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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997
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 9, 1998 was approximately $434,116,719.
As of March 9, 1998, there were 16,523,822 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, 1997 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 5, 1998 are incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
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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, communication equipment, computers, automobiles, lasers,
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
1997, 66% of the Company's sales were of products containing the element
beryllium (73% in 1996 and 73% in 1995). 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 34% of total sales in 1997 (27% in 1996 and
27% in 1995). 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 vapor deposition materials, high temperature braze materials, clad
and precious metal preforms, ultra fine wire, sealing lids for the
semiconductor/hybrid markets and restorative dental alloys.
WAM's principal competition in the vapor deposition markets are
Materials Research Corp., Tosoh and Engelhard corporations. The
semiconductor/hybrid market segment competition includes Johnson Matthey, SPM
and Semi-Alloys. The products are sold directly from WAM's facilities in
Buffalo, New York and Singapore as well as through sales representatives
throughout the world.
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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 and non-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, Metallon and some European manufacturers 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 produces 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
principal competitor in high reliability circuit fabrication is M.I.C., in the
commercial marketplace it's main competitor is Amitron.
Sales and Backlog
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The backlog of unshipped orders as of December 31, 1997, 1996 and
1995 was $ 93,954,000, $94,428,000 and $95,718,000 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, 1997 will be filled during 1998.
Sales are made to approximately 5,300 customers. Government
sales, principally subcontracts, accounted for about 1.1% of consolidated sales
in 1997 as compared to 1.2% in 1996 and 1.3% in 1995. Sales outside the United
States, principally to Western Europe, Canada and Japan, accounted for
approximately 31% of sales in 1997, 29% of sales in 1996 and 34% in 1995.
Financial information as to sales, identifiable assets and profitability by
geographic area set forth on page 19 Note N to the consolidated financial
statements in the annual report to shareholders for the year ended December 31,
1997 is incorporated herein by reference.
Research & Development
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Active research and development programs seek new product
compositions and designs as well as process innovations. Expenditures for
research and development amounted to $7,709,000 in 1997, $8,309,000 in 1996 and
$7,814,000 in 1995. A staff of 57 scientists, engineers and technicians was
employed in this effort during 1997. Some research and development projects were
externally sponsored and expenditures related to those projects (approximately
$170,000 in 1997, $166,000 in 1996 and $36,000 in 1995) are excluded from the
above totals.
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Availability of Raw Materials
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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 to support current production levels 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
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As of December 31, 1997 the Company had 2,160 employees.
Forward-looking Information
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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.
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FUKAYA, JAPAN - A 35,500 square foot facility on 1.8 acres of
land in Saitama Prefecture principally for distribution of beryllium alloys.
LORAIN, OHIO - a manufacturing facility consisting of 55,000
square feet located on 15 acres. This facility produces metal alloys in
electronic induction furnaces which are continually cast into bar stock and heat
treated.
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 facility 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 $117 million at the Company's Elmore ,
Ohio facility. The plant is currently under construction and is targeted to
begin production in the fourth quarter of 1998. 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
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(a) Environmental Proceedings.
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PENDING CLAIMS. The Company received a complaint on July 26, 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 that, 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 (the "Berks
Site"). The plaintiffs are alleged to have disposed of wastes at the Berks Site,
which operated from 1950 through October 1, 1986. The 40 defendants (22 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 they have spent
approximately $3 million to secure and maintain the Berks Site and to prepare a
remedial investigation/feasibility study and a risk assessment. Discovery is
proceeding pursuant to a case management order. On September 30, 1997, the U.S.
EPA sent a special notice letter to the Company and 28 other entities, 7 of whom
are not parties to the GLIDDEN litigation. The letter requested reimbursement of
the U.S. EPA's past costs (at least $755,959) and future costs relating to the
landfill, and solicited a proposal to conduct or finance the remedial action
selected by the U.S. EPA in its July 1997 Record of Decision, the present worth
cost of which is estimated by the U.S. EPA to be $6.1 million. The U.S. EPA
received no proposal in response to its letter. The Company has requested that
the U.S. EPA consider it to be a candidate for a DE MINIMIS settlement. The
Company's 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 (the "PRPs").
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On or about September 25, 1992, the Company was served with a
third-party complaint 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 (the "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, United States District Court for the Eastern District of
Pennsylvania. Third-party complaints adding further parties have been
subsequently filed. 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 PRPs under CERCLA at the
Spectron Superfund Site in Elkton, Maryland (the "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.
The cost of compliance with the terms of these Orders is approximately
$8,480,000, of which the Company's proportionate share is $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.
The Company has advised the U.S. EPA and the Ohio Environmental
Protection Agency that it was unable to meet the December 1997 deadline for
achieving emission limitations for a solvent degreaser at its Elmore, Ohio
plant. For purposes of considering the issuance of a compliance order, the U.S.
EPA has requested information concerning the circumstances leading to the
Company's inability to comply and its timetable for achieving compliance. The
U.S. EPA has expressed no current intention of imposing a penalty.
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(b) BERYLLIUM EXPOSURE CLAIMS.
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 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
concluded that, in its opinion, current beryllium standards may not be adequate
to protect its own workers, and has gathered data, views and other relevant
information to develop a possible revised standard for occupational exposure to
beryllium at Department of Energy facilities. 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, recently has retained the current occupational exposure standards and
has added a new occupational exposure standard to limit short-term exposures.
PENDING CLAIMS. The Company is currently a defendant in the following
eight 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. These cases were previously reported in the Company's annual report on
Form 10-K for the year ended December 31, 1996 or in the Company's quarterly
report on Form 10-Q for the quarters ended June 27, 1997 and September 26, 1997,
respectively. 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.
