879)
Increase (Decrease) in other long-term liabilities ............................. 1,954 2,061 704
Other-- net .................................................................... 966 (589) 80
------ ------- ------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 45,044 39,597 35,169
Cash Flows from Investing Activities:
Payments for purchase of property, plant and equipment ........................... (26,825) (24,244) (17,214)
Payments for mine development .................................................... (3,663) (787) (543)
Payments for acquisition of business ............................................. -- -- (720)
Other investments-- net .......................................................... (4,909) 718 (24)
------ ------- ------
NET CASH USED IN INVESTING ACTIVITIES (35,397) (24,313) (18,501)
Cash Flows from Financing Activities:
Proceeds from issuance of short-term debt ........................................ 552 5,845 --
Proceeds from issuance of long-term debt ......................................... 8,305 -- --
Repayment of long-term debt ...................................................... (813) (758) (704)
Repayment of short-term debt ..................................................... (2,149) (5,000) (1,962)
Purchase of treasury stock ....................................................... (6,656) (2,826) --
Issuance of Common Stock under stock option plans ................................ 1,460 1,141 502
Payments of dividends ............................................................ (6,489) (5,489) (3,702)
------ ------- ------
NET CASH USED IN FINANCING ACTIVITIES (5,790) (7,087) (5,866)
Effects of Exchange Rate Changes on Cash & Cash Equivalents ......................... (1,661) 915 1,949
------ ------- ------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,196 9,112 12,751
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 29,553 20,441 7,690
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 31,749 $ 29,553 $ 20,441
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 10
CONSOLIDATED BALANCE SHEETS
Brush Wellman Inc. and Subsidiaries
December 31, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1996 1995
Assets
<S> <C> <C>
Current Assets
Cash and cash equivalents .................................................... $ 31,749 $ 29,553
Accounts receivable (less allowance of $954 for 1996 and $1,015 for 1995) .... 52,211 52,532
Inventories .................................................................. 96,324 92,727
Prepaid expenses and deferred income taxes ................................... 16,949 16,935
--------- ---------
TOTAL CURRENT ASSETS . 197,233 191,747
Other Assets .................................................................... 28,326 18,912
Property, Plant and Equipment
Land ......................................................................... 5,186 4,399
Buildings .................................................................... 80,057 76,258
Machinery and equipment ...................................................... 274,903 258,265
Construction in progress ..................................................... 19,405 14,564
Allowances for depreciation .................................................. (256,690) (240,449)
122,861 113,037
Mineral resources ............................................................ 5,693 5,661
Mine development ............................................................. 18,883 15,220
Allowances for amortization and depletion .................................... (17,217) (12,724)
--------- ---------
7,359 8,157
--------- ---------
PROPERTY, PLANT AND EQUIPMENT-- NET 130,220 121,194
--------- ---------
$ 355,779 $ 331,853
========= =========
Liabilities and Shareholders' Equity
Current Liabilities
Short-term debt .............................................................. $ 25,670 $ 22,757
Accounts payable ............................................................. 7,713 8,772
Salaries and wages ........................................................... 9,672 10,030
Taxes other than income taxes ................................................ 2,212 1,981
Other liabilities and accrued items .......................................... 13,810 11,723
Dividends payable ............................................................ 1,789 1,621
Income taxes ................................................................. 8,195 9,707
--------- ---------
TOTAL CURRENT LIABILITIES . 69,061 66,591
Other Long-Term Liabilities ..................................................... 6,906 4,148
Retirement and Post-Employment Benefits ......................................... 40,365 41,297
Long-Term Debt .................................................................. 18,860 16,996
Deferred Income Taxes ........................................................... 1,330 2,519
Shareholders' Equity
Serial Preferred Stock, no par value; 5,000,000 shares
authorized, none issued -- --
Common Stock, $1 par value
Authorized 45,000,000 shares; issued 21,908,885 shares
(21,330,401 in 1995)....................................................... 21,909 21,330
Additional paid-in capital ................................................... 53,650 45,658
Retained income .............................................................. 236,043 218,209
--------- ---------
311,602 285,197
Less: Common Stock in treasury, 5,618,377 shares in 1996 (5,259,177 in 1995) . 91,357 84,701
Other Equity transactions .................................................. 988 194
--------- ---------
TOTAL SHAREHOLDERS' EQUITY . 219,257 200,302
--------- ---------
$ 355,779 $ 331,853
========= =========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE> 11
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1996, 1995 and 1994
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
ADDITIONAL COMMON
COMMON PAID-IN RETAINED STOCK IN
STOCK CAPITAL INCOME TREASURY OTHER
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1994 $ 21,181 $ 43,790 $ 188,978 $ (81,874)
Net income ......................................................... 18,550
Declared dividends $.26 per share .................................. (4,187)
Proceeds from sale of 34,500 shares under option plans ............. 34 427
Income tax benefit from employees' stock options ................... 41
--------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1994 21,215 44,258 203,341 (81,874)
Net income ......................................................... 20,689
Declared dividends $.36 per share .................................. (5,821)
Proceeds from sale of 71,270 shares under option plans ............. 71 910
Income tax benefit from employees' stock options ................... 160
Other equity transactions .......................................... 44 330 (1) $ (194)
Purchase of shares for treasury .................................... (2,826)
--------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1995 21,330 45,658 218,209 (84,701) (194)
Net income ......................................................... 24,491
Declared dividends $.42 per share .................................. (6,657)
Proceeds from sale of 93,710 shares under option plans ............. 94 1,211
Income tax benefit from employees' stock options ................... 155
Purchase of business ............................................... 368 5,296
Other equity transactions .......................................... 117 1,330 (794)
Purchase of shares for treasury .................................... (6,656)
--------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1996 $ 21,909 $ 53,650 $ 236,043 $ (91,357) $ (988)
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brush Wellman Inc. and Subsidiaries
December 31, 1996
NOTE A - ACCOUNTING POLICIES
ORGANIZATION: The Company is a manufacturer of engineered materials used in the
computer and related electronics, telecommunications and automotive electronic
markets. The Company also sells into the aerospace/defense and
appliance/consumer markets. The majority of sales are to customers in North
America, Western Europe and the Pacific rim. Major products sold include
beryllium, beryllium alloys, beryllia ceramic, precious metal products and
specialty metal systems. The majority of products are manufactured and/or
distributed through shared Company facilities.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
CONSOLIDATION: The consolidated financial statements include the accounts of
Brush Wellman Inc. and its subsidiaries, all of which are wholly owned. All
signficant intercompany accounts and transactions are eliminated in
consolidation.
CASH EQUIVALENTS: All highly liquid investments with a put option or maturity of
three months or less when purchased are considered to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. The cost of
domestic inventories except ore and supplies is principally determined using the
last-in, first-out (LIFO) method. The remaining inventories are stated
principally at average cost.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated on the
basis of cost. Depreciation is computed principally by the straight-line method,
except certain facilities for which depreciation is computed by the
sum-of-the-years digits or units-of-production method. Depreciable lives that
may be used in computing the annual provision for depreciation by class of asset
are as follows:
<TABLE>
<CAPTION>
Years
<S> <C> <C>
Land improvements....................................... 5 to 25
Buildings............................................... 10 to 40
Leasehold improvements.................................. Life of lease
Machinery and equipment................................. 3 to 15
Furniture and fixtures.................................. 4 to 15
Automobiles and trucks.................................. 2 to 8
Research equipment...................................... 6 to 12
</TABLE>
MINERAL RESOURCES AND MINE DEVELOPMENT: Property acquisition costs and mining
costs associated with waste rock removal are recorded at cost and are depleted
or amortized by the units of production method based on recoverable proven
beryllium reserves. Exploration and pre-production mine development expenses are
charged to operations in the period in which they are incurred.
INTANGIBLE ASSETS: The cost of intangible assets is amortized by the
straight-line method over the periods estimated to be benefited, which is
generally twenty years or less.
ASSET IMPAIRMENT: In the event that facts and circumstances indicate that
the carrying value of long-lived and intangible assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is required,
the estimated future cash flow associated with the asset would be compared to
the asset's carrying amount to determine if a write-down may be required.
DERIVATIVES: Forward foreign exchange currency contracts and commodity swaps are
marked-to-market using the applicable rates and any unrealized losses are taken
to income. Realized gains and losses on forward contracts and swaps and realized
gains on foreign currency options are taken to income when the financial
instrument matures. Option premiums are classified as prepaid expenses and
amortized over the term of the option.
ADVERTISING COSTS: The Company expenses all advertising costs as incurred.
Advertising costs were immaterial for the years presented in the consolidated
financial statements.
INCOME TAXES: The Company uses the liability method as required by Statement of
Financial Accounting Standards (SFAS) No. 109 in measuring the provision for
income taxes and recognizing deferred tax assets and liabilities on the balance
sheet. This statement requires that deferred income taxes reflect the tax
consequences of currently enacted rates for differences between the tax bases of
assets and liabilities and their financial reporting amounts.
RECLASSIFICATION: Certain amounts in prior years have been reclassified to
conform with the 1996 consolidated financial statement presentation.
NET INCOME PER SHARE: Net income per share is based on the weighted average
number of outstanding shares of Common Stock including common stock equivalents
(stock options) as appropriate under the treasury stock method.
ENVIRONMENTAL REMEDIATION: In October 1996, the Accounting Standards Executive
Committee of the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 96-1, "Environmental Remediation Liabilities". The
SOP is effective for fiscal years beginning after December 15, 1996. The SOP
does not make changes to existing accounting rules, but it clarifies how
existing authoritative guidance on loss contingencies should be applied in
determining environmental liabilities. The Company does not believe the adoption
of the SOP will have a material impact on its financial position or results of
operations. The Company will adopt SOP 96-1 in the first quarter of 1997.
Contingencies, including environmental remediation liabilities, are further
outlined in Note L to the Consolidated Financial Statements.
NOTE B - ACQUISITIONS
In October 1996, the Company acquired the Common Stock of Circuits Processing
Technology, Inc. for Company Common Stock. In October 1994, the Company acquired
the assets, including net working capital, of Hydrostatics Inc. for cash. These
transactions were accounted for as purchases and did not have a material impact
on operations.
10
<PAGE> 13
NOTE C - INVENTORIES
Inventories in the consolidated balance sheets are summarized as follows:
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1996 1995
---------------------
Principally average cost:
<S> <C> <C>
Raw materials and supplies............................... $20,210 $19,719
In process............................................... 55,242 57,013
Finished................................................. 42,536 42,222
------- -------
117,988 118,954
Excess of average cost over LIFO
inventory value......................................... 21,664 26,227
------- -------
$96,324 $92,727
======= =======
</TABLE>
Inventories aggregating $67,730,000 and $62,675,000 are stated at LIFO at
December 31, 1996 and 1995, respectively.
NOTE D - INTEREST
Interest expense associated with active construction and mine development
projects is capitalized and amortized over the future useful lives of the
related assets. Interest paid was $2,168,000, $2,284,000 and $2,518,000 in 1996,
1995 and 1994, respectively. Interest costs capitalized and the amounts
amortized are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- - ---------------------- ---- ---- ----
<S> <C> <C> <C>
Interest incurred ............................... $2,103 $2,099 $2,407
Less capitalized interest ....................... 975 446 336
$1,128 $1,653 $2,071
------ ------ ------
Amortization, included principally
in cost of sales ............................. $ 573 $ 578 $ 525
====== ====== ======
</TABLE>
In 1986, the Company purchased company-owned life insurance policies insuring
the lives of certain United States employees. The contracts are recorded at cash
surrender value, net of policy loans, in other assets. The net contract (income)
expense, including interest expense recorded in Selling, Administrative and
General expenses, was ($190,000), $954,000 and $598,000 in 1996, 1995 and 1994,
respectively. The related interest expense was $5,115,000, $4,788,000 and
$4,091,000, respectively.
NOTE E - DEBT
<TABLE>
<CAPTION>
A summary of long-term debt follows:
December 31
(Dollars in thousands) 1996 1995
---- -----
<S> <C> <C>
9.60% - 9.68% medium-term notes, $5,000,000
payable in each of 1997 and 2000 ..................... $ 10,000 $ 10,000
Variable rate industrial development revenue bonds
payable in installments beginning in 2005 ............ 3,000 3,000
5.45% - 6.45% industrial development revenue bonds
payable in equal installments in 1996 through 2000 ..... 3,200 4,000
Variable rate industrial development
revenue bonds payable in 2016 ........................ 8,305 0
Variable rate note payable in installments through 1999 253 0
4.90% note payable in yen in equal
installments through 1997 ............................ 706 1,495
-------- --------
25,464 18,495
Current portion of long-term debt ...................... (6,604) (1,499)
-------- --------
$ 18,860 $ 16,996
======== ========
</TABLE>
Maturities on long-term debt instruments as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997...................................... $ 6,604
1998...................................... 877
1999...................................... 878
2000...................................... 5,800
Thereafter................................ 11,305
-------
</TABLE>
$25,464
=======
The Company has a revolving credit agreement with four banks which provides a
maximum availability of $50,000,000 through April 30, 1998. At December 31,
1996, there were no borrowings outstanding against this agreement.
The Company has a private placement agreement whereby the Company can issue
up to an aggregate of $75,000,000 of medium-term notes ($10,000,000 outstanding
at December 31, 1996). The notes bear a fixed interest rate and may have
maturities from nine months to thirty years from date of issue as agreed upon in
each case by the purchaser and the Company.
Included in short-term debt is $19,066,000 ($21,258,000 at December 31,
1995) outstanding under lines of credit totaling $89,612,000. The $89,612,000
lines of credit consist of $50,400,000, $29,341,000 and $9,871,000 of domestic,
foreign and precious metal (primarily gold) denominated debt respectively. The
domestic and foreign lines are uncommitted, unsecured and renewed annually. The
precious metal facility is committed, secured and renewed annually. Of the
amount outstanding, $9,642,000 is payable in foreign currencies and $9,424,000
is denominated in precious metal, primarily gold. Also included in short-term
debt is $800,000 representing the current maturity of an industrial development
revenue bond, $5,000,000 representing the current maturity of a medium-term
note, $98,000 representing the current maturity of a note payable and $706,000
representing the current portion of the yen note payable. The average rate on
short-term debt was 3.5% and 3.6% as of December 31, 1996 and 1995,
respectively.