<TABLE>
<CAPTION>
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DATE LAWSUIT
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NAME OF PLAINTIFF INSTITUTED FORUM RELIEF REQUESTED
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<S> <C> <C> <C>
Richard Neiman and November 1990 Court of Common Pleas, The Company is one of three defendants. Plaintiffs
Spouse Montgomery County, seek damages in excess of $20,000 for personal injury
Pennsylvania and in excess of $20,000 for loss of consortium.
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Harry Robbins and June 1993 Court of Common Pleas, The Company is one of three defendants. Both
Spouse Montgomery County, plaintiffs individually seek compensatory damages in
Pennsylvania excess of $50,000. Mr. Robbins also seeks punitive
damages in excess of $50,000.
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Troy Murphy Morgan, June 1994 United States District Court, The Company is one of several defendants, together
Corky Dean McCarter and Eastern District of Tennessee with the United States. In the Fourth Amended
wife, Karen Denise Smith Complaint (served in April 1997), plaintiffs' aggregate
McCarter, Richard Emory claims against the corporate defendants, including
Myers, Sr. and wife, compensatory and punitive damages, are $44 million.
Wilma Dean Kennedy
Myers, and Kathlene
Beatty
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George F. Faccio and July 1995 United States District Court, The Company is the only defendant. Plaintiffs seek
Spouse District of Arizona compensatory and punitive damages of an unspecified
amount.
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Ballinger et al. November 1996 United States District Court, The Company is the only defendant. Plaintiffs seek
Colorado compensatory and punitive damages of an unspecified
amount.
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Foster et al. February 1997 United States District Court, The Company is one of several defendants. Gary
Eastern District of Tennessee Foster seeks compensatory damages from each
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.
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Wallace et al. June 1997 Filed in the Superior Court The Company is one of several defendants. The
of California, County of Los plaintiffs seek damages in an unspecified amount.
Angeles; transferred to
Orange County, California
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Grant et al. August 1997 United States District Court, The Company is one of several defendants. Mr. Grant
Eastern District of Tennessee seeks compensatory damages of $5 million against
each defendant. His spouse seeks compensatory
damages of $1 million against each defendant, and
both seek punitive damages of $10 million against each
defendant.
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</TABLE>
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Discovery is continuing in five of the eight cases reported above:
NEIMAN ET AL. V. CABOT CORP. ET AL.; ROBBINS ET AL. V. CABOT CORP. ET AL.;
MORGAN ET AL. V. BRUSH WELLMAN INC. ET AL.; FOSTER ET AL. V. BRUSH WELLMAN INC.
ET AL.; and GRANT ET AL. V. BRUSH WELLMAN INC. ET AL. (USDC, Tennessee). In
FACCIO ET AL. V. BRUSH WELLMAN INC. also, discovery is ongoing, and several
procedural motions, some of which sought sanctions against the Company, were
filed. The motions seeking sanctions alleged that the Company, without
substantial justification, failed to produce documentation within its possession
and control in response to discovery requests.
The Court has ruled on two of the plaintiffs' procedural motions, denying
sanctions (it also denied the Company's request for sanctions against the
plaintiffs). Several additional procedural motions were heard in January 1998,
but the Court has not yet issued its order. The plaintiffs filed another motion
in January 1998 seeking sanctions. To date, no trial date has been established.
BALLINGER ET AL. V. BRUSH WELLMAN INC. ET AL. was filed against the
Company and one other defendant by 26 plaintiffs who allegedly have chronic
beryllium disease ("CBD"), and their spouses, and one representative of a spouse
who allegedly died from CBD (for a total of 43 plaintiffs). The defendants filed
various motions in response to the complaint, including a motion to dismiss.
Before a ruling on the motion to dismiss, an amended complaint was filed in
September 1997 adding 7 plaintiffs who allegedly have CBD and their spouses (for
a total of 14 additional plaintiffs). Various motions were again filed,
including a motion to dismiss. Before a ruling was made on the motion to dismiss
the amended complaint, a second amended complaint was filed in December 1997.
One plaintiff and his spouse moved for dismissal of their claims without
prejudice, which motion was granted. Also, in December 1997, the remaining
plaintiffs agreed to dismiss the second defendant and filed an agreed motion for
dismissal. The Court granted this second agreed motion on February 13, 1998. In
response to the second amended complaint, on January 23, 1998, the Company moved
to dismiss 47 of the 55 plaintiffs and answered as to the remaining 8
plaintiffs. The Court has not ruled on this motion.
The complaint in WALLACE ET AL. V. BRUSH WELLMAN INC. ET AL. was
answered by the Company on August 15, 1997. The case has since been transferred
to Orange County and is in its very early stages of discovery.
In LINDSTEDT V. NATIONAL BERYLLIUM CORP. ET AL., SPECTRA-PHYSICS, INC.
V. BRUSH WELLMAN INC., a suit brought by an employee of the Company against a
number of defendants, including Spectra Physics, 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, seeking indemnification. The third-party
complaint was dismissed by the Court in early 1997. Spectra-Physics has since
settled with the plaintiff and has itself been dismissed from the action. On
March 20, 1998, the single remaining defendant requested, and was granted,
permission to identify the Company as a party for discovery purposes only.
Accordingly, the Company remains a party solely for this purpose. The Company
believes that resolution of this case will not have a material adverse effect on
the Company.
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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 29, 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 CBD 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 CBD. 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. Discovery is
currently ongoing in this action. Defense of all of these cases is being
conducted by counsel retained by the Company, and 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.
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, among other things, 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.
9
<PAGE> 11
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 is a defendant in seven cases pending before the Court of
Common Pleas of Cuyahoga County, Ohio, brought by current and former employees
of the Company and, in most of the cases, their family members: BERLIN V. BRUSH
WELLMAN INC., filed January 24, 1997; KNEPPER ET AL. V. BRUSH WELLMAN INC.,
filed January 23, 1997; MIA JOHNSON, EXECUTRIX OF THE ESTATE OF ETHEL JONES ET
AL. V. BRUSH WELLMAN INC., filed January 22, 1997; JACOBS ET AL. V. BRUSH
WELLMAN INC., filed December 31, 1996; STARIN V. BRUSH WELLMAN INC., filed
December 31, 1996; MUSSER ET AL. V. BRUSH WELLMAN INC., filed October 25, 1996;
and WHITAKER ET AL. V. BRUSH WELLMAN INC., filed August 23, 1996. The complaints
in all of these cases allege that the employees contracted CBD at the workplace,
seek recovery on an intentional tort theory and, except in the BERLIN and STARIN
cases, include claims by family members. The plaintiffs in these cases seek both
compensatory and, except in the KNEPPER case, punitive damages. All of these
cases, except the KNEPPEr case, have been consolidated at least for purposes of
discovery and pretrial motions, and all are set for trial in June 1998. The
consolidation order of the Court indicates that, after discovery, the Court will
revisit whether the cases should be consolidated for trial. On October 6, 1997,
the Company filed a motion to dismiss or in the alternative for summary judgment
in the KNEPPER case. This motion remains pending. On October 16, 1997, one of
the employee-plaintiffs in the consolidated cases and his spouse dismissed their
complaint without prejudice. On November 26, 1997, the Company filed a motion
for summary judgment in the STARIN case. This motion remains pending. On March
20, 1998, the parties filed an agreed motion to stay discovery in all of the
seven cases on the grounds that the parties had negotiated a settlement and
would need time to reduce that settlement to definitive written agreements. In
addition, certain of the claims will be submitted for approval of the probate
division of the appropriate common pleas court. The motion to stay remains
pending and the parties are drafting written agreements. No assurance can be
given that the settlement will be effected as currently anticipated since the
agreements have not been signed, or, where necessary, submitted to the
appropriate probate court. The Company believes that resolution of these cases
will not have a material adverse effect on the Company.
10
<PAGE> 12
An action was filed by the Arizona State Compensation Fund against the
Company in Pima County Superior Court, Arizona, seeking a declaratory judgment
that the Fund is not required to defend or indemnify the Company against claims
made in the WHITAKER case: STATE COMPENSATION FUND V. BRUSH WELLMAN INC., filed
December 11, 1996. The parties have agreed to stay further proceedings in the
case for a mutually agreed period of time.
CLAIMS INITIATED SINCE THE END OF THIRD QUARTER 1997. On December 19,
1997, the Company was named a defendant in a product liability case filed in the
Court of Common Pleas, Philadelphia County, Pennsylvania: FRANK CORVINO ET AL.
V. CABOT CORP. ET AL. In the complaint, Mr. Corvino alleges that he suffered
injury (including CBD) resulting from exposure to beryllium dust and fibers
emitted from a plant operated by defendants Cabot Corporation and NGK in the
vicinity of his place of work. Mr. Corvino also alleges that he suffered injury
as a result of exposure to beryllium supplied to his employers. The complaint
includes claims for negligence, product liability and loss of consortium. No
specific claim has been asserted against the Company. The plaintiffs seek
compensatory damages in excess of $50,000, and medical monitoring and punitive
damages of an unspecified amount. The defense of this case is being conducted by
counsel selected by the Company and retained, with reservations of rights, by
the Company's insurance carriers. The Company believes that resolution of this
case will not have a material adverse effect on the Company.
CLAIMS CONCLUDED SINCE THE END OF THIRD QUARTER 1997. On October 2,
1997, an employee of the Company and his spouse filed an action in the Court of
Common Pleas of Cuyahoga County, Ohio: DAVID NORGARD ET AL. V. BRUSH WELLMAN
INC. The complaint alleged that David Norgard contracted CBD during his
employment with the Company as a result of exposure to beryllium and beryllium
containing products, and included claims for employer intentional tort and loss
of consortium. The plaintiffs sought compensatory and punitive damages, each in
an amount in excess of $25,000. The case was consolidated, at least for purposes
of discovery and pretrial motions, with the six other cases pending against the
Company before the Court of Common Pleas for Cuyahoga County, Ohio, and
identified above. On November 5, 1997, the Company filed a motion to dismiss the
complaint based on the statute of limitations. On March 19, 1998, the plaintiffs
in this case dismissed their complaint without prejudice.
11
<PAGE> 13
In a product liability case brought by an employee of a customer of
Williams Advanced Materials, Inc., a subsidiary of the Company, in the Court of
Common Pleas, Chester County, Pennsylvania, the plaintiffs alleged personal
injury resulting from exposure to beryllium and beryllium containing materials
and loss of consortium, and claimed compensatory damages in excess of $25,000
based on various legal theories: DAVID TAGGART ET AL. V. ACECODENT, ET AL.,
filed on October 2, 1992. The plaintiffs dismissed this action against the
Company's subsidiary, but the case remained pending due to a cross-claim against
the Company's subsidiary by one of the other defendants. This cross-claim
against the Company's subsidiary was discontinued and a stipulation for
dismissal was filed with the Court. On March 3, 1998, the Court dismissed the
Company's subsidiary from the action.
The Company was one of five defendants in a product liability case
filed in the District Court of Harris County, Texas, on August 15, 1997: BILLY
RAY CASH ET AL. V. BRUSH WELLMAN INC. ET AL. The complaint alleged that the
Company sold harmful and toxic substances to Mr. Cash's employer and that, as a
result of exposure to such substances, Mr. Cash developed severe respiratory
disease. The complaint included claims for loss of consortium. The plaintiff's
sought compensatory and punitive damages of unspecified amounts. The plaintiffs
moved for voluntary dismissal of their action against the Company, and the
motion was granted by the Court on December 11, 1997.
(c) ASBESTOS EXPOSURE CLAIMS.