During November 1996, the Company entered into an agreement with the Lorain
Port Authority, Ohio to issue $8,305,000 in variable rate industrial revenue
bonds, maturing in 2016. The outstanding cash is shown as cash and cash
equivalents on the balance sheet, but is restricted for use in constructing a
new facility in Lorain, Ohio, subject to the terms agreed upon with the Lorain
Port Authority, Ohio pursuant to the issuance of the bonds.
During 1994, the Company re-funded its $3,000,000 industrial development
revenue bonds. The 7.25% bonds were re-funded into variable rate demand bonds.
The variable rate ranged from 2.55% to 4.30% during 1996 and 3.00% to 5.70%
during 1995.
In December 1995, the Company entered into an interest rate swap agreement
to manage its interest rate exposure on the $3,000,000 variable rate industrial
development revenue bond. The Company converted the variable rate to a fixed
rate of 6.03% under the interest rate swap agreement that matures in 2002.
11
<PAGE> 14
Notes to Consolidated Statements (Continued)
The loan agreements include certain restrictive covenants covering the
incurrence of additional debt, interest coverage, and maintenance of working
capital, tangible net worth (as defined) and debt to earnings ratio.
NOTE F - LEASING ARRANGEMENTS
The Company leases warehouse and manufacturing space, and manufacturing and
computer equipment under operating leases with terms ranging up to 15 years.
Rent expense amounted to $4.7 million, $4.1 million and $ 4.8 million during
1996, 1995, and 1994, respectively. The future estimated minimum lease payments
under non-cancelable operating leases with initial lease terms in excess of one
year at December 31, 1996, are as follows: 1997 - $0.1 million; 1998 - $ 1.8
million; 1999 - $ 5.7 million; 2000 - $5.7; 2001 - $ 5.7 million; and thereafter
- - - $19.3 million.
The Company has agreements for the construction and operating leases of a
production facility and certain equipment to be located in that facility. The
new facility and related equipment will be owned by third parties and have an
estimated cost of $78.5 million. Start-up of this facility is anticipated to be
phased in over time, commencing in the fourth quarter of 1997. Lease payments
for the facility will commence in 1997 and continue through 2011 with options
for renewal. Lease payments of the related equipment commence in 1999 and
continue through the initial lease term expiring in 2001. The Company has
options to renew the lease of the equipment for seven one-year periods and to
purchase the equipment for its estimated fair value at the end of each term. The
lease provides for a substantial residual value guarantee by the Company at the
termination of the lease.
The Company has guaranteed performance under the construction contracts for
the building and equipment. The estimated minimum payments under these leases
are included in the preceding paragraph.
The lease agreements include restrictive covenants covering certain
liquidity ratios, maintenance of tangible net worth (as defined) and maximum
rental expenses.
NOTE G - DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE INFORMATION
DERIVATIVE FINANCIAL INSTRUMENTS
The Company has a program in place to manage foreign currency risk. As part of
that program, the Company has entered into forward contracts and purchased
foreign currency options to hedge anticipated foreign currency transactions,
primarily foreign sales. The purpose of the program is to protect against the
reduction in value of the foreign currency transactions from adverse exchange
rate movements. Should the dollar strengthen significantly, the decrease in the
value of the foreign currency transactions will be partially offset by the gains
on the hedge contracts and options.
All hedge contracts mature in two years or less. The options were generally
several percent out-of-the-money at the time of purchase and all options matured
prior to December 31, 1996. At year end, the Company was in a net unrealized
gain position on its forward contracts that was not material to the Company.
Therefore, the fair market value of the forward contracts approximates their
nominal value as of the balance sheet date. The contracted amounts of the
Company's outstanding forward contracts as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Forward
(Dollars in thousands) Contracts
- - ---------------------- ---------
<S> <C>
Currency:
Deutschemark......................................... $ 9,300
Yen.................................................. 7,400
Sterling............................................. 8,293
Total................................................ $ 24,993
</TABLE>
CASH AND CASH EQUIVALENTS
Included in cash equivalents are $12.4 million ($21.4 million in 1995) in
variable rate demand notes which are investments in debt securities that are
revalued every seven days and puttable to the remarketing agent with seven days'
notice. The notes are guaranteed by letters of credit from highly rated
financial institutions. The carrying amounts reported in the balance sheet for
cash and cash equivalents approximate fair value.
LONG-AND SHORT-TERM DEBT
The fair value of the Company's debt (which had a carrying value of $44,530,000)
at December 31, 1996 was estimated at $ 45,915,000 using a discounted cash flow
analysis based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
In December 1995, the Company entered into an interest rate swap, converting
to a fixed rate from a variable rate on a $3,000,000 industrial revenue
development bond. The fair value of this swap approximates its carrying value.
OTHER SWAP ARRANGEMENTS
The Company has entered into a commodity swap agreement to hedge a portion of
anticipated copper purchases during 1997. Under the agreement, the Company
receives or makes payments based on the difference between a specified price and
the market price of copper. The fair value of this contract at December 31, 1996
is $2.3 million (notional amount $2.1 million). This commitment expires in
December 1997.
INTEREST RATE SWAP AGREEMENT
In December, 1996, the Company has entered into an interest rate swap agreement
to hedge the variable rate payments to be made during the initial term of an
equipment lease (see Note F). The Company has accounted for the swap as a hedge
effectively fixing the estimated lease payments at a total of $13.1 million
through the initial lease term. The notional value of the swap approximates its
fair value at December 31, 1996.
NOTE H - CAPITAL STOCK
The Company has 5,000,000 shares of Serial Preferred Stock authorized (no par
value), none of which has been issued. Certain terms of the Serial Preferred
Stock, including dividends, redemption and conversion, will be determined by the
Board of Directors prior to issuance.
On January 26, 1988, the Company's Board of Directors declared a dividend of
one preferred stock purchase right for each outstanding share of
12
<PAGE> 15
Common Stock. Each right entitles the shareholder to buy one one-hundredth of a
share of Serial Preferred Stock, Series A, at an initial exercise price of $100.
450,000 unissued shares of Serial Preferred Stock have been designated as Series
A Preferred Stock. Each share of Series A Preferred Stock will be entitled to
participate in dividends on an equivalent basis with one hundred shares of Brush
Wellman Common Stock. Each share of Series A Preferred Stock will be entitled to
one vote. The rights are not exercisable and will not be evidenced by separate
right certificates until a specified time after any person or group acquires
beneficial ownership of 20% or more (or announces a tender offer for 20% or
more) of Brush Wellman Common Stock. The rights expire on January 26, 1998, and
can be redeemed for 3 cents per right under certain circumstances.
In December 1995, the Company's Board of Directors authorized a program to
repurchase up to 1,000,000 shares of its Common Stock. In May 1996, the
Company's Board of Directors withdrew the authority for additional share
repurchases. The Company repurchased 524,400 shares at a total cost of
$9,482,000 under this program.
The 1995 Stock Incentive Plan authorizes the granting of five categories of
incentive awards: performance restricted shares, performance shares, performance
units, restricted shares and option rights. In 1996, a total of 116,653
performance restricted shares and 118,127 performance shares were granted to
certain employees. In 1995, a total of 43,921 performance restricted shares and
21,961 performance shares (682 and 341 were subsequently forfeited,
respectively) were granted to certain employees. The market value of the
performance restricted shares and the performance shares adjusted for
management's expectation of reaching the Management Objectives as outlined in
the plan agreement, and the related dividends on the performance restricted
shares have been recorded as deferred compensation-restricted stock and are a
component of other equity transactions of shareholders' equity. At December 31,
1996, no amount for the performance shares has been recorded as deferred
compensation restricted stock. Deferred compensation on the performance
restricted shares is amortized over the vesting period and amounted to $188,000
and $366,000 in 1996 and 1995, respectively. Option rights entitle the optionee
to purchase common shares at a price equal to or greater than market value on
the date of grant. Option rights outstanding under the 1995 Stock Incentive Plan
and previous plans generally become exercisable over a four-year period and
expire ten years from the date of the grant.
The 1990 Stock Option Plan for Non-Employee Directors provides for a
one-time grant of 5,000 options to each non-employee director at an option price
equal to the fair market value of the shares at the date of the grant. Options
are non-qualified and become exercisable six months after the date of grant. The
options generally expire ten years after the date they were granted.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation", but applies APB Opinion No. 25 and
related Interpretations in accounting for its stock incentive plans. The
compensation expense determined in applying SFAS No. 123 was immaterial for 1996
and 1995.
A summary of option activity during the years 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
Range of Weighted Avg.
Shares Option Prices Exercise Price
<S> <C> <C> <C>
Outstanding at January 1, 1994 1,744,090 $11.81 to $38.94
Granted................................. 215,700 $15.19 to $15.75
Exercised............................... (34,500) $12.00 to $15.31
Canceled................................ (346,990) $12.00 to $38.94
---------
Outstanding at December 31, 1994 1,578,300 $11.81 to $38.94
Granted................................. 210,400 $17.69 to $19.81 $17.74
Exercised............................... (71,270) $12.00 to $17.25 $13.77
Canceled................................ (55,690) $12.00 to $38.94 $29.34
---------
Outstanding at December 31,1995 1,661,740 $11.81 to $38.94
Granted................................. 35,000 $18.63 to $19.06 $18.69
Exercised............................... (93,710) $12.00 to $15.75 $13.93
Canceled................................ (58,460) $12.00 to $38.94 $30.98
---------
Outstanding at December 31, 1996 ....... 1,544,570 $11.81 to $38.94
=========
</TABLE>
At December 31, 1996, options for 1,375,730 shares (1,313,560 shares at December
31, 1995) were exercisable with a weighted average remaining contractual life of
4.9 years and 5.9 years for 1996 and 1995, respectively. The outstanding options
as of December 31, 1996, may be divided into the following ranges:
<TABLE>
<CAPTION>
Range of Average
Option Prices Outstanding Exercisable Remaining Life
------------- ----------- ----------- --------------
<C> <C> <C> <C> <C>
$11.81 to $17.69 1,008,570 874,730 6.82
$18.63 to $25.50 484,000 449,000 3.20
$28.38 to $38.94 52,000 52,000 0.43
Total 1,544,570 1,375,730
</TABLE>
As of December 31, 1996, there were 334,112 shares (545,432 at December 31,
1995) available for future grants.
NOTE I - INCOME TAXES
Income before income taxes and income taxes are made up of the following
components, respectively:
(Dollars in thousands) 1996 1995 1994
--------- -------- ---------
Income before income taxes:
Domestic ........................... $ 28,750 $ 20,480 $ 17,570
Foreign ............................ 4,427 6,953 5,457
-------- -------- --------
Total before income taxes ........ $ 33,177 $ 27,433 $ 23,027
======== ======== ========
Income taxes:
Current income taxes:
Domestic ........................... $ 7,736 $ 6,779 $ 5,374
Foreign ............................ 2,089 2,768 1,968
Benefit of foreign loss carryforward -- -- (1,072)
-------- -------- --------
Total current........................ 9,825 9,547 6,270
Deferred income taxes:
Principally domestic ............... (1,139) (2,803) (1,793)
-------- -------- --------
Total income taxes ............... $ 8,686 $ 6,744 $ 4,477
======== ======== ========
13
<PAGE> 16
A reconciliation of the federal statutory and effective income tax
rates(benefits) follows:
1996 1995 1994
---- ---- ----
Federal statutory rate ..................... 35.0% 35.0% 34.0%
State and local income taxes, net
of federal tax effect .................... 1.1 2.1 3.2
Effect of excess of percentage
depletion over cost depletion ............ (4.9) (5.5) (6.1)
Company-owned life insurance ............... (3.6) (4.9) (5.1)
Difference due to book and tax basis
of assets of acquired businesses ......... 1.1 0.4 0.4
Taxes on foreign income - net .............. (1.2) (2.2) (3.5)
Reduction of valuation allowance ........... -- -- (4.7)
Other items ................................ (1.3) (0.3) 1.2
---- ---- ----
Effective tax rate ..................... 26.2% 24.6% 19.4%
==== ==== ====
Included in income taxes currently payable, as shown in the Consolidated
Statements of Income, are $585,000, $904,000 and $1,116,000 of state and local
income taxes in 1996, 1995 and 1994, respectively.
The Company made domestic and foreign income tax payments, net of refunds,
of $11,144,000 $8,087,000 and $5,353,000 in 1996, 1995 and 1994, respectively.
Under Statement 109, deferred tax assets and liabilities are determined
based on temporary differences between the financial reporting bases and the tax
bases of assets and liabilities. Deferred tax assets and (liabilities) recorded
in the consolidated balance sheets consist of the following at December 31:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
Postretirement benefits other than pensions ........ $ 12,391 $ 12,333
Alternative minimum tax credit ..................... 5,155 5,937
Other reserves ..................................... 6,911 5,339
Restructuring accrual .............................. 1,239 1,981
Inventory .......................................... 380 --
Miscellaneous ...................................... 744 236
-------- --------
Total deferred tax assets .......................... 26,820 25,826
======== ========
Depreciation ....................................... (10,015) (9,836)
Pensions ........................................... (3,851) (3,914)
Mine development ................................... (2,005) (2,070)
Capitalized interest expense ....................... (1,358) (1,340)
Inventory .......................................... -- (214)
-------- --------
Total deferred tax liabilities ..................... (17,229) (17,374)
-------- --------
Net deferred tax asset ............................. $ 9,591 $ 8,452
======== ========
</TABLE>
NOTE J - PENSIONS
The Company and its subsidiaries have noncontributory pension plans covering
substantially all U.S. employees. Plans provide benefits based on the
participants' years of service and compensation or stated amounts for each year
of service. The Company's funding policy is to make the minimum actuarially
computed annual contributions required by applicable regulations. No
contributions were made in 1996, 1995 or 1994.
A summary of the components of net periodic pension cost (credits) for
pension plans follows (in thousands):
<TABLE>
<CAPTION>
Defined benefit plans: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost-benefits earned
during the period ..................... $ 2,591 $ 1,942 $ 2,125
Interest cost on projected
benefit obligation .................... 4,958 4,512 4,247
Actual return (increase)/decrease
on plan assets ........................ (11,084) (12,684) 897
Net amortization and deferral ........... 3,890 5,759 (7,684)
-------- ------- --------
Total (credit) expense ................ $ 355 $ ( 471) $ (415)
======== ======= ========
</TABLE>
The following table sets forth the funded status of the Company's plans and the
amounts recognized in the consolidated balance sheets at December 31 (in
thousands):
<TABLE>
<CAPTION>
PLANS WHOSE ASSETS
EXCEED ACCUMULATED
BENEFITS
1996 1995
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation .............................. $ 51,898 $ 49,410
======== ========
Accumulated benefit obligation ......................... $ 56,288 $ 53,669
======== ========
Plan assets at fair value .............................. $ 84,819 $ 76,970
======== ========
Projected benefit obligation ........................... (68,264) (65,044)
-------- --------
Plan assets in excess of projected benefit obligation .. 16,555 11,926
Unrecognized net (gain) or loss ........................ (3,577) 1,731
Unrecognized net assets, at date of adopting
FAS 87, net of amortization .......................... (4,015) (4,723)
Unrecognized prior service cost ........................ 2,365 2,577
-------- --------
Net pension asset recognized at December 31 ........... $ 11,328 $ 11,511
======== ========
</TABLE>
<TABLE>
<CAPTION>
Assumptions used in accounting for the pension plans were:
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate.................... 7.50% 7.25% 8.25%
Rate of increase in compensation levels............ 5% 5% 5%
Expected long-term rate of return on assets........ 9% 9% 9%
</TABLE>
Plan assets consist primarily of listed common stocks, corporate and government
bonds and short-term investments.
The Company also has accrued unfunded retirement arrangements for certain
U.S. employees and directors. At December 31, 1996, the projected benefit
obligation was $1,910,000 ($1,569,000 in 1995). A corresponding accumulated
benefit obligation of $1,747,000 ($1,421,000 in 1995) has
14
<PAGE> 17
been recognized as a liability in the balance sheet and is included in
retirement and post-employment benefits. Certain foreign subsidiaries have
funded and accrued unfunded retirement arrangements which are not material to
the consolidated financial statements.
The Company also sponsors a defined contribution plan available to
substantially all U.S. employees. Company contributions to the plan are based on
matching a percentage of employee savings up to a specified savings level. The
Company's contribution was $1,844,000 in 1996, $1,683,000 in 1995 and $1,596,000
in 1994.
NOTE K - OTHER POSTRETIREMENT BENEFIT PLANS
In addition to the Company's defined benefit pension plans and deferred
contribution plans, the Company currently provides postretirement medical and
death benefits to certain full-time employees and spouses, excluding those of
subsidiaries. The Company also provides medical benefits to certain retired
employees and spouses from an operation that was divested in 1985.
Employees become eligible at age 55 with 10 years of service. Certain
employees, excluding those of subsidiaries, who retired after June 30, 1992
receive credits, based on years of service up to 30, to be used toward the
purchase of medical benefits. Contributions toward the cost of medical benefits
are required from retirees with less than 30 years of service and also for
increases in the cost of medical benefits due to inflation. Employees who
retired prior to July 1, 1992 generally had less stringent eligibility criteria
and contribution rates, and account for the majority of the postretirement
benefit obligation.
The following table presents the plan's funded status and the amounts
recognized in the Company's consolidated balance sheets (in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
Accumulated postretirement benefit obligation:
<S> <C> <C>
Retirees ............................................... $22,477 $23,610
Fully eligible active plan participants .............. 5,371 4,696
Other active plan participants ....................... 3,995 4,636
31,843 32,942
Plan assets ............................................ -- --
Unrecognized net gain .................................. 4,612 2,858
------- -------
Accrued postretirement benefit obligation .............. $36,455 $35,800
======= =======
</TABLE>
Net periodic postretirement benefit cost includes
the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost........................................ $385 $304 $341
Interest cost....................................... 2,277 2,409 2,612
Amortization of (gain)............................ (25) (140) --
Adjustment to benefit obligation -- -- --
------ ------ -------
Net periodic postretirement benefit cost ............ $2,637 $2,573 $2,953
====== ====== ======
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) used in determining the
accumulated postretirement benefit obligation as of December 31, 1996 is 6.50%
for retirees age 65 and over and 8.50% for retirees under age 65 in 1997, and
both are assumed to decrease gradually to 4.75% until 2005 and remain at that
level thereafter. The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1996 by
$1,751,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1996 by $156,000.
This increase would apply only to employees who retired prior to July 1, 1992.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.50% at December 31, 1996, 7.25% at
December 31, 1995 and 8.25% at December 31, 1994.
NOTE L - CONTINGENCIES
The Company is from time to time involved in various legal and other proceedings
that relate to the ordinary course of operating its business, including, but not
limited to: employment-related actions; product liability claims; and workers'
compensation claims.
While the Company is unable to predict the outcome of current proceedings,
based upon the facts currently known to it, the Company does not believe that
resolution of these proceedings will have a material adverse effect on the
financial condition or operations of the Company.
The Company has an active program for environmental compliance which
includes the identification of environmental projects and estimating their
impact on the Company's financial performance and available resources.
Environmental expenditures that relate to current operations, such as wastewater
treatment and control of airborne emissions, are either expensed or capitalized
as appropriate. For projects involving remediation, estimates of the probable
costs are made and the Company established reserves of $4.0 million at December
31, 1996 ($3.3 million at December 31, 1995). These reserves cover existing or
currently foreseen projects. Expenditures are charged to the reserve which is
adjusted from time to time as additional projects are identified and for which
probable costs of remediation can be estimated. The current portion of the
reserve is included in the balance sheet as other liabilities and accrued items
while the long-term portion is included under other long-term liabilities.
As of December 31, 1996, the Company has outstanding commitments of $13
million to purchase capital equipment.
<PAGE> 18
Notes to Consolidated Statements (continued)
NOTE M - OPERATIONS BY GEOGRAPHIC AREA
Years ended December 31, 1996, 1995 and
1994 (Dollars in thousands)
<TABLE>
<CAPTION>
1996
------------------------------------------------------
OPERATIONS INTERNATIONAL
IN THE DISTRIBUTION ADJUSTMENTS &
UNITED STATES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ -------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers ........ $ 301,451 $ 74,828 $ 376,279
Transfers between operations ........... 43,190 ($ 43,190)
--------- --------- --------- ---------
Net Sales .......................... $ 344,641 $ 74,828 ($ 43,190) $ 376,279
========= ========= ========= =========
Operating profit (loss) ................ $ 29,591 $ 4,783 ($ 69) $ 34,305
========= ========= ========= =========
Interest expense ....................... (1,128)
---------
Income before income taxes ......... $ 33,177
=========
Identifiable assets at December 31, 1996 $ 298,832 $ 43,812 ($ 5,237) $ 337,407
========= ========= ========= =========
Corporate assets ....................... 18,372
---------
Total assets at December 31, 1996 .. $ 355,779
=========
1995
--------------------------------------------------
Sales to unaffiliated customers ........ $ 278,455 $ 91,163 $ 369,618
Transfers between operations ........... 54,065 ($ 54,065)
--------- --------- --------- ---------
Net Sales .......................... $ 332,520 $ 91,163 ($ 54,065) 369,618
========= ========= ========= =========
Operating profit (loss) ................ $ 24,932 $ 7,378 ($ 3,224) $ 29,086
========= ========= ========= =========
Interest expense ....................... (1,653)
---------
Income before income taxes ......... $ 27,433
=========
Identifiable assets at December 31, 1995 $ 287,977 $ 44,718 ($ 4,835) $ 327,860
========= ========= ========= =========
Corporate assets ....................... 3,993
---------
Total assets at December 31, 1995 .. $ 331,853
=========
1994
------------------------------------------------------
Sales to unaffiliated customers ........ $ 262,358 $ 83,520 $ 345,878
Transfers between operations ........... 47,239 ($ 47,239)
--------- --------- --------- ---------
Net Sales .......................... $ 309,597 $ 83,520 ($ 47,239) $ 345,878
========= ========= ========= =========
Operating profit (loss) ................ $ 21,520 $ 5,841 ($ 2,263) $ 25,098
========= ========= =========
Interest expense ....................... (2,071)
---------
Income before income taxes ......... $ 23,027
=========
Identifiable assets at December 31, 1994 $ 274,376 $ 41,687 ($ 5,538) $ 310,525
========= ========= =========
Corporate assets ....................... 6,608
---------
Total assets at December 31, 1994 .. $ 317,133
=========
</TABLE>
Transfers between operations are accounted for in the same manner as sales to
unaffiliated customers. Corporate assets are principally cash and cash
equivalents and investments.
Total international sales were $108,402,000 in 1996, $127,289,000 in 1995,
and $114,911,000 in 1994. These are comprised of exports from United States
operations and direct sales by international distribution subsidiaries,
primarily in Europe. Most of these sales represent products manufactured in the
United States.
Export sales from United States operations amounted to $33,574,000 in 1996,
$36,126,000 in 1995, and $31,391,000 in 1994.
16
<PAGE> 19
NOTE N - QUARTERLY DATA (UNAUDITED)
Years ended December 31, 1996 and 1995
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Net Sales .............................. $ 93,801 $ 104,349 $ 88,312 $ 89,817 $ 376,279
Gross Margin ........................... 24,793 31,649 23,728 28,396 108,566
Percent of Sales .................... 26.4% 30.3% 26.9% 31.6% 28.9%
Net Income ............................. 5,155 8,144 4,565 6,627 24,491
Per Share of Common Stock:
Net Income .......................... 0.32 0.51 0.28 0.41 1.52
Dividends ........................... 0.10 0.10 0.11 0.11 0.42
Stock price range
High................................. 19.88 19.38 20.50 19.50
Low ................................. 17.00 17.25 17.88 16.13
</TABLE>
<TABLE>
<CAPTION>
1995
----------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Net Sales.................................. $98,912 $ 97,283 $ 89,361 $ 84,062 $ 369,618
Gross Margin .............................. 27,372 27,241 22,632 23,641 100,886
Percent of Sales .......................... 27.7% 28.0% 25.3% 28.1% 27.3%
Net Income ................................ 6,789 6,676 3,332 3,892 20,689
Per Share of Common Stock:
Net Income ............................. 0.42 0.40 0.20 0.24 1.26
Dividends............................... 0.08 0.08 0.10 0.10 0.36
Stock price range
High.................................... 18.13 21.88 23.63 18.63
Low .................................... 14.50 17.63 18.38 16.00
</TABLE>
17
<PAGE> 20
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
[LOGO]
Board of Directors and Shareholders
Brush Wellman Inc.
We have audited the accompanying consolidated balance sheets of Brush Wellman
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Brush Wellman
Inc. and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 22, 1997
- - --------------------------------------------------------------------------------
Report of Management
The management of Brush Wellman Inc. is responsible for the contents of the
financial statements which are prepared in conformity with generally accepted
accounting principles. The financial statements necessarily include amounts
based on judgments and estimates. Financial information elsewhere in the annual
report is consistent with that in the financial statements.
The Company maintains a comprehensive accounting system which includes
controls designed to provide reasonable assurance as to the integrity and
reliability of the financial records and the protection of assets. However,
there are inherent limitations in the effectiveness of any system of internal
controls and, therefore, it provides only reasonable assurance with respect to
financial statement preparation. An internal audit staff is employed to
regularly test and evaluate both internal accounting controls and operating
procedures, including compliance with the Company's statement of policy
regarding ethical and lawful conduct. The role of the independent auditors is to
provide an objective review of the financial statements and the underlying
transactions in accordance with generally accepted auditing standards.
The Audit Committee of the Board of Directors, comprised of directors who
are not members of management, meets regularly with management, the independent
auditors and the internal auditors to ensure that their respective
responsibilities are properly discharged. The independent auditors and the
internal audit staff have full and free access to the Audit Committee.
/s/ Carl Cramer
Carl Cramer
Vice President Finance and Chief Financial Officer
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
FORWARD-LOOKING INFORMATION
Portions of narrative set forth in this Annual Report that are not historical in
nature are forward-looking statements. The Company's actual future performance
may differ from that contemplated by the forward-looking statements as a result
of a variety of factors that include, in addition to those mentioned elsewhere
herein, the condition of the markets which the Company serves, the success of
the Company's strategic plans, the timely and successful completion of pending
capital expansions and the conclusion of pending litigation matters in
accordance with the Company's expectation that there will be no materially
adverse effects.
RESULTS OF OPERATIONS
1996 TO 1995 COMPARISON
Worldwide sales in 1996 were a record $376.3 million surpassing the previous
record of $369.6 million achieved in 1995. The revenue growth came primarily
from domestic beryllium alloy products and specialty metal systems. The
resulting profits grew faster than sales, as earnings per share were $1.52 in
1996, an improvement of 21% over last year.
Worldwide sales of beryllium alloys increased in 1996 over 1995.
Domestically, sales of beryllium copper precision strip, rod and wire were
higher as shipments to the automotive electronics and telecommunications markets
grew. In electronic applications, these alloys frequently offer a superior
combination of reliability, conductivity and formability over competitive
materials. In other applications, depending upon their composition, beryllium
alloys' performance characteristics include good thermal conductivity, strong
wear resistance and high strength and hardness. Sales of bulk products (bar,
tube, plate, custom fabricated parts) also increased in 1996, capitalizing on
these characteristics to further penetrate the aerospace, plastic tooling and
various industrial markets. The recreation and leisure market emerged as a
potentially large application for bulk products; however, with a limited
customer base, sales into this market may be seasonal and inconsistent from year
to year.
International sales of beryllium alloys declined in 1996 compared to 1995 as
a result of softening economic conditions in Germany and other portions of
western Europe. The sales growth in Japan and the Pacific rim slowed down from
recent years, but modest improvements were still recorded. The strong dollar in
1996 also contributed to the reported international sales decline, as foreign
currency sales are translated into fewer dollars compared to 1995. The domestic
beryllium alloy growth more than offset the international decline.
In 1996, the Company embarked upon a $110 million project to modernize and
expand its beryllium alloy production capabilities at its Elmore, Ohio facility.
A three-year project, its objectives are to improve quality and turnaround time,
lower costs, increase capacity and provide an even safer work environment. While
the automotive market potential for the Company's precision strip products is
the main impetus behind the project, virtually all beryllium alloy products and
markets served should benefit upon the project's completion.
Sales of specialty metal systems grew in 1996 over 1995. The gains came
primarily from the telecommunications market, with some additional contribution
from the automotive market as well. Semiconductor shipments were quite strong in
the first part of the year, but a major market slow down, which continued
through year end, adversely affected second half sales.