A subsidiary of the Company (the "Subsidiary") is a co-defendant in
nineteen cases making claims for asbestos-induced illness allegedly relating to
the former operations of the Subsidiary, then known as The S.K. Wellman Corp.
Eighteen 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
forty-seven similar cases previously reported have been dismissed or disposed of
by pretrial judgment, one by jury verdict of no liability and fourteen others by
settlement for nominal sums. The Company believes that resolution of the pending
cases referred to in this paragraph will not have a material adverse effect on
the Company.
12
<PAGE> 14
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 judgments 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 PENDING CLAIMS.
A subsidiary of the Company, Technical Materials, Inc. ("TMI"), and an
employee of TMI are defendants in a case filed in the Superior Court of the
State of Rhode Island on October 15, 1997: HANDY & HARMAN ELECTRONIC MATERIALS
CORPORATION V. TECHNICAL MATERIALS, INC. ET AL. The complaint alleges that TMI
tortiously induced the employee to breach his confidentiality obligations to his
former employer, the plaintiff, and misappropriated trade secrets of the
plaintiff. The plaintiff seeks preliminarily and permanently to enjoin TMI from
using any confidential information obtained by the employee while he was
employed with the plaintiff, and compensatory and punitive damages of
unspecified amounts.
The Company is a defendant in a personal injury case filed in the
Court of Common Pleas for Ottawa County, Ohio, on January 24, 1997, by an
employee of the Company and his spouse: MATHIAS ET AL. V. BRUSH WELLMAN INC. The
plaintiffs seek compensatory damages in excess of $25,000 and punitive damages
in excess of $25,000 for an alleged acid spill.
The defense of these two cases is being conducted by counsel retained
by the Company. The Company believes that the resolution of these cases will not
have a material adverse effect on the Company.
13
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
Not Applicable.
Executive Officers of the Registrant
- ------------------------------------
The following table provides information as to the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Positions and Offices
---- --- ---------------------
<S> <C> <C>
Gordon D. Harnett 55 Chairman of the Board, President, Chief Executive Officer
and Director
Michael D. Anderson 46 Vice President Beryllium Products
Carl Cramer 49 Vice President Finance, Chief Financial Officer
Brian J. Derry 52 Vice President Operations
Stephen Freeman 51 Vice President Alloy Products
Jordan P. Frazier 40 General Manager of Ceramic Products
Craig B. Harlan 60 Vice President International - Europe
Alfonso T. Lubrano 48 President - Technical Materials, Inc.
</TABLE>
14
<PAGE> 16
<TABLE>
<S> <C> <C>
John J. Paschall 60 President - Williams Advanced Materials Inc.
Andrew J. Sandor 58 Vice President Alloy Technology
Daniel A. Skoch 48 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.
MR. DERRY was elected Vice President Operations May 6, 1997.
Prior to that, he served as Director of Global Manufacturing for Ethyl
Corporation.
MR. FRAZIER was appointed General Manager of Ceramic Products on
December 2, 1997. He had served as General Manager of Ceramic Operations since
September 7, 1996. He had served as Director of Sales and Marketing for Ceramic
Products since February 1, 1996.
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 on December
2, 1997. He had served as Vice President International-Europe since 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 April, 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
15
<PAGE> 17
Inc. since April, 1989.
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.
16
<PAGE> 18
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 9, 1998 there were 2,305 shareholders of record.
Information as to stock price and dividends declared set forth on page 20 in
Note O to the consolidated financial statements in the annual report to
shareholders for the year ended December 31, 1997 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.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
Selected Financial Data on page 26 of the annual report to
shareholders for the year ended December 31, 1997 is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
RESULTS OF OPERATIONS
1997 to 1996 Comparison
- -----------------------
Sales in 1997 were a record $433.8 million, a 15% improvement
over 1996 sales of $376.3 million. Sales have increased for five consecutive
years, establishing record highs in each of the past four years.
Diluted earnings per share grew to $1.56 in 1997 from $1.53 in 1996.
Metal Systems sales, which are approximately 70% of total sales,
increased in 1997 over 1996. The primary markets for these products are
telecommunications, automotive and electronics. Aerospace, defense and plastic
tooling are smaller, but important markets as well. Major products included in
Metal Systems are beryllium, beryllium alloy strip and bulk and engineered
materials. These products offer a wide variety of performance characteristics
that are ideal in high reliability applications, and enable customers to improve
efficiencies and lower costs. Depending upon their form and application, these
products can provide superior electrical conductivity, formability, wear
resistance and high strength and hardness. Applications for these materials
include connectors, switches, relays, mold tooling, bushings, contacts and
structural components.
Alloy strip sales posted significant gains in 1997 over 1996 in
the domestic and international markets. Pounds shipped increased at a higher
rate than the sale values as a
17
<PAGE> 19
large portion of the additional sales was in relatively lower priced alloys. The
translation rate differences also adversely affected international sales. Strip
production was near capacity for most of the year. The new casting facility in
Elmore, Ohio, part of the three-year $117 million alloy expansion project,
started up on schedule late in the fourth quarter 1997. In addition to
increasing capacity, this equipment is designed to lower costs and improve
quality of beryllium alloy products. The strip mill portion of the expansion
project is scheduled to be completed in the summer of 1998.
Sales of alloy bulk products declined year on year due to lower
sales to the recreation and leisure market. The Company has now developed new
alloys and marketing strategies in attempts to regain its share in this
profitable, but somewhat seasonal and inconsistent, market. Bulk product sales
to other markets increased slightly in 1997 over 1996. To augment the markets
served by its traditional beryllium alloy bulk products, the Company recently
completed construction of a new facility in Lorain, Ohio, to produce a specialty
family of non-beryllium containing alloys in rod, bar and tube form. Production
in limited quantities began in the fourth quarter 1997 and the facility is
anticipated to be fully operational in 1998.