Precious metal sales were down in 1996 from last year's levels, but sales in
the second half 1996 were higher than in the second half 1995. An anticipated
decline in frame lid assemblies occurred due to a major customer's re-design to
a non-precious metal material in the second quarter 1995. Efforts to broaden the
product offering have been successful through the continued development of
physical/vapor deposition products and services and high temperature braze
alloys. Fine wire sales remained minor. International sales declined in the
current year, reflecting the drop-off in frame lid assembly sales.
Beryllium sales slowed slightly in 1996 as compared to 1995. Defense
applications remain the largest portion of these sales, but at significantly
lower levels resulting from reduced government defense spending in recent years.
Commercial applications, particularly those using AlBeMet(R) (a beryllium
aluminum alloy) are beginning to develop. AlBeMet(R)'s high stiffness and low
density provide excellent properties for a variety of aerospace and
telecommunications applications.
Ceramic sales slipped in 1996 from 1995 levels due to a slowdown in
shipments of base business beryllia ceramic to the telecommunications and
automotive industries. The growth in direct bond copper products was not
sufficient to compensate as these products continue to experience development
delays.
Circuits Processing Technology, Inc. (CPT) was acquired in late October 1996
by the Company and contributed a minor amount to sales and profits. CPT, which
produces thick film circuits using a proprietary etching process, gives the
Company an additional entree into the micro-electronics market.
International operations consist of distribution centers in Germany, England
and Japan, a marketing office in Singapore and a small precious metal finishing
facility in Singapore. Sales by these operations totaled $74.8 million in 1996
compared to $91.2 million in 1995. Sales by the international operations are
predominantly in their respective local currencies with the balance in U.S.
dollars. Direct exports to unaffiliated customers total $33.6 million in 1996
and $36.1 million in 1995. The majority of these sales are to Canada and western
Europe and are
19
<PAGE> 22
denominated in U.S. dollars. International markets served are essentially the
same as in the U.S.
As outlined in Note G to the Consolidated Financial Statements, the Company
has a foreign currency hedge program to protect against adverse currency
movements. Should the dollar strengthen significantly, the decrease in value of
foreign currency transactions will be partially offset by gains on the hedge
contracts. As of December 31, 1996, outstanding hedge contracts totaled $25
million, the same as the previous year end.
Cost of sales declined by $1.0 million in 1996 from 1995 on higher sales,
resulting in a $7.7 million improvement in gross profit. Improved operating
efficiencies, including higher yields on certain products, better utilization of
available capacity, effective use of recycled materials and strong cost control
measures, increased the gross margin to 28.9% of sales in 1996 from 27.3% in
1995. Stable prices and product mix helped to offset the negative margin impact
of the stronger dollar. The lower copper cost in 1996, as compared to 1995, is
passed through to the customer and thus had no impact on gross margin.
Selling, administrative and general expenses of $65.0 million represent a 4%
increase over the prior year. Expenses associated with the first phase of
implementing an enterprise-wide information system caused a portion of the
increase. The project will carry over into 1997 and beyond. Additional
administrative and legal expenses were incurred to support and structure the
$110 million modernization and expansion project and the related financial
arrangements. Compensation plans carried higher costs in 1996 and certain sales
volume related expenses increased in 1996 as well.
Research and development (R&D) expenses grew to $8.3 million or 2.2% of
sales in 1996 from $7.8 million or 2.1% of sales in 1995. The increase is
predominantly from efforts to develop a new high quality, low cost precision
beryllium copper strip. The new product will be designed to augment the
Company's current offerings to the electronics markets. The R&D staffing was
also increased. Expenditures on non-beryllium alloy R&D were flat.
Other-net expense was $1.0 million in 1996 and $1.3 million in 1995. Foreign
currency gains, including realized gains on hedge contracts, were $1.2 million
higher in the current year than the last. In 1996, goodwill and other intangible
assets totaling $1.1 million associated with the Fremont, California facility
were written off. While this operation is profitable, its scope of operations,
including product offerings, research capabilities and production capacity, has
been significantly reduced since its acquisition in 1989.
Interest expense fell to $1.1 million in 1996 from $1.7 million in 1995.
These figures are net of capitalized interest associated with long-term capital
projects of $1.0 million in 1996 and $0.4 million in 1995. The weighted average
interest rate was essentially unchanged year on year.
Income before income taxes was $33.2 million in 1996, a 20.9% improvement
from 1995. Slightly higher sales and significantly improved margins were
responsible for the increase.
An effective tax rate of 26.2% of pre-tax earnings was used in 1996, an
increase from the 24.6% rate in 1995. Increased pre-tax earnings, reduced
foreign tax benefits and a reduction in the allowable tax benefits from the
Company-owned life insurance program as a result of a change in the tax law
caused the higher rates. Adjustments to the statutory tax rate are detailed in
Note I to the Consolidated Financial Statements.
Comparative earnings per share were $1.52 in 1996 and $1.26 in 1995.
1995 TO 1994 COMPARISON
Worldwide sales in 1995 were $369.6 million compared to $345.9 million in 1994.
All product lines, except precious metals, increased over the prior year with
beryllium alloys and specialty metal systems increasing significantly.
Sales of beryllium alloy products increased in both the domestic and
international markets. The focused marketing efforts -- teams dedicated towards
particular markets and/or end use applications -- helped support the domestic
growth. Successful examples of these efforts include the continued penetration
into the automotive electronics market and a significant increase in shipments
of products used in aircraft bearings and bushings. Telecommunications and
computers also remain important markets for beryllium alloys as do appliances,
especially in Europe. Favorable economic conditions in portions of western
Europe, particularly in the first half of the year, helped fuel an addition in
sales there. Sales in Asia grew as a result of increased market share and
development of new applications. The sales trend in general for beryllium alloy
strip products is for customers to move toward the lower price alloys such as
the Company's Alloy 174. The sales increase in 1995 over 1994 was also due, in
part, to favorable foreign currency exchange rates and the pass-through effect
of higher commodity costs, particularly copper.
Beryllium sales increased slightly in 1995 over 1994, but were still
somewhat lower than in the recent years prior to 1994. A large portion of
beryllium sales continues to be for defense/aerospace applications and 1995
sales were enhanced by shipments for defense programs in Europe and growth in
new domestic defense applications in avionics. The two targets for growth are
new defense/aerospace systems, particularly upgrades of current defense systems,
and commercial applications. Research and development, marketing and
manufacturing efforts were re-deployed to concentrate on specific applications
in these and related markets.
Ceramic sales grew in 1995 as compared to 1994. The increase is primarily a
result of the continued development of products utilizing the
20
<PAGE> 23
direct bond copper technology. These sales were not profitable due to new
process development and other start-up costs.
Sales of specialty metal systems increased in 1995 over 1994. Most products
experienced gains in 1995 with CERDIP sales increasing significantly. Sales
improved as a result of developing new product applications, increasing market
share and continued expansion into the international markets. Major applications
for these products continue to be automotive electronics and telecommunications.
Precious metal sales declined significantly in 1995 as compared to 1994.
Frame lid assembly sales were reduced due to a customer's re-design of a major
microprocessor application. The re-design had been anticipated by management and
resources have been directed towards developing alternative products and
markets. Sales of physical/vapor deposition products, which service the hybrid
microelectronics, recordable CD, telecommunications and specialty coatings
markets, continue to increase. A small acquisition in late 1994 gave the Company
access to the ultra-fine wire market.
Sales from International operations totaled $91.2 million in 1995 compared
to $83.5 million in 1994. International sales of beryllium alloy increased while
sales of frame lid assemblies from Singapore declined. Direct export sales to
unaffiliated customers totaled $36.1 million in 1995 and $31.4 million in 1994.
The majority of these sales were to Canada and western Europe.
Gross margin was 27.3% in 1995 as compared to 26.6% in 1994. The increase in
international sales, which generally carry higher margins, contributed to this
improvement as did the favorable exchange rates. The direct bond copper start-up
costs and a shift in the remaining frame lid assembly business to smaller and
costlier pieces offset a portion of this increase. Certain manufacturing
expenses, including maintenance at the Elmore, Ohio facility, were higher in
1995 than 1994. Commercial applications of beryllium, particularly those
products containing AlBeMet(R), also have lower margins than traditional defense
applications, although restructuring efforts have reduced certain overhead
costs. The pass-through effect of higher commodity costs in beryllium alloy
sales reduced the margin percent while having no bearing on the actual margin
measured in dollars.
Selling, administrative and general expenses were $62.7 million (17.0% of
sales) in 1995 compared to $55.5 million (16.0% of sales) in 1994. Most expense
categories were higher. Causes of the increases include the alloy products
re-design effort and start-up costs associated with the Singapore subsidiary
established to provide marketing support in South Asia. Distribution and other
sales-related expenses grew due to higher volumes of beryllium alloy products.
The exchange rate effect on the international operations' expenses was also
unfavorable.
Research and development (R&D) expenses were $7.8 million in 1995 compared
to $8.8 million in 1994. The decrease was due to focusing beryllium products'
research efforts on selected key applications. R&D expenses supporting all other
products either increased or were flat with the prior year. The R&D efforts for
new process and product development are coordinated with the Company's overall
marketing strategies and growth plans.
Other-net expense was $1.3 million in 1995 and $2.6 million in 1994. This
category included such expenses as amortization of intangible assets and other
non-operating items. The decrease in net expense was due, in part, to lower
foreign currency exchange losses in 1995.
Interest expense fell to $1.7 million in 1995 from $2.1 million in 1994 due
to a lower average level of debt outstanding and an increase in capitalized
interest associated with active capital expenditure projects.
Income before income taxes rose to $27.4 million in 1995 from $23.0 million
in 1994. Higher sales and the resulting gross margin, along with a favorable
foreign currency effect, combined to improve earnings. This improvement was
partially offset by the increase in selling, general and administrative
expenses.
In 1995, an effective tax rate of 24.6% of pre-tax earnings was employed
compared to 19.4% of pre-tax earnings in 1994. Higher domestic and foreign
pre-tax earnings accounted for the increase.
Comparative earnings per share were $1.26 in 1995 and $1.14 in 1994.
FINANCIAL POSITION
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operations was $45.0 million in 1996, a $5.4 million improvement
from 1995. Total depreciation, depletion and amortization was $23.0 million in
1996 compared to $20.9 million in 1995. The December 31, 1996 cash balance of
$31.7 million represents a $2.2 million increase from the prior year end while
total debt increased $4.8 million. The accounts receivable balance was flat year
on year; however, with higher sales in the fourth quarter 1996 than fourth
quarter 1995, the average days sales outstanding improved.
The $110 million modernization and expansion project begun in 1996 will be
financed in part by two operating leases totaling approximately $75 million (see
Note F to the Consolidated Financial Statements). While the leases will also
finance the construction phase of the project, lease payments are not scheduled
to begin until the underlying assets are placed in service in 1997 and 1998.
Capital expenditures for property, plant and equipment, excluding items
under lease, were $26.8 million while mine development payments totaled an
additional $3.7 million. Major expenditures included a new plating line at the
Providence, Rhode Island facility and completion of the new rod mill
21
<PAGE> 24
at the Elmore, Ohio facility. The Company also began construction of a new
facility in Lorain, Ohio that will produce a specialty family of alloys in rod,
bar and tube form. The facility is scheduled to be operational in mid-1997. To
finance the majority of this project, the Company issued $8.3 million of
tax-advantaged industrial revenue development bonds. Unexpended bond proceeds of
$7.9 million are restricted for use on the Lorain project and are included as
cash and cash equivalents on the consolidated balance sheets as of December 31,
1996.
Short-term debt at December 31, 1996 of $25.7 million includes $6.6 million
of the current portion of long-term debt. The balance is denominated in precious
metals and foreign currencies to provide hedges against current assets so
denominated. Credit lines amounting to $70.5 million are available for
additional borrowing. The domestic and international lines are uncommitted,
unsecured and reviewed annually. The precious metal facility is committed,
secured and renewed annually.
Long-term debt was $18.9 million or 8.6% of total capital at December 31,
1996. Long-term financial resources available to the Company include $60 million
of medium-term notes and $50 million under a revolving credit agreement.
Approximately 359,000 shares of Common Stock at a cost of $6.7 million were
re-purchased in early 1996 under a program initiated during the fourth quarter
1995. The program was suspended in the second quarter 1996. Common Stock was
used to acquire CPT in the fourth quarter 1996. Dividends paid on outstanding
shares totaled $6.5 million, an increase of $1.0 million from last year. The
quarterly dividend per share increased to $0.11 from $0.10 in the third quarter
1996 following a two cents per share increase in the third quarter 1995.
Funds being generated from operations plus the available borrowing capacity
are believed adequate to support operating requirements, capital expenditures,
remediation projects, dividends and small acquisitions. Excess cash, if any, is
invested in money market instruments and other high quality investments.
Cash flow from operating activities in 1995 was $39.6 million. Cash balances
increased $9.1 million during the year while total debt increased less than $1
million. Capital expenditures were $24.2 million in 1995. The Company
re-purchased $2.8 million of Common Stock and paid $5.5 million dividends. As of
December 31, 1995, long-term debt was $17.0 million or 8% of total capital.
ORE RESERVES
The Company's reserves of beryllium-bearing bertrandite ore are located in Juab
County, Utah. An ongoing drilling program has generally added to proven
reserves. Proven reserves are the measured quantities of ore commercially
recoverable through the open pit method. Probable reserves are the estimated
quantities of ore known to exist, principally at greater depths, but prospects
for commercial recovery are indeterminable. Ore dilution that occurs during
mining approximates 7%. About 87% of beryllium in ore is recovered in the
extraction process. The Company augments its proven reserves of bertrandite ore
through the purchase of imported beryl ore (approximately 4% beryllium) which is
also processed at the Utah extraction plant.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Proven bertrandite
ore reserves at
year end (thousands
of dry tons) ........ 6,763 6,927 6,747 6,786 6,787
Grade % beryllium ..... 0.249% 0.249% 0.251% 0.251% 0.251%
Probable bertrandite
ore reserves at
year-end (thousands
of dry tons) ........ 7,432 7,346 7,559 7,594 7,482
Grade % beryllium ..... 0.217% 0.281% 0.279% 0.279% 0.281%
Bertrandite ore
processed (thousands
of dry tons, diluted) 97 96 79 92 91
Grade % beryllium,
diluted ............. 0.236% 0.232% 0.240% 0.232% 0.234%
</TABLE>
INFLATION AND CHANGING PRICES
The prices of certain major raw materials, including copper, nickel and gold
purchased by the Company, decreased during 1996. Such changes in costs are
generally reflected in selling price adjustments. The prices of labor and other
factors of production generally increase with inflation. Additions to capacity,
while more expensive over time, usually result in greater productivity or
improved yields. However, market factors, alternative materials and competitive
pricing affect the Company's ability to offset wage and benefit increases. The
Company employs the last-in, first-out (LIFO) inventory valuation method
domestically to more closely match current costs with revenues.
ENVIRONMENTAL MATTERS
As indicated in Note L to the Consolidated Financial Statements, the Company
maintains an active program of environmental compliance. For projects involving
remediation, estimates of the probable costs are made and the Company has
reserved $4.0 million at December 31, 1996 ($3.3 million at December 31, 1995).
This reserve covers existing and currently foreseen projects.
<PAGE> 25
SELECTED FINANCIAL DATA
Brush Wellman Inc. and Subsidiaries
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1986
---- ---- ---- ---- ---- ----
FOR THE YEAR
<S> <C> <C> <C> <C> <C> <C>
Net Sales.................................................... $376,279 $369,618 $345,878 $295,478 $265,034 $241,428
Cost of sales................................................ 267,713 268,732 253,938 227,686 192,944 161,392
Gross profit................................................. 108,566 100,886 91,940 67,792 72,090 80,036
Operating profit............................................. 34,305 29,086 25,098 10,658 16,949 42,401
Interest expense............................................. 1,128 1,653 2,071 2,952 3,206 2,148
Income (loss) from continuing operations before income taxes. 33,177 27,433 23,027 7,706 13,743 40,253
Income taxes (benefit)....................................... 8,686 6,744 4,477 1,248 3,243 17,578
Net Income (loss) ........................................... 24,491 20,689 18,550 6,458 10,500 22,675
Per share of Common Stock:
Net income (loss)......................................... 1.52 1.26 1.14 0.40 0.65 1.20
Cash dividends declared................................... 0.42 0.36 0.26 0.20 0.26 0.55
Depreciation and amortization................................ 22,954 20,911 19,619 21,720 20,180 17,903
EBITDA....................................................... 57,259 49,997 44,717 32,378 37,129 60,304
Capital expenditures......................................... 26,825 24,244 17,214 11,901 13,604 25,239
Mine development expenditures................................ 3,663 787 543 814 848 3,451
YEAR-END POSITION
Working Capital.............................................. 128,172 125,156 116,708 105,272 88,616 103,416
Ratio of current assets to current liabilities............... 2.9 to 1 2.9 to 1 2.8 to 1 3.1 to 1 2.5 to 1 2.9 to 1
Property and equipment:
At cost.................................................. 404,127 374,367 350,811 337,342 332,971 254,276
Cost less depreciation and impairment.................... 130,220 121,194 116,763 118,926 127,991 144,107
Total assets................................................ 355,779 331,853 317,133 293,372 310,039 341,210
Other long-term liabilities................................. 47,271 45,445 43,354 40,663 40,332 8,270
Long-term debt.............................................. 18,860 16,996 18,527 24,000 33,808 26,563
Shareholders' equity........................................ 219,257 200,302 186,940 172,075 168,824 234,725
Book value per share........................................ 13.46 12.46 11.59 10.70 10.49 12.48
Number of shares of stock outstanding....................... 16,290,808 16,071,224 16,121,915 16,087,415 16,086,515 18,815,799
Shareholders of record...................................... 2,523 2,351 2,521 2,566 2,762 4,522
Number of employees......................................... 1,926 1,856 1,833 1,803 1,831 2,266
In December 1986, a business acquisition was made; the pro forma effect would
have increased 1986 net sales by $35,000,000.
See Notes to consolidated financial statements.
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES %
OF SALES
RETURN ON ASSETS
GROSS PROFITS % OF
SALES
</TABLE>
<PAGE> 26
DIRECTORS
ALBERT C. BERSTICKER (2), (4), (5)
President and Chief Executive Officer,
Ferro Corporation
CHARLES F. BRUSH, III (1),(3), (5)
Personal Investments
DAVID L. BURNER (1), (3)
President and Chief Executive Officer,
BFGoodrich Co.
FRANK B. CARR (1), (2), (4),
Managing Director, Corporate Finance, McDonald & Company
Securities, Inc.
GORDON D. HARNETT (2)
Chairman of the Board
President and Chief Executive Officer
WILLIAM P. MADAR (1), (2), (4), (5)
President and Chief Executive Officer,
Nordson Corporation
GERALD C. MCDONOUGH (3), (4), (5)
Retired Chairman and Chief Executive Officer,
Leaseway Transportation Corp.
ROBERT M. MCINNES (2), (3), (4), (5)
Retired Chairman and Chief Executive Officer,
Pickands Mather & Co.
JAMES P. MOONEY (3)
Chairman and Chief Executive Officer,
OMGroup, Inc.
HENRY G. PIPER
Retired Chairman,
President and Chief Executive Officer
JOHN SHERWIN, JR. (1), (2), (3)
President, Mid-Continent Ventures, Inc.
(1) Audit Committee
(2) Executive Committee
(3) Finance Committee
(4) Nominating Committee
(5) Organization and Compensation Committee
CORPORATE OFFICERS
GORDON D. HARNETT
Chairman of the Board
President and Chief Executive Officer
ROBERT H. ROZEK
Senior Vice President
International
MICHAEL D. ANDERSON
Vice President
Beryllium Products
CARL CRAMER
Vice President Finance
Chief Financial Officer
STEPHEN FREEMAN
Vice President
Alloy Products
CRAIG B. HARLAN
Vice President
International - Europe
JOHN J. PALLAM
Vice President
General Counsel
ANDREW J. SANDOR
Vice President
Alloy Technology
DANIEL A. SKOCH
Vice President
Administration and Human Resources
MICHAEL C. HASYCHAK
Treasurer and Secretary
JAMES P. MARROTTE
Controller
WILLIAM M. CHRISTOFF
Assistant Treasurer - Taxes,
Assistant Secretary
OFFICES AND FACILITIES
MANUFACTURING FACILITIES
Delta, Utah
Elmore, Ohio
Reading, Pennsylvania
Buffalo, New York
Fremont, California
Lincoln, Rhode Island
Newburyport, Massachusetts
San Diego, California
Tucson, Arizona
RESEARCH FACILITIES AND
ADMINISTRATIVE OFFICES
Cleveland, Ohio
SERVICE AND DISTRIBUTION CENTERS
Elmhurst, Illinois
Fairfield, New Jersey
Torrance, California
Warren, Michigan
Stuttgart, Germany
Theale, England
Tokyo/Fukaya, Japan
SUBSIDIARIES
Circuits Processing Technology Inc.
San Diego, California
Technical Materials, Inc.
Lincoln, Rhode Island
Williams Advanced Materials Inc.
Buffalo, New York,
Singapore
Brush Wellman GmbH,
Stuttgart, Germany
Brush Wellman Limited,
Theale, England
Brush Wellman (Japan), Ltd,
Tokyo, Japan
Brush Wellman (Singapore) Pte Ltd,
Singapore
<PAGE> 27
CORPORATE DATA
ENVIRONMENTAL POLICY
Brush Wellman Inc. considers Environmental, Health and Safety as integral parts
of our business strategy and necessary for our success. It is the policy of
Brush Wellman to design, manufacture and distribute all products and to manage
and dispose of all materials in a safe, environmentally sound manner. We are
committed to utilizing our resources and technical capabilities to their fullest
extent to protect the health and safety of our employees, our customers, the
general public and the environment.
The health and safety of our employees is of paramount importance. No
operation or task will be conducted unless it can be performed in a safe manner.
Through education and training, we shall promote a culture which establishes
individual ownership of environmental, health, and safety responsibility
throughout the organization and empowers everyone to continuously improve all
working conditions. Each employee will maintain an awareness of safe work
practices and endeavor to prevent conditions which may result in an unsafe
situation or harm the environment. It is the responsibility of each employee to
promptly notify management of any adverse situation.
We shall make every effort to minimize, to the lowest feasible level,
occupational and environmental exposure to all potentially hazardous materials.
We will go beyond regulatory compliance, striving for continuous improvement
in all our environmental, health and safety control efforts.
The Company will provide medical surveillance and preventive health
maintenance programs for the early detection of occupational diseases.
The Management Team at each location will diligently respond to employee
concerns and is directly responsible for developing and implementing programs
for ensuring that their operations comply with this policy. The Environmental,
Health and Safety staff provides support by:
- - - maintaining liaison with appropriate government agencies and
interpreting and communicating regulations;
- - - providing technical guidance and assisting in the development of
policies and performance standards; and
- - - conducting independent review and assessment of all operations to audit
compliance with environmental, safety and health policies.
All employees are expected to follow the intent and spirit of this policy and
incorporate sound health, safety and environmental practices in the conduct of
their jobs.
This policy applies to all Brush Wellman business units worldwide.
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on May 6, 1997
at 11:00 a.m. at The Forum, One Cleveland Center,
1375 East Ninth Street, Cleveland, Ohio
INVESTOR INFORMATION
Brush Wellman maintains an active program of communication
with shareholders, securities analysts and other members of the investment
community. Management makes regular presentations in major financial centers
around the world. To obtain:
- - - additional copies of the Annual Report
- - - SEC Form 10K/10Q
- - - product literature,
please contact:
Timothy Reid
Vice President, Corporate Communications
Corporate Headquarters.
In January 1997, Brush Wellman opened a site on the World Wide Web. The web
site, which can be accessed via the internet at HTTP://WWW.BRUSHWELLMAN.COM is
designed to provide useful, timely information about Brush Wellman to customers,
potential customers, investors, employees and the general public.
DIVIDEND REINVESTMENT PLAN
Brush Wellman has a plan for its shareholders which provides automatic
reinvestment of dividends toward the purchase of additional shares of the
Company's common stock. For a brochure describing the plan please contact the
Vice President, Corporate Communications, at the Corporate Headquarters.
AUDITORS
Ernst & Young LLP
1300 Huntington Building
Cleveland, Ohio 44115
TRANSFER AGENT AND REGISTRAR
National City Bank
Corporate Trust Operations
P.O.Box 92301
Cleveland, OH 44193-0900
For shareholder inquiries, call: 1-800-622-6757
STOCK LISTING
New York Stock Exchange / Symbol: BW
CORPORATE HEADQUARTERS
Brush Wellman Inc.
17876 St. Clair Ave.
Cleveland, Ohio 44110
(216) 486-4200 o Facsimile: (216) 383-4091
1
<PAGE> 28
BRUSH WELLMAN
ENGINEERED MATERIALS
17876 St. Clair Avenue
Cleveland, Ohio 44110
216/486-4200
<PAGE> 1
EXHIBIT 21
Subsidiaries of Registrant
--------------------------
The Company has the following subsidiaries, all of which are wholly
owned and included in the consolidated financial statements.
State or Country
Name of Subsidiary of Incorporation
- - ------------------ -----------------
Brush Wellman GmbH Germany
Brush Wellman (Japan), Ltd. Japan
Brush Wellman Limited England
Brush Wellman (Singapore), Pte Ltd. Singapore
Circuits Processing Technology Inc. California
Technical Materials, Inc. Ohio
Williams Advanced Materials Inc. New York
Williams Advanced Materials Pte Ltd. Singapore
<PAGE> 1
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Brush Wellman Inc. of our report dated January 22, 1997, included in the 1996
Annual Report to Shareholders of Brush Wellman Inc.
Our audit also included the financial statement schedule of Brush Wellman Inc.
listed in Item 14(a) 2. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule, referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the following Registration
Statements and Post-Effective Amendments of our report dated January 22, 1997,
with respect to the consolidated financial statements incorporated herein by
reference and our report included in the preceding paragraph with respect to the
financial statement schedule included in this Annual Report (Form 10-K) of Brush
Wellman Inc. for the year ended December 31, 1996:
Registration Statement Number 33-60709 on Form S-8 dated June 29, 1995;
Registration Statement Number 33-48866 on Form S-8 dated June 27, 1992;
Registration Statement Number 33-45323 on Form S-8 dated February 3,
1992;
Post-Effective Amendment Number 1 to Registration Statement Number
33-28950 on Form S-8 dated February 3, 1992;
Registration Statement Number 33-35979 on Form S-8 dated July 20, 1990;
Registration Statement Number 33-28605 on Form S-8 dated May 5, 1989;
Registration Statement Number 2-90724 on Form S-8 dated April 27, 1984;
Post-Effective Amendment Number 3 to Registration Statement Number
2-64080 on Form S-8 dated April 22, 1983.
ERNST & YOUNG LLP
Cleveland, Ohio
March 25, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
directors and officers of BRUSH WELLMAN INC., an Ohio corporation (the
"Corporation"), hereby constitutes and appoints Gordon D. Harnett, Carl Cramer,
Michael C. Hasychak, Leigh B. Trevor and Louis Rorimer, and each of them, their
true and lawful attorney or attorneys-in-fact, with full power of substitution
and revocation, for them and in their names, place and stead, to sign on their
behalf as a director or officer, or both, as the case may be, of the
Corporation, an Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 on Form 10-K for the fiscal year ended December 31, 1996,
and to sign any and all amendments to such Annual Report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission granting unto said attorney or
attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorney or
attorneys-in-fact or any of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands
as of the 4th day of March, 1997.
/s/ Gordon D. Harnett /s/ Gerald C. McDonough
- - -------------------------------- -----------------------------------
Gordon D. Harnett, Chairman, President, Gerald C. McDonough, Director
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Albert C. Bersticker /s/ Robert M. McInnes
- - -------------------------------- ----------------------------------
Albert C. Bersticker, Director Robert M. McInnes, Director
/s/ Charles F. Brush /s/ Henry G. Piper
- - -------------------------------- -----------------------------------
Charles F. Brush, III, Director Henry G. Piper, Director
/s/ Frank B. Carr /s/ John Sherwin, Jr.