Sales of engineered material systems once again demonstrated
strong growth in the current year continuing a five-year trend of improving
revenues and profits. Engineered material systems include clad inlay or overlay
metals, contour profiling of metals, electron beam welded metal systems,
precious and base metal electroplating and solder-coated metal systems, or any
combinations of these systems. Capital investments to support and expand these
product offerings were made in 1997 and are planned to continue in 1998.
Beryllium sales also grew in 1997 from 1996. AlBeMet(R) sales,
while still relatively small, increased in the current year and the Company is
encouraged by its potential commercial applications. Investment cast products
also offer an opportunity for growth. Beryllium metal sales, primarily for
defense applications, were flat year on year.
Sales of Microelectronic Group products, which include precious
metals, ceramics and thick film circuits, increased dramatically in 1997 from
1996 to account for approximately 30% of the Company's total sales. The majority
of the sales growth was in precious metals, primarily physical vapor deposition
targets used in the optical data storage and hybrid electronic markets. Revenues
from the Company's gold refining operations increased in 1997 as well. Because
of the high precious metal content, the cost of which is passed through to
customers, these sales have a lower margin percent than the average margins
earned on the Company's other products. While profitable, the large increase in
precious metal sales has the effect of lowering the Company's overall gross
margin percent.
Ceramic sales were higher in 1997 than 1996 on the strength of
additional base beryllia ceramic sales to the telecommunications market. Direct
bond copper sales increased slightly, but their profitability remained
disappointing. Thick film circuit sales from Circuits Processing Technology,
Inc. ("CPT") were a minor contributor to the increased sales in 1997 from 1996.
18
<PAGE> 20
International operations consist of distribution centers in
Germany, England and Japan, a marketing office in Singapore and a precious metal
finishing facility in Singapore. In addition, in 1997, the Company entered into
a joint venture in Singapore to provide slitting and distribution facilities for
beryllium alloys. Sales by international operations totaled $88.7 million in
1997 compared to $74.8 million in 1996. Sales by these operations are
predominantly in their respective currencies while the majority of the
underlying cost of sales is incurred in dollars. In 1997, the U.S. dollar on
average strengthened 11% against the yen and 14% against the deutschmark from
1996, thereby reducing the comparative translated value of these sales and
resulting margins. The dollar's value against the yen and the deutschmark was
higher at December 31, 1997 than the average value for 1997. Direct exports to
unaffiliated customers were $53.7 million in 1997 and $33.6 million in 1996.
The majority of these sales are to North America and western Europe and are
denominated in dollars. International markets 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, 1997, outstanding hedge contracts totaled
$25.9 million, compared to $25.0 million at year end 1996.
Gross margin was $113.0 million in 1997, a gain of $4.4 million
from 1996. However, the margin percentage declined to 26.1% of sales from 28.9%.
The two major causes for the decline in the percentage were the effects of the
stronger dollar and the large increase in precious metal products that carry
smaller margins as previously discussed. Capacity constraints at several
facilities created additional cost pressures (increased overtime, limited
availability of the optimal equipment, etc.). Tempering these effects was the
increase in beryllium strip sales earning greater margins. The Utah beryllium
extraction facility operated at very efficient levels in 1997. The cost of
copper, typically passed through to beryllium alloy customers, was essentially
flat year on year. Selling prices in general were fairly stable during 1997.
Selling, administrative and general expenses were $69.0 million
or 15.9% of sales in 1997 compared to $65.0 million or 17.2% of sales in 1996.
Costs associated with the start-up of the new facility in Lorain, Ohio and
charges for the company-owned life insurance program were two main causes for
the increase. The expense portion of the new computer based information system
project, begun in 1996, continued into 1997.
Research and development (R&D) expenses were $7.7 million or
1.8% of sales in 1997, a decline from $8.3 million or 2.2% of sales in 1996.
Expenses were lower in 1997 in part because of reimbursements for R&D work
performed under government contracts. Additionally, two major initiatives in
1996 achieved their objectives in early 1997 and, therefore, caused a reduction
in expenditures. The Company is planning on increasing its investment and
staffing in R&D in order to continue developing new products and technologies.
Other-net expense was $0.3 million in 1997 and $1.0 million in
1996. Foreign
19
<PAGE> 21
currency hedge gains were higher in 1997 than 1996 while goodwill expense was
lower in 1997. Partially offsetting these benefits was an increase in the cost
of financing the consigned platinum and palladium stocks that support a portion
of the precious metal business. Major disruptions to the supply of metal in the
international markets in the summer of 1997 caused the higher rates. By the end
of 1997, financing rates had significantly declined, although they still were
higher than the typically nominal rates of prior years. The Company has taken
additional measures to reduce its exposures.
Interest expense was $0.6 million in 1997 versus $1.1 million in
1996 net of capitalized interest associated with long-term capital projects of
$1.9 million in 1997 and $1.0 million in 1996. The higher incurred interest
expense in 1997 was the result of increased borrowings, as the weighted average
interest rate declined slightly in 1997 from 1996.
Income before income taxes was $35.5 million in 1997, an
increase of $2.3 million from 1996. As explained above, this improvement was due
to higher sales volume generating an increase in margin that was partially
offset by an unfavorable currency effect and higher expenses.
The Company's effective tax rate was 27.8% of pre-tax earnings
in 1997 compared to 26.2% in 1996. Higher earnings and a decreased tax benefit
from the company-owned life insurance program caused the increase in the rate.
Adjustments to the statutory tax rate are detailed in Note I to the Consolidated
Financial Statements.
Comparative basic earnings per share were $1.58 in 1997 and
$1.55 in 1996. Diluted earnings per share were $1.56 in 1997 and $1.53 in 1996.
All earnings per share calculations have been restated to comply with SFAS No.
128, which revised the methodology for determining the weighted average shares
outstanding. (See Note J to the Consolidated Financial Statements for a
reconciliation of basic and diluted earnings per share.)