- - -------------------------------- -----------------------------------
Frank B. Carr, Director John Sherwin, Jr., Director
/s/ William P. Madar /s/ David L. Burner
- - -------------------------------- -----------------------------------
William P. Madar, Director David L. Burner, Director
/s/ Carl Cramer /s/ James P. Mooney
- - -------------------------------- -----------------------------------
Carl Cramer, Vice President James P. Mooney, Director
Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 31,749
<SECURITIES> 0
<RECEIVABLES> 52,211
<ALLOWANCES> 954
<INVENTORY> 96,324
<CURRENT-ASSETS> 197,233
<PP&E> 404,127
<DEPRECIATION> 273,907
<TOTAL-ASSETS> 355,779
<CURRENT-LIABILITIES> 69,061
<BONDS> 18,860
<COMMON> 21,909
0
0
<OTHER-SE> 197,348
<TOTAL-LIABILITY-AND-EQUITY> 355,779
<SALES> 376,279
<TOTAL-REVENUES> 376,279
<CGS> 267,713
<TOTAL-COSTS> 341,013
<OTHER-EXPENSES> 896
<LOSS-PROVISION> 65
<INTEREST-EXPENSE> 1,128
<INCOME-PRETAX> 33,177
<INCOME-TAX> 8,686
<INCOME-CONTINUING> 24,491
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,491
<EPS-PRIMARY> $1.52
<EPS-DILUTED> $1.52
</TABLE>
<PAGE> 1
EXHIBIT 99
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to ________
Commission file number 1-7006
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
(Full Title of the Plan)
BRUSH WELLMAN INC.
17876 St. Clair Avenue
Cleveland, Ohio 44110
(Name of issuer of the securities held
pursuant to the plan and the address
of its principal executive office.)
<PAGE> 2
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
REQUIRED INFORMATION
- - --------------------
Page No.
1. Report of Independent Auditors. 1
2. Statements of Financial Condition -
December 31, 1996 and December 31, 1995. 2-3
3. Statements of Income and Changes in Plan
Equity - Plan years ended December 31, 1996,
December 31, 1995 and December 30, 1994 4-7
4. Notes to Financial Statements. 8-16
5. Schedules required to be filed under ERISA.
a. Schedule of Assets held for Investment
Purposes. 17
b. Schedule of Reportable Transactions. 18
6. Consent of Independent Auditors. 19
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Plan has duly caused this annual report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on the 27th day of March, 1997.
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
By /s/ Dennis L. Habrat
---------------------------------
Member of the Administrative
Committee
<PAGE> 3
[WESLEY, MILLS & COMPANY LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
------------------------------
Administrative Committee of
Brush Wellman Inc. Savings
and Investment Plan
We have audited the financial statements of Brush Wellman Inc.
Savings and Investment Plan listed in the Annual Report on Form 11-K as of and
for the years ended December 31, 1996 and 1995 and 1994. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements listed in the Annual
Report on Form 11-K present fairly, in all material respects, the financial
position of Brush Wellman Inc. Savings and Investment Plan at December 31, 1996
and 1995, the results of its operations and changes in its plan equity for the
years ended December 31, 1996 and 1995 and 1994 in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on
the financial statements taken as a whole. The accompanying supplemental
schedules of assets held for investment purposes as of December 31, 1996 and
reportable transactions for the year ended December 31, 1996 are presented for
purposes of complying with the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974, and are not a required part of the financial statements. The supplemental
schedules have been subjected to the auditing procedures applied in our audit of
the financial statements and, in our opinion, are fairly stated in all material
respects in relation to the financial statements taken as a whole.
Wesley, Mills & Company
/s/ Wesley, Mills & Company
February 6, 1997
<PAGE> 4
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
S&P 500 ASSET FIXED
ASSETS GROWTH INTERNATIONAL INCOME INDEX ALLOCATION INCOME
------ ----------- ------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Brush Wellman Inc. Common Stock
(cost $21,316,961)
Janus Fund
(cost $9,140,759) $10,368,651
Templeton Foreign Fund
(cost $5,334,105) $6,029,302
PFAMCO Equity Income Fund
(cost $5,793,594) $6,407,987
Northern Trust Collective Stock Index Fund
(cost $7,548,719) $9,625,596
Vanguard Asset Allocation Fund
(cost $6,851,379) $6,890,813
PIMCO Total Return Fund
(cost $6,304,014) $6,631,102
Northern Trust Short-Term Investment Fund
(cost $6,805,573)
Paticipant Promissory Notes
(cost $3,256,882)
Employee Benefits Money Market Fund
(cost $102,828)
----------- ---------- ---------- ---------- ---------- ----------
10,368,651 6,029,302 6,407,987 9,625,596 6,890,813 6,631,102
Dividends Receivable 35,758
Interest Receivable
Other 106,649
----------- ---------- ---------- ---------- ---------- ----------
106,649 35,758
----------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS $10,368,651 $6,029,302 $6,514,636 $9,625,596 $6,890,813 $6,666,860
=========== ========== ========== ========== ========== ==========
LIABILITIES & PLAN EQUITY
-------------------------
Plan Equity 10,368,651 6,029,302 6,514,636 9,625,596 6,890,813 6,666,860
----------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES & PLAN EQUITY $10,368,651 $6,029,302 $6,514,636 $9,625,596 $6,890,813 $6,666,860
=========== ========== ========== ========== ========== ==========
<CAPTION>
MONEY STOCK PAYSOP LOAN
ASSETS MARKET FUND FUND FUND TOTAL
---------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Brush Wellman Inc. Common Stock
(cost $21,316,961) $17,763,305 $222,406 $17,985,711
Janus Fund
(cost $9,140,759) 10,368,651
Templeton Foreign Fund
(cost $5,334,105) 6,029,302
PFAMCO Equity Income Fund
(cost $5,793,594) 6,407,987
Northern Trust Collective Stock Index Fund
(cost $7,548,719) 9,625,596
Vanguard Asset Allocation Fund
(cost $6,851,379) 6,890,813
PIMCO Total Return Fund
(cost $6,304,014) 6,631,102
Northern Trust Short-Term Investment Fund
(cost $6,805,573) $6,757,471 6,757,471
Paticipant Promissory Notes
(cost $3,256,882) $3,256,882 3,256,882
Employee Benefits Money Market Fund
(cost $102,828) 88,991 13,837 102,828
---------- ----------- -------- ---------- -----------
6,757,471 17,852,296 236,243 3,256,882 74,056,343
Dividends Receivable 119,317 1,496 156,571
Interest Receivable 30,302 500 65 30,867
Other 106,649
---------- ----------- -------- ---------- -----------
30,302 119,817 1,561 294,087
---------- ----------- -------- ---------- -----------
TOTAL ASSETS $6,787,773 $17,972,113 $237,804 $3,256,882 $74,350,430
========== =========== ======== ========== ===========
LIABILITIES & PLAN EQUITY
-------------------------
Plan Equity 6,787,773 17,972,113 237,804 3,256,882 74,350,430
---------- ----------- -------- ---------- -----------
TOTAL LIABILITIES & PLAN EQUITY $6,787,773 $17,972,113 $237,804 $3,256,882 $74,350,430
========== =========== ======== ========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P 500 ASSET
ASSETS GROWTH INTERNATIONAL INCOME INDEX ALLOCATION
------
<S> <C> <C> <C> <C> <C>
Brush Wellman Inc. Common Stock
(cost $19,877,694)
Janus Fund
(cost $5,801,586) $6,804,651
Templeton Foreign Fund
(cost $4,501,939) $4,629,897
PFAMCO Equity Income Fund
(cost $3,885,041) $4,574,485
Northern Trust Collective Stock Index Fund
(cost $5,714,906) $7,000,520
Phoenix Total Return Fund
(cost $5,446,128) $5,758,773
PIMCO Total Return Fund
(cost $5,952,689)
Northern Trust Short-Term Investment Fund
(cost $6,526,065)
Paticipant Promissory Notes
(cost $2,980,787)
Employee Benefits Money Market Fund
(cost $84,339)
---------- ---------- ---------- ---------- ----------
6,804,651 4,629,897 4,574,485 7,000,520 5,758,773
Contribution Receivable:
Company
401(k) 88,532 61,402 45,024 53,885 51,977
---------- ---------- ---------- ---------- ----------
88,532 61,402 45,024 53,885 51,977
Dividends Receivable 229,096 30,071
Interest Receivable
Other 145,249 52,642 160,741
---------- ---------- ---------- ---------- ----------
374,345 82,713 160,741
---------- ---------- ---------- ---------- ----------
TOTAL ASSETS $7,267,528 $4,774,012 $4,780,250 $7,054,405 $5,810,750
========== ========== ========== ========== ==========
LIABILITIES & PLAN EQUITY
-------------------------
Plan Equity 7,267,528 4,774,012 4,780,250 7,054,405 5,810,750
---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES & PLAN EQUITY $7,267,528 $4,774,012 $4,780,250 $7,054,405 $5,810,750
========== ========== ========== ========== ==========
<CAPTION>
FIXED MONEY STOCK PAYSOP LOAN
ASSETS INCOME MARKET FUND FUND FUND TOTAL
------
<S> <C> <C> <C> <C> <C> <C>
Brush Wellman Inc. Common Stock
(cost $19,877,694) $17,320,725 $235,100 $17,555,825
Janus Fund
(cost $5,801,586) 6,804,651
Templeton Foreign Fund
(cost $4,501,939) 4,629,897
PFAMCO Equity Income Fund
(cost $3,885,041) 4,574,485
Northern Trust Collective Stock Index Fund
(cost $5,714,906) 7,000,520
Phoenix Total Return Fund
(cost $5,446,128) 5,758,773
PIMCO Total Return Fund
(cost $5,952,689) $6,479,743 6,479,743
Northern Trust Short-Term Investment Fund
(cost $6,526,065) $6,526,065 6,526,065
Paticipant Promissory Notes
(cost $2,980,787) $2,980,787 2,980,787
Employee Benefits Money Market Fund
(cost $84,339) 61,627 22,712 84,339
---------- ---------- ----------- -------- ---------- -----------
6,479,743 6,526,065 17,382,352 257,812 2,980,787 62,395,085
Contribution Receivable:
Company 146,961 146,961
401(k) 54,923 40,401 36,733 432,877
---------- ---------- ----------- -------- ---------- -----------
54,923 40,401 183,694 579,838
Dividends Receivable 36,914 100,285 396,366
Interest Receivable 29,509 612 30,121
Other 1,469 121,271 481,372
---------- ---------- ----------- -------- ---------- -----------
36,914 29,509 100,897 1,469 121,271 907,859
---------- ---------- ----------- -------- ---------- -----------
TOTAL ASSETS $6,571,580 $6,595,975 $17,666,943 $259,281 $3,102,058 $63,882,782
========== ========== =========== ======== ========== ===========
LIABILITIES & PLAN EQUITY
-------------------------
Plan Equity 6,571,580 6,595,975 17,666,943 259,281 3,102,058 63,882,782
---------- ---------- ----------- -------- ---------- -----------
TOTAL LIABILITIES & PLAN EQUITY $6,571,580 $6,595,975 $17,666,943 $259,281 $3,102,058 $63,882,782
========== ========== =========== ======== ========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 6
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
S&P 500 ASSET ASSET
GROWTH INTERNATIONAL INCOME INDEX ALLOCATION ALLOCATION
------------ ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends $ 78,618 $ 155,189 $ 178,089 $ 196,318 $ 59,791 $ 184,120
Interest 40
Other Income (Expense) (140,542) (49,661) (52,745) 1,051 753
------------ ------------ ------------ ------------ ------------ ------------
(61,924) 105,528 125,344 197,409 59,791 184,873
Realized Gain (Loss) on
Investments--Note E 1,400,469 223,270 1,108,472 722,676 501,151 376,090
Unrealized Appreciation (Depreciation)
on Investments--Note F 224,826 567,238 (75,051) 791,262 (312,645) 39,434
Contributions--Note B
Company
401(k) 1,235,328 768,459 633,965 771,948 338,277 282,974
------------ ------------ ------------ ------------ ------------ ------------
1,235,328 768,459 633,965 771,948 338,277 282,974
Investment Election Change:
7/1/96 Plan Change (5,927,322) 5,927,322
Current Year Changes 693,444 (279,414) 298,540 531,373 (272,484) 168,495
Loan Transfers 5,708 4,535 (34,396) 5,128 12,176 (13,856)
Unallocated Loan Payments
Withdrawals and
Terminations--Note C 396,728 134,326 322,488 448,605 209,694 74,519
------------ ------------ ------------ ------------ ------------ ------------
Income and Changes in Plan Equity 3,101,123 1,255,290 1,734,386 2,571,191 (5,810,750) 6,890,813
Plan Equity at Beginning of the Year 7,267,528 4,774,012 4,780,250 7,054,405 5,810,750 0
------------ ------------ ------------ ------------ ------------ ------------
Plan Equity at End of the Year $ 10,368,651 $ 6,029,302 $ 6,514,636 $ 9,625,596 $ 0 $ 6,890,813
============ ============ ============ ============ ============ ============
<CAPTION>
FIXED MONEY STOCK PAYSOP LOAN
INCOME MARKET FUND FUND FUND TOTAL
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends ($ 1,156) $ 442,822 $ 7,080 $ 1,300,871
Interest 431,130 $ 346,350 6,117 1,118 $ 251,904 1,036,659
Other Income (Expense) 1,374 (1,469) (241,239)
------------ ------------ ------------ ------------ ------------ ------------
429,974 346,350 450,313 6,729 251,904 2,096,291
Realized Gain (Loss) on
Investments--Note E 53,664 (45,347) 4,340,445
Unrealized Appreciation (Depreciation)
on Investments--Note F (199,966) (998,240) (11,142) 25,716
Contributions--Note B
Company 1,910,402 1,910,402
401(k) 619,396 423,544 401,965 5,475,856
------------ ------------ ------------ ------------ ------------ ------------
619,396 423,544 2,312,367 7,386,258
Investment Election Change:
7/1/96 Plan Change
Current Year Changes (544,791) (57,542) (531,725) (5,896)
Loan Transfers 16,034 (93,033) (107,586) 82,865 (122,425)
Unallocated Loan Payments (87,732) (87,732)
Withdrawals and
Terminations--Note C 279,031 427,521 774,612 11,168 92,213 3,170,905
------------ ------------ ------------ ------------ ------------ ------------
Income and Changes in Plan Equity 95,280 191,798 305,170 (21,477) 154,824 10,467,648
Plan Equity at Beginning of the Year 6,571,580 6,595,975 17,666,943 259,281 3,102,058 63,882,782
------------ ------------ ------------ ------------ ------------ ------------
Plan Equity at End of the Year $ 6,666,860 $ 6,787,773 $ 17,972,113 $ 237,804 $ 3,256,882 $ 74,350,430
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 7
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
S&P 500 ASSET FIXED MONEY
GROWTH INTERNATIONAL INCOME INDEX ALLOCATION INCOME MARKET
----------- ------------- ---------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends $230,704 $120,175 $118,087 $126,716 $175,358 $37,345 $335
Interest 3 62 (57) 1,406 (88) 369,523 384,180
Other Income (Expense) 145,446 52,799 160,893 215 (5,789) 130 411
---------- ---------- ---------- ---------- ---------- ---------- ----------
376,153 173,036 278,923 128,337 169,481 406,998 384,926
Realized Gain (Loss) on
Investments--Note E 110,541 177,639 84,078 332,016 417,723 143,684
Unrealized Appreciation (Depreciation)
on Investments--Note F 1,003,066 127,958 689,444 1,285,614 312,645 527,054
Contributions--Note B
Company
401(k) 1,095,412 827,949 572,343 597,024 679,023 698,659 514,984
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,095,412 827,949 572,343 597,024 679,023 698,659 514,984
Plan Merger -- Note A 501
Investment Election Change:
1/1/95 Plan Change 4,298,945 3,712,726 2,976,847 4,587,494 5,167,817 5,192,931 6,663,511