1996 to 1995 Comparison
- -----------------------
Worldwide sales in 1996 were $376.3 million compared to $369.6
million achieved in 1995. The revenue growth came primarily from domestic
beryllium alloy products and engineered material systems. The resulting profits
grew faster than sales, as diluted earnings per share were $1.53 in 1996, an
improvement of 20% over the prior 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. Sales of bulk products (bar, tube, plate, custom fabricated parts) also
increased in 1996, further penetrating 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 are seasonal and inconsistent from year to
year.
International sales of beryllium alloys declined in 1996
compared to 1995 as a
20
<PAGE> 22
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 stronger dollar in 1996
relative to 1995 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.
Sales of engineered material 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
adversely affected second half sales.
Precious metal sales were down in 1996 from 1995'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 1996 from 1995, reflecting the drop-off in frame lid assembly
shipments.
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.
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 microelectronics market.
Sales from international operations totaled $74.8 million in
1996 compared to $91.2 million in 1995. Direct exports to unaffiliated customers
totaled $33.6 million in 1996 and $36.1 million in 1995.
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
21
<PAGE> 23
impact of the stronger dollar. The lower copper cost in 1996, as compared to
1995, was 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
alloy 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 and in-house investment casting technology. 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 account for the improvement.
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 rate. Adjustments to the statutory tax rate are detailed in
Note I to the Consolidated Financial Statements.
Comparative basic earnings per share were $1.55 in 1996 and
$1.28 in 1995 and diluted earnings per share were $1.53 in 1996 and $1.27 in
1995.
FINANCIAL POSITION
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operations was $40.4 million in 1997 down from
$45.0 million in 1996. Accounts receivable increased $12.7 million since the
prior year end as a result of the 24% growth in fourth quarter sales; the
collection period remains essentially unchanged. Inventory declined by $3.7
million in large part as a result of the strong demand for the
22
<PAGE> 24
Company's products. The cash balance at December 31, 1997, was $7.2 million
compared to $31.7 million at the prior year end. As discussed below, the
increase in capital expenditures is the main cause for the decline in cash.
The aforementioned $117 million alloy expansion project begun in
1996 is being financed, in part, by two operating leases totaling approximately
$81.1 million (See Note F to the Consolidated Financial Statements). Payments
under the facility lease began in December 1997 and payments under the equipment
lease will begin in 1999. Equipment lease payments are graduated to increase
over time.
Capital expenditures for property, plant and equipment totaled
$53.2 million, excluding items under lease. Included in this total is the
construction cost of the new manufacturing facility in Lorain, Ohio, which was
financed in part by tax-advantaged industrial revenue bonds, a portion of the
alloy expansion project in Elmore, Ohio, and new plating lines and related
equipment at the Lincoln, Rhode Island facility. Capital expenditures in 1997
were significantly higher than in recent years and expenditures in 1998 are
anticipated to approximate 1997's level.
New bertrandite mine pits in Utah were developed at a total cost
of $13.2 million, including $3.7 million expended in 1996. The pits have an
average life of four to five years.
In 1996, the Company initiated a project to implement a new
computer-based information system replacing the majority of its older systems.
The new system was designed primarily to improve the efficiency of information
flow, but it also mitigates the requirements to make numerous old systems year
2000 compliant. The new system is anticipated to be substantially implemented by
the end of 1998 and have a capitalized cost of approximately $15 million. Year
2000 compliant costs for the remaining legacy systems are estimated at
approximately five cents per share in 1998. The Company anticipates that the
majority of its systems will be year 2000 compliant by the end of 1998. The
Company does not believe it is materially dependent upon any vendor or customer
who may have a year 2000 compliance problem.
Short-term debt at year end 1997 was $28.9 million, an increase
of $3.2 million from the prior year end. Included in this amount is $0.8 million
of the current portion of long-term debt with the balance denominated in
precious metals and foreign currencies to provide hedges for assets so
denominated. Credit lines amounting to $54.8 million are available for
additional borrowing. The precious metal facility is committed, secured and
renewed annually. All other lines are uncommitted, unsecured and renewed
annually.
Long-term debt on the balance sheet was $17.9 million at
December 31, 1997, compared to $18.9 million at December 31, 1996. Long-term
available financial resources include $70 million of medium-term notes and $55
million under a revolving credit agreement.
The Company repurchased 205,600 shares of Common Stock at a cost
of $4.9 million in 1997 under a program authorized by the Board of Directors in
the second quarter
23
<PAGE> 25
1997. The purpose of the program is to help offset the dilutive effect of
exercisable stock options and other stock-based compensation. Common stock was
used to acquire CPT in the fourth quarter 1996, increasing the number of
outstanding shares. Dividends paid in 1997 were $7.3 million, an increase of
$0.8 million from 1996. The quarterly dividend per share increased to $0.12 from
$0.11 in the third quarter 1997 following a similar increase in the third
quarter 1996.
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 1996 was $45.0 million. Cash balances
increased $2.2 million while total balance sheet debt increased $4.8 million
during 1996. Capital expenditures and mine development expenditures were $30.5
million in 1996. The Company re-purchased $6.7 million of Common Stock and paid
$6.5 million dividends in 1996.
24
<PAGE> 26
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>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Proven bertrandite ore reserves at
year-end (thousands of dry tons) 6,924 6,763 6,927 6,747 6,786
Grade % beryllium 0.249 0.249 0.249 0.251 0.251
Probable bertrandite ore reserves at
year-end (thousands of dry tons) 6,750 7,432 7,346 7,559 7,594
Grade % beryllium 0.277 0.281 0.281 0.279 0.279
Bertrandite ore processed (thousands
of dry tons, diluted) 110 97 96 79 92
Grade % beryllium, diluted 0.229 0.236 0.232 0.240 0.232
</TABLE>
INFLATION AND CHANGING PRICES
The prices of certain major raw materials, including copper, nickel, gold and
other precious metals purchased by the Company, fluctuate during a given year.