Current Year Changes 541,260 (75,928) 308,292 367,108 (718,922) (47,775) (93,355)
Loan Transfers (22,439) 3,922 (9,258) (20,141) (19,177) (119,899) (83,478)
Unallocated Loan Payments
Withdrawals and
Terminations--Note C 135,410 173,290 120,419 223,047 197,840 230,072 791,114
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income and Changes in Plan Equity 7,267,528 4,774,012 4,780,250 7,054,405 5,810,750 6,571,580 6,595,975
Plan Equity at Beginning of the Year 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Plan Equity at End of the Year $7,267,528 $4,774,012 $4,780,250 $7,054,405 $5,810,750 $6,571,580 $6,595,975
========== ========== ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 8
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
INCOME EQUITY EQUITY EQUITY STOCK
FUND FUND A FUND B FUND C FUND
------------ ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends $352,679
Interest 10,744
Other Income (Expense) 192,317
----------- ---------- ---------- ---------- -----------
555,740
Realized Gain (Loss) on
Investments--Note E $214,089 $474,999 ($12,619) $5,888 (82,030)
Unrealized Appreciation (Depreciation)
on Investments--Note F (201,462) (472,705) 14,214 (2,813) (157,861)
Contributions--Note B
Company 1,815,838
401(k) 442,057
----------- ---------- ---------- ---------- -----------
2,257,895
Plan Merger -- Note A 2,174,657 221,971 266,585 363,013 687,127
Investment Election Change:
1/1/95 Plan Change (17,434,297) (6,400,676) (2,818,083) (5,693,929) (275,286)
Current Year Changes (255,586)
Loan Transfers (121,062)
Unallocated Loan Payments
Withdrawals and
Terminations--Note C 721,484
----------- ---------- ---------- ---------- -----------
Income and Changes in Plan Equity (15,247,013) (6,176,411) (2,549,903) (5,327,841) 1,887,453
Plan Equity at Beginning of the Year 15,247,013 6,176,411 2,549,903 5,327,841 15,779,490
----------- ---------- ---------- ---------- -----------
Plan Equity at End of the Year $0 $0 $0 $0 $17,666,943
=========== ========== ========== ========== ===========
<CAPTION>
PAYSOP LOAN
FUND FUND TOTAL
-------- ---------- ------------
<S> <C> <C> <C>
Investment Income:
Dividends $3,568 $1,164,967
Interest 1,291 $182,910 949,974
Other Income (Expense) 3,647 550,069
-------- ---------- -----------
8,506 182,910 2,665,010
Realized Gain (Loss) on
Investments--Note E 1,866,008
Unrealized Appreciation (Depreciation)
on Investments--Note F 1,385 3,126,539
Contributions--Note B
Company 1,815,838
401(k) 5,427,451
-------- ---------- -----------
7,243,289
Plan Merger -- Note A 133,074 3,846,928
Investment Election Change:
1/1/95 Plan Change 22,000
Current Year Changes (2,722) 22,372
Loan Transfers 391,532
Unallocated Loan Payments 154,810 154,810
Withdrawals and
Terminations--Note C 11,547 154,064 2,758,287
-------- ---------- -----------
Income and Changes in Plan Equity (4,378) 730,262 16,166,669
Plan Equity at Beginning of the Year 263,659 2,371,796 47,716,113
-------- ---------- -----------
Plan Equity at End of the Year $259,281 $3,102,058 $63,882,782
======== ========== ===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 9
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
INCOME EQUITY EQUITY EQUITY STOCK PAYSOP LOAN
FUND FUND A FUND B FUND C FUND FUND FUND TOTAL
----------- ---------- ---------- ---------------------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends $149,840 $40,559 $168,092 $226,120 $3,655 $588,266
Interest $2,508 963 637 1,168 5,135 1,077 $193,935 205,423
Other Income (Expense) (316) 38,488 116,209 230,397 4,188 (7,632) 381,334
----------- ---------- ---------- ---------------------- -------- ---------- -----------
2,192 189,291 157,405 399,657 235,443 (2,900) 193,935 1,175,023
Realized Gain (Loss) on
Investments--Note E 1,768,784 10,616 546 (259,373) (4,175) 1,516,398
Unrealized Appreciation (Depreciation)
on Investments--Note F (835,627) (141,678) (97,859) (324,217) 2,920,404 55,913 1,576,936
Contributions--Note B
Company 1,321,370 1,321,370
401(k) 1,625,555 640,225 426,637 780,972 568,908 4,042,297
Participant 41,963 19,303 10,693 38,818 10,484 121,261
----------- ---------- ---------- ---------------------- -------- ---------- -----------
1,667,518 659,528 437,330 819,790 1,900,762 5,484,928
Investment Election Change (624,692) (49,190) 112,423 583,416 (21,134) (405) 418
Loan Transfers 56,300 15,687 7,151 28,758 252 (108,148)
Unallocated Loan Payments 29,946 29,946
Withdrawals and
Terminations--Note C 1,249,662 383,872 211,767 244,030 767,193 12,264 68,718 2,937,506
----------- ---------- ---------- ---------------------- -------- ---------- -----------
Income and Changes in Plan Equity 784,813 300,382 405,229 1,263,374 4,009,161 36,169 47,015 6,846,143
Plan Equity at Beginning of the Year 14,462,200 5,876,029 2,144,674 4,064,467 11,770,329 227,490 2,324,781 40,869,970
----------- ---------- ---------- ---------------------- -------- ---------- -----------
Plan Equity at End of the Year $15,247,013 $6,176,411 $2,549,903 $5,327,841 $15,779,490 $263,659 $2,371,796 $47,716,113
=========== ========== ========== ========== =========== ======== ========== ===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
DECEMBER 31, 1996, DECEMBER 31, 1995 AND DECEMBER 31, 1994
NOTE A - The accounting records of the Brush Wellman Inc. Savings and Investment
Plan (Plan) are maintained on the accrual basis. Investments are stated at
current market value. Investment in securities traded on national securities
exchanges are valued at the latest reported closing price. Investment in
participant units of the Northern Trust Short-Term Investment Fund, Managed
Guaranteed Investment Contract Fund and the Employee Benefits Money Market Fund
are stated at market value as determined by the Trustee. Cost is determined by
the average cost method.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In 1994 the Plan changed its year end from December 30 to December 31.
The effect of this change on the financial statements is not material.
Effective January 1, 1995 the Williams Advanced Materials Inc. Savings
and Investment Plan was merged into the Plan. Prior to the merger, the plans
separately covered eligible employees at Brush Wellman Inc. and its subsidiary
Williams Advanced Materials Inc. There were no substantial changes in
eligibility, Company contributions, plan benefits or value of plan assets as a
result of the merger. The transferred net assets were recognized in the accounts
of the Plan, at the balances as previously carried in the accounts of the
Williams Advanced Materials Inc. Savings and Investment Plan. The changes in net
assets of the combined plans were included in the accompanying Statement of
Income and Changes in Plan Equity from January 1, 1995.
NOTE B - The Plan is a defined contribution plan which covers certain eligible
employees with one year of eligibility service with Brush Wellman Inc.
(Company). An employee shall be credited with a year of eligibility service if
he is credited with at least 1,000 hours of service in any twelve consecutive
month period beginning with date of hire or rehire of the employee (or an
anniversary of the latest such date).
The Plan provides for basic contributions on behalf of employees up to
6% of their earnings through either salary reduction or employee after-tax
contributions. Basic contributions were matched by the Company at the rate of
50% of such contributions. The rate at which such basic contributions are
matched by the Company may be decreased or increased (up to 100%) by action of
the Company's Board of Directors.
An employee who makes basic contributions of 6% of earnings may also
make supplemental contributions of up to 9% of earnings which are not matched by
Company
8
<PAGE> 11
contributions and which may be made in any combination of salary reduction
and/or after-tax contributions.
An employee's contributions made to the Plan on a salary reduction basis
may not exceed certain maximum amounts. The maximum amounts were $9,500 in 1996,
$9,240 in 1995 and $9,240 in 1994. All employee and Company matching
contributions are fully vested at all times.
Participants may direct that their basic, supplemental and transfer
contributions (as described in the Plan) be invested in one or more of the
following: Growth Fund, International Fund, Income Fund, S&P 500 Index Fund,
Asset Allocation Fund, Fixed Income Fund, Money Market Fund and the Company
Stock Fund in increments of 1%. Prior to March 3, 1995, participant contribution
directions were allowed at 10% increments. All Company matching contributions
are invested in the Company Stock Fund except with respect to Participants age
55 or older who may transfer such contributions to other investment funds. Prior
to March 3, 1995 the minimum age for the exception was 59 1/2.
The Growth Fund invests primarily in the Janus Fund. The objective of
the fund is to produce capital appreciation; dividend income is a secondary
source of return. The fund invests primarily in the stocks of companies and
industries that are experiencing increasing demand for their products and
services. There were 1,139 participants in the fund at the end of the Plan year.
The International Fund invests primarily in the Templeton Foreign Fund.
The objective of the fund is to produce capital appreciation. The fund primarily
invests in stocks of companies located outside of the United States. There were
826 participants in the fund at the end of the Plan year.
The Income Fund invests primarily in the PFAMCO Equity Income Fund. The
objective of the fund is to seek current income from stocks in each industry
that have low prices relative to their earnings and high dividend yields. The
fund will usually be fully invested in stocks. There were 777 participants in
the fund at the end of the Plan year.
The S&P 500 Index Fund invests primarily in the Northern Trust
Collective Stock Index Fund. The objective of the fund is to produce returns
that match the returns of the Standand & Poor's 500 Stock Index. The fund
proportionately invests in each of the stocks that comprise the Standard &
Poor's 500 Stock Index. There were 919 participants in the fund at the end of
the Plan year.
The Asset Allocation Fund invests primarily in the Vanguard Asset
Allocation Fund. The objective of the fund is to maximize total returns
consistent with reasonable risk using a combination of stocks, bonds, and money
market investments. Prior to July 1, 1996, the Asset Allocation Fund invested
primarily in the Phoenix Total Return Fund. There were 782 participants in the
fund at the end of the Plan year.
The Fixed Income Fund invests primarily in the PIMCO Total Return Fund.
The objective of the fund is to seek current income and capital appreciation.
The fund
9
<PAGE> 12
invests in bonds with an average maturity of three to six years and will
generally be invested in high quality securities including U.S. Government
bonds, corporate bonds, mortgage-related securities and money market
investments. There were 625 participants in the fund at the end of the Plan
year.
The Money Market Fund invests primarily in the Northern Trust Short-Term
Investment Fund. The objective of the fund is to maximize current income on cash
reserves to the extent consistent with principal preservation and maintenance of
liquidity. The fund invests in high-grade money market instruments with short
maturities. There were 519 participants in the fund at the end of the Plan year.
The Company Stock Fund invests primarily in Brush Wellman Inc. Common
Stock. There were 1,662 participants in the fund at the end of the Plan year.
Prior to January 1, 1995 participants could direct their basic,
supplemental and transfer contributions (as described in the Plan) be invested
in one or more of the following; Income Fund, Equity Fund A, Equity Fund B,
Equity Fund C and the Company Stock Fund in increments of 10%.
The Income Fund invests primarily in the Managed Guaranteed Investment
Contract Fund, the objective of which is to achieve high current income with
stability of principal. The fund is primarily invested in Guaranteed Investment
Contracts.
Equity Fund A invests primarily in the Fidelity U.S. Equity Index Fund.
This fund is a growth and income fund. It seeks a yield that corresponds with
the total return of the Standard & Poor's 500 Stock Index. The fund's share
price will fluctuate and dividend amounts will vary.
Equity Fund B invests primarily in the Fidelity Fund. This fund seeks
long-term capital growth and current return on capital and will select some
securities for their income characteristics, which may limit the potential for
growth. The fund's share price and dividend income will fluctuate as the value
and yields of the securities in its investment portfolio fluctuate.
Equity Fund C invests primarily in Fidelity Puritan Fund. This fund is a
growth and income fund. It seeks capital growth in addition to regular quarterly
dividends. It invests in a broadly diversified portfolio of common stocks,
preferred stocks and bonds, including lower-quality, high yield debt securities.
The fund's share price will fluctuate and dividend amounts will vary.
The Plan, as originally adopted, included a Payroll Stock Ownership Plan
(PAYSOP) feature that applied through 1986. Under the PAYSOP, the Company made
contributions based upon a percentage of payroll and was afforded an additional
credit against federal income tax up to the amount allowable by the Internal
Revenue Code. The PAYSOP contribution by the Company, which could be in Common
Stock of the Company or cash used to purchase Common Stock of the Company, was a
percentage of the compensation paid to all employees who made salary reduction
contributions to the Plan at any time during the year and who were members of
the Plan as of the last
10
<PAGE> 13
pay period of such year. The shares of Common Stock of the Company contributed
or purchased were allocated equally to all eligible participants.
A participant may borrow funds from his account, excluding his interest
in the PAYSOP Fund, provided such loan is secured by the participant's interest
in his account and evidenced by a promissory note executed by the participant.
The promissory notes are held in trust as a separate fund, Loan Fund, of the
Plan.
Prior to June 1, 1989, participants who were employees of Williams
Advanced Materials Inc. could have directed a portion of their contributions to
be used to purchase insurance policies that were excluded from the former
Williams Advanced Materials Inc. Savings and Investment Plan assets. Life
insurance policies on the lives of participants, purchased under the former
Williams Advanced Materials Inc. Savings and Investment Plan prior to July 1,
1989, may continue to be held.