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 M to the Consolidated Financial Statements, page 18 of the
Annual Report to Shareholders for the year ended December 31, 1997, 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 $5.1 million at December 31, 1997 ($4.0 million at December 31, 1996).
This reserve covers existing and currently foreseen projects.
25
<PAGE> 27
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, 1997 are incorporated herein by
reference:
Consolidated Balance Sheets - December 31, 1997 and 1996.
Consolidated Statements of Income - Years ended December 31, 1997, 1996
and 1995.
Consolidated Statements of Shareholders' Equity - Years ended December
31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows - Years ended December 31, 1997,
1996 and 1995.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
Quarterly Data on page 20 of the annual report to shareholders for the years
ended December 31, 1997 and December 31, 1996 is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None
26
<PAGE> 28
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 16, 1998 is incorporated herein by
reference. Information with respect to Executive Officers of the Company is set
forth earlier on pages 15 and 16 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 16, 1998 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 7 of the Proxy
Statement dated March 16, 1998 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Not applicable.
27
<PAGE> 29
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, 1997 are the following
consolidated financial statements:
Consolidated Balance Sheets - December 31, 1997 and
1996.
Consolidated Statements of Income - Years ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholders' Equity -
Years ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows - Years ended
December 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
(a) 2. Financial Statement Schedules
-----------------------------
The following consolidated financial information for
the years 1997,1996 and 1995 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.
28
<PAGE> 30
(a) 3. Exhibits
--------
(3a) Second Amended and Restated Articles of
Incorporation of the Company dated
January 27, 1998.
(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 (filed as
Exhibit 4b to the Company's Form 10-K Annual
Report for the year ended December 31,
1996), incorporated herein by reference.
(4c) Second Amendment to Amended and Restated
Credit Agreement dated September 2, 1997
between Brush Wellman Inc. and National City
Bank acting for itself and as agent for
certain other banking institutions.
(4d) Rights Agreement between the Company and
National City Bank N.A. dated January 27,
1998.
(4e) 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.
(4f) 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 (filed as Exhibit 10a to the
Company's Form 10-K Annual Report for the
year ended December 31, 1990), incorporated
herein by reference.
(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.
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
<PAGE> 31
(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 (filed as Exhibit 10c to
the Company's Form 10-K Annual Report for
the year ended December 31, 1990),
incorporated herein by reference.
(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, Mr. Carl Cramer dated
December 6, 1994 and Mr. Brian J. Derry
dated May 6, 1997 (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, Mr. Cramer dated
December 6, 1994 and Mr. Brian J. Derry
dated May 6, 1997 (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, Messrs. M. D. Anderson,
A. T. Lubrano, S. A. Moyer and J. J.
Paschall on January 19, 1996, and Messrs.
Brian J. Derry and Jordon P. Frazier on
May 6, 1997 (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 June 27, 1989, Mr. A. C.
Bersticker on April 27, 1993, Mr. D. L.
Burner on May 2, 1995, Mr. James P. Mooney
on October 1, 1996, Mr. J. P. Keithley on
August 5, 1997 and Mr. W. P. Robertson on
December 2, 1997 (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.
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
<PAGE> 32
(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 (filed
as Exhibit 10o to the Company's Form 10-K
Annual Report for the year ended
December 31, 1995), incorporated herein by
reference.
(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 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.
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
<PAGE> 33
(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 as Amended
March 3, 1998 (filed as Exhibit A to the
Company's Proxy Statement dated March 16,
1998, 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 (filed as Exhibit 10v to the
Company's Form 10-K Annual Report for the
year ended December 31, 1996), incorporated
herein by reference.
(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 (filed as Exhibit 10w
to the Company's Form 10-K Annual Report for
the year ended December 31, 1996),
incorporated herein by reference.
(10x)* 1997 Stock Incentive Plan for Non-Employee
Directors (filed as Exhibit B to the
Company's Proxy Statement dated March 16,
1998, Commission File No. 1-7006)
incorporated herein by reference.
(13) Portions of the Annual Report to
shareholders for the year ended December 31,
1997.
(21) Subsidiaries of the registrant.
(23) Consent of Ernst & Young LLP.
(24) Power of Attorney.
(27.1) Financial Data Schedule 1997.
(27.2) Financial Data Schedule 1996 Restated.
(27.3) Financial Data Schedule 1995 Restated.
(99) Form 11-K Annual Report for the Brush
Wellman Inc. Savings and Investment Plan for
the year ended December 31, 1997.
(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, 1997.
* Reflects management contract or other compensatory arrangement required to be
filed as an Exhibit pursuant to Item 14(c) of this Report.
<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, 1998
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>
<S> <C> <C>
GORDON D. HARNETT* Chairman of the Board,
- --------------------------- President, Chief Executive
Gordon D. Harnett Officer and Director March 27, 1998
(Principal Executive Officer)
CARL CRAMER Vice President and Chief March 27, 1998
- --------------------------- Financial Officer
Carl Cramer
ALBERT C. BERSTICKER* Director March 27, 1998
- ---------------------------
Albert C. Bersticker
CHARLES F. BRUSH, III* Director March 27, 1998
- ---------------------------
Charles F. Brush, III
DAVID L. BURNER* Director March 27, 1998
- ---------------------------
David L. Burner
JOSEPH P. KEITHLEY * Director March 27, 1998
- ---------------------------
Joseph P. Keithley
WILLIAM P. MADAR* Director March 27, 1998
- ---------------------------
William P. Madar
ROBERT M. McINNES* Director March 27, 1998
- ---------------------------
Robert M. McInnes
WILLIAM R. ROBERTSON Director March 27, 1998
- ---------------------------
William R. Robertson
JOHN SHERWIN, JR.* Director March 27, 1998
- ---------------------------
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, 1998
Attorney-in-Fact
<PAGE> 35
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BRUSH WELLMAN INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
--------------------------------------
DESCRIPTION Balance at Beginning (1) (2) Deduction-Describe Balance at End
of Period Charged to Costs Charged to Other of Period
and Expenses Accounts-Describe
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Deducted from assets accounts:
Allowance for doubtful
accounts receivable $954,289 $143,666 $0 $39,292 (A) $1,058,663
Inventory reserves and
obsolescence $1,717,795 $2,816,498 $0 $2,479,355 (B) $2,054,938
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
</TABLE>
Note A - Bad debts written-off.