All costs and expenses incurred in connection with the administration of
the Plan for 1996, 1995, and 1994 were paid by the Company.
Information concerning the Plan agreement and the vesting and benefit
provisions is contained in the Summary Plan Description. Copies of this pamphlet
are available from the Plan administrator.
NOTE C - At retirement, death or other termination, a participant (or his death
beneficiary) is eligible to receive a distribution of all employee, Company
matching and PAYSOP contributions credited to the employee's account plus or
minus any net gain or loss thereon.
The value of distributions and withdrawals is based on the value of a
participant's account on the valuation date immediately preceding the date of
distribution or withdrawal and is deducted from the participant's account as of
such valuation date.
Distribution to a participant or a person designated by the participant
as his death beneficiary is made under one of the following methods as elected
by the participant:
(i) Lump sum payment in cash; or
(ii) Lump sum payment in cash, except that a participant's interest in
the Company Stock Fund and the PAYSOP Fund will be paid in full
shares of Common Stock of the Company, with any fractional shares
being paid in cash.
11
<PAGE> 14
NOTE D - Shares of face value by investment as of December 31, 1996 and December
31, 1995 are as follows:
<TABLE>
<CAPTION>
Shares By Investment
----------------------------
Investment 1996 1995
---------- ---- ----
<S> <C> <C>
Janus Fund 424,076 295,341
Templeton Fund 581,979 504,346
PFAMCO Equity Income Fund 472,565 343,172
Northern Trust Collective Stock
Index Fund 617,421 511,734
Vanguard Asset Allocation Fund 384,103
PIMCO Total Return Fund 631,534 604,454
Norther Trust Short-Term
Investment Fund 6,757,471 6,526,065
Brush Wellman Inc. Common Stock 1,213,246 1,040,441
Phoenix Total Return Fund 360,374
Employee Benefit Money Market Fund 68,776 84,339
</TABLE>
In addition, $3,256,882 and $2,980,787 were invested in Participant Promissory
Notes as of December 31, 1996 and December 31, 1995, respectively.
On July 1, 1996 the Vanguard Asset Allocation Fund replaced the Phoenix Total
Return Fund.
12
<PAGE> 15
NOTE E: The net realized gain (loss) on sales of investments for the Plan years
ended December 31, 1996 December 31, 1995 and December 31, 1994 is as follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------------------------------
Investment Shares Cost Proceeds Gain(Loss)
---------- ------ ---- -------- ----------
<S> <C> <C> <C> <C>
Janus Fund 32,450 $665,430 $2,065,899 $1,400,469
Templeton Fund 97,393 879,703 1,102,973 223,270
PFAMCO Equity Income Fund 54,403 640,837 1,749,309 1,108,472
Northern Trust Collective Stock
Index Fund 75,307 872,895 1,595,571 722,676
Phoenix Total Return Fund 396,623 6,033,647 6,534,798 501,151
Vanguard Asset Allocation Fund 8,232 146,556 522,646 376,090
PIMCO Total Return Fund 142,677 1,416,931 1,470,595 53,664
Brush Wellman Inc. Common Stock 48,137 928,849 883,502 (45,347)
-----------------
$4,340,445
=================
</TABLE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------------
Investment Shares Cost Proceeds Gain(Loss)
---------- ------ ---- -------- ----------
<S> <C> <C> <C> <C>
Janus Fund 33,940 $650,645 $761,186 $110,541
Templeton Fund 103,753 917,868 1,095,507 177,639
PFAMCO Equity Income Fund 53,330 589,799 673,877 84,078
Northern Trust Collective Stock
Index Fund 87,493 932,548 1,264,564 332,016
Phoenix Total Return Fund 82,342 1,225,019 1,642,742 417,723
PIMCO Total Return Fund 117,292 1,144,388 1,288,072 143,684
Brush Wellman Inc. Common Stock 59,224 1,150,567 1,068,537 (82,030)
Managed Guaranteed Investment
Contract Fund 1,729,438 17,296,476 17,510,565 214,089
Fidelity U.S. Equity Index Portfolio 378,019 5,919,589 6,394,588 474,999
Fidelity Fund Inc. 153,786 2,856,184 2,843,565 (12,619)
Fidelity Puritan Fund 379,472 5,617,162 5,623,050 5,888
-----------------
$1,866,008
=================
</TABLE>
<TABLE>
<CAPTION>
1994
---------------------------------------------------------------------
Investment Shares Cost Proceeds Gain(Loss)
---------- ------ ---- -------- ----------
<S> <C> <C> <C> <C>
Managed Guaranteed Investment
Contract Fund 14,070,058 $14,226,227 $15,995,011 $1,768,784
Fidelity U.S. Equity Index Portfolio 10,336 160,766 171,382 10,616
Fidelity Fund Inc. 818 15,157 15,703 546
Brush Wellman Inc. Common Stock 14,468 522,658 259,110 (263,548)
-----------------
$1,516,398
=================
</TABLE>
The Department of Labor requires that realized gains and losses be calculated
using current cost (cost at the beginning of the Plan Year) rather than
historical cost. Realized gains under the current cost method for the year ended
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Realized
Gain/(Loss)
-----------------
<S> <C>
Brush Wellman Inc. Common Stock (56,682)
Janus Fund 1,428,470
Templeton Fund 233,618
PFAMCO Equity Income Fund 1,133,410
Northern Trust Collective Stock Index Fund 754,563
Phoenix Total Return Fund 540,743
PIMCO Total Return Fund 65,508
-----------------
4,099,630
=================
</TABLE>
13
<PAGE> 16
NOTE F - The unrealized appreciation (depreciation) of investments for the Plan
years ended December 31, 1996, December 31, 1995 and December 31, 1994 is as
follows:
<TABLE>
<CAPTION>
Balance Balance
January 1 December 31
1996 Change 1996
--------------- --------------- -----------------
<S> <C> <C> <C>
Janus Fund $1,003,066 $224,826 $1,227,892
Templeton Fund 127,958 567,238 695,196
PFAMCO Equity Income Fund 689,444 (75,051) 614,393
Northern Trust Collective Stock Index Fund 1,285,614 791,262 2,076,876
Phoenix Total Return Fund 312,645 (312,645) 0
Vanguard Asset Allocation Fund 0 39,434 39,434
PIMCO Total Return Fund 527,054 (199,966) 327,088
Brush Wellman Inc. Common Stock (2,321,868) (1,009,382) (3,331,250)
---------------
$25,716
===============
Balance Balance
January 1 December 31
1995 Change 1995
--------------- --------------- -----------------
Janus Fund $1,003,066 $1,003,066
Templeton Fund 127,958 127,958
PFAMCO Equity Income Fund 689,444 689,444
Northern Trust Collective Stock
Index Fund 1,285,614 1,285,614
Phoenix Total Return Fund 312,645 312,645
PIMCO Total Return Fund 527,054 527,054
Northern Trust Short-Term
Investment Fund
Brush Wellman Inc. Common Stock:
-Brush Wellman Savings & Investment Plan (2,219,813) (102,055) (2,321,868)
-Williams Advanced Materials Savings &
Investment Plan 54,421 (54,421)
Managed Guaranteed Investment Contract Fund:
-Brush Wellman Savings & Investment Plan 176,253 (176,253)
-Williams Advanced Materials Savings &
Investment Plan 25,209 (25,209)
Fidelity U.S. Equity Index Portfolio:
-Brush Wellman Savings & Investment Plan 461,819 (461,819)
-Williams Advanced Materials Savings &
Investment Plan 10,886 (10,886)
Fidelity Fund Inc.:
-Brush Wellman Savings & Investment Plan (6,359) 6,359
-Williams Advanced Materials Savings &
Investment Plan (7,855) 7,855
Fidelity Puritan Fund:
-Brush Wellman Savings & Investment Plan 17,658 (17,658)
-Williams Advanced Materials Savings &
Investment Plan (14,845) 14,845
---------------
$3,126,539
" ===============
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
Balance Balance
January 1 December 31
1994 Change 1994
-------------- --------------- -----------------
<S> <C> <C> <C>
Managed Guaranteed Investment Contract Fund $1,011,880 ($835,627) $176,253
Fidelity U.S. Equity Index Portfolio 603,497 (141,678) 461,819
Fidelity Fund Inc. 91,500 (97,859) (6,359)
Fidelity Puritan Fund 341,875 (324,217) 17,658
Brush Wellman Inc. Common Stock (5,196,130) 2,976,317 (2,219,813)
---------------
$1,576,936
===============
</TABLE>
The Department of Labor requires that unrealized appreciation and depreciation
be calculated using current cost rather that historical cost. Unrealized gains
and losses under the current cost method for the year ended December 31, 1996
are as follows:
<TABLE>
<CAPTION>
Change in
Unrealized Gain/(Loss)
-------------------------------------
<S> <C>
Janus Fund ($916,782)
Templeton Fund 251,293
PFAMCO Equity Income Fund (873,511)
Northern Trust Collective Stock Index Fund (858,255)
Phoenix Total Return Fund (1,082,605)
Vanguard Asset Allocation Fund 415,524
PIMCO Total Return Fund (882,548)
Brush Wellman Inc. Common Stock (720,021)
---------------
($4,666,905)
===============
</TABLE>
15
<PAGE> 18
NOTE G - The Internal Revenue Service has determined that the Plan is qualified
under Internal Revenue Code Section 401(a) and that the related trust is,
therefore, tax-exempt under Code Section 501(a).
Continued qualification of the Plan depends upon timely adoption and
operational application of certain amendments required as a result of the Tax
Reform Act of 1986 (Act). In the Company's opinion, the Plan is operating in
compliance with the applicable provisions of the Act.
The Company is allowed a federal income tax deduction for its employer
matching contributions to the Plan.
The Plan provides, among other things, for contributions to be made to
the Plan pursuant to a qualified cash or deferred arrangement (CODA) under
Section 401(k) of the IRC. CODA contributions made to the Trust for a
participant will reduce a participant's current compensation and will not be
included in the gross income of the participant for federal income tax purposes
in the year made. Such amounts will, however, be considered as part of the
participant's gross income for purposes of Social Security taxes.
Non-CODA contributions withheld under the Plan from a participant
through payroll deductions will be included in the gross income of the
participant in the year withheld and are not deductible by the participant for
federal income tax purposes.
A participant does not become subject to federal income taxes as a
result of their participation in the Plan until the assets in their account are
withdrawn by, or distributed to, the participant.
NOTE H - The Plan was restated on January 1, 1995. Subsequent amendments Nos. 1
and 2 also effective January 1, 1995 provide for certain provisions concerning
member contributions, distributions and key employee testing procedures.
NOTE I - Effective January 1, 1995 the Williams Advanced Materials Inc. Savings
and Investment Plan was merged into the Plan. Prior to the merger, the plans
covered eligible employees at Brush Wellman Inc. and its subsidiary, Williams
Advanced Materials Inc., there were no substantial changes in eligibility,
Company contributions, plan benefits or value of plan assets as a result of the
merger. The transferred net assets have been recognized in the accounts of the
Plan, at their balances as previously carried in the accounts of the Williams
Advanced Materials Inc. Savings and Investment Plan. The changes in net assets
of the combined plans are included in the accompanying Statement Of Changes In
Net Assets available for benefits from January 1, 1995.
16
<PAGE> 19
EIN 34-0119320
PN 003
BRUSH WELLMAN INC.
SAVINGS & INVESTMENT PLAN
DECEMBER 31, 1996
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES:
<TABLE>
<CAPTION>
CURRENT
INVESTMENTS DESCRIPTION COST VALUE
----------- ----------- ---- -----
<S> <C> <C> <C>
Brush Wellman Inc. Common Stock Common Stock $21,316,961 $17,985,711
Janus Fund Mutual Fund $9,140,759 $10,368,651
Templeton Fund Mutual Fund $5,334,105 $6,029,302
PFAMCO Equity Income Fund Mutual Fund $5,793,594 $6,407,987
Northern Trust Collective Stock Index Fund Mutual Fund $7,548,719 $9,625,596
Vanguard Asset Allocation Fund Mutual Fund $6,851,379 $6,890,813
PIMCO Total Return Fund Mutual Fund $6,304,014 $6,631,102
Northern Trust Short-Term Investment Fund Bank Common/ $6,805,573 $6,805,573
Collective Trust
Participant Promissory Notes Participant Loans $3,256,882 $3,256,882
Employee Benefit Money Market Fund Bank Common/ $102,828 $102,828
Collective Trust
</TABLE>
17
<PAGE> 20
BRUSH WELLMAN INC.
SAVINGS & INVESTMENT PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS
SUMMARY OF PURCHASES AND/OR SALES IN SAME ISSUE IN EXCESS OF
5% OF BEGINNING PLAN VALUE
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PURCHASES SALES
------------------------------ -----------------------------
TRANSACTION DESCRIPTION # TRANS COST # TRANS PROCEEDS GAIN/(LOSS)
----------------------- ------- ---- ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Brush Wellman Inc. Common Stock 29 $2,464,962.98 14 $928,849.38 ($45,347.37)
Janus Fund 121 4,004,603.30 76 665,429.66 156,230.61
Templeton Foreign Fund 0 0.00 0 0.00 0.00
PFAMCO Equity Income Fund 99 2,549,389.86 77 640,836.61 125,283.01
Northern Trust Collective Stock Index Fund 121 2,706,708.52 71 872,895.19 235,967.21
Phoenix Total Return Fund 38 587,519.42 51 6,033,647.71 470,724.26
Vanguard Asset Allocation Fund 47 6,997,934.81 30 146,556.19 4,309.87
PIMCO Total Return Fund 79 1,768,256.75 87 1,416,931.51 53,663.56
Participant Promissory Notes 0 0.00 0 0.00 0.00
</TABLE>
18
<PAGE> 21
[WESLEY, MILLS & COMPANY LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Annual
Report on Form 10-K under the Securities Exchange Act of 1934 of Brush Wellman
Inc. for the year ended December 31, 1996 of our report dated February 6, 1997,
with respect to the financial statements and schedules of the Brush Wellman Inc.
Savings and Investment Plan included in this Annual Report (11-K) for the year
ended December 31, 1996.
Wesley, Mills & Company
/s/ Wesley, Mills & Company
Cleveland, Ohio
February 6, 1997