Note B - Inventory write-off.
<PAGE> 1
Exhibit 3A
SECOND AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BRUSH WELLMAN INC.
FIRST: The name of the Corporation shall be BRUSH WELLMAN INC.
SECOND: The place in the State of Ohio where its principal office
is to be located is the City of Cleveland, Cuyahoga County.
THIRD: The purpose or purposes for which it is formed are:
1. To engage in, and exploit the results of; scientific research.
2. To acquire, own, lease, work and operate mines, and to deal in
minerals, and to produce or cause to be produced products therefrom.
3. To manufacture, buy or otherwise acquire, own, mortgage,
pledge, sell, assign, lease, license, or otherwise dispose of; import, export,
trade and deal in and with goods, wares, merchandise, and personal property of
every kind and description.
4. To secure, register, purchase, lease or otherwise acquire,
hold, use, own, operate and introduce, and sell, assign, or otherwise dispose
of; any trademarks, trade names, copyrights, patents, inventions, improvements
and processes, whether used in connection with or secured under letters patent
of the United States or elsewhere, or otherwise, and to use, exercise, develop
and grant licenses in respect of; or otherwise turn to account any such
trademarks, copyrights, patents, licenses, processes and the like, or any
property or rights.
5. To acquire, own, hold, dispose of; and generally deal in bonds,
debentures, notes, stocks, mortgages, choses in action and intangible property
of every nature.
6. To purchase, lease, or otherwise acquire, own, improve,
operate, lease, mortgage, sell, or otherwise dispose of; real property, and
interests therein, and to construct, erect, equip, manufacture, occupy, conduct,
manage, repair, improve, lease, mortgage, sell, or otherwise dispose of;
fixtures, mills, residences, buildings, and structures of all kinds.
7. To carry on and transact any of the foregoing purposes as
principal, agent or broker.
8. To the same extent and as fully as natural persons might
lawfully or could do, to do all and every lawfiil act and thing and to enter
into, make and perform contracts of every kind, without limitation as to amount,
necessary, suitable or convenient and proper for the accomplishment of any of
the purposes or the performance of any of the objects or incidental to any of
the powers hereinbefore enumerated or which at any time shall appear conducive
or expedient for the protection or benefit of the Corporation; the enumeration
of specific powers not being a limitation or restriction in any manner of the
general powers of the Corporation.
<PAGE> 2
9. To do all or any of such acts or things and exercise any of
such powers in the State of Ohio, other states, the District of Columbia, the
territories, colonies, and possessions of the United States, and in any foreign
countries, to comply with the requirements of laws of such other jurisdictions
to enable it to do business therein, and to maintain such offices, branches or
plants either within or without the State of Ohio as may be convenient.
FOURTH: The authorized number of shares of the Corporation is
50,000,000 consisting of 5,000,000 shares of Serial Preferred Stock, without par
value, and 45,000,000 shares of Common Stock of the par value of $1 per share.
All authorized but unissued shares of Common Stock of the Corporation shall be
free from preemptive rights of shareholders to subscribe for and purchase any
part thereof, and may be disposed of by the Board of Directors of the
Corporation at any time or from time to time for such consideration not less
than the par value thereof as may be fixed by the Board of Directors.
DIVISION A
EXPRESS TERMS OF THE SERIAL PREFERRED STOCK
Section 1. The Serial Preferred Stock may be issued form time to
time in one or more series. All shares of Serial Preferred Stock shall be of
equal rank and shall be identical, except in respect of the matters that may be
fixed by the Board of Directors as hereinafter provided, and each share of each
series shall be identical with all other shares of such series, except as to the
date from which dividends are cumulative. Subject to the provisions of Section 2
to 8, both inclusive, of this Division A, which provisions shall apply to all
Serial Preferred Stock, the Board of Directors hereby is authorized to cause
such shares to be issued in one or more series, and with respect to each such
series, prior to the issuance thereof, to fix:
(a) The designation of the series which may be by distinguishing
number, letter or title.
(b) The number of shares of the series, which number the Board of
Directors may (except where otherwise provided in the creation of the
series) increase or decrease (but not below the number of shares thereof
then outstanding).
(c) The annual dividend rate of the series.
(d) The dates at which dividends, if declared, shall be payable,
and the dates from which dividends shall be cumulative.
(e) The redemption rights and price or prices, if any, for shares
of the series.
(f) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series.
(g) The amounts payable on shares of the series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation.
2
<PAGE> 3
(h) Whether the shares of the series shall be convertible into
Common Stock, and, if so, the conversion price or prices, any adjustments
thereof; and all other terms and conditions upon which such conversion
may be made.
(i) Restrictions (in addition to those set forth in Section 6(b)
and 6(c) of this Division) on the issuance of shares of the same series
or of any other class or series.
The Board of Directors is authorized to adopt from time to time
amendments to the Articles of Incorporation fixing, with respect to each such
series, the matters described in clauses (a) to (i), both inclusive, of this
Section 1.
Section 2. The holders of Serial Preferred Stock of each series,
in preference to the holders of Common Stock and of any other class of shares
ranking junior to the Serial Preferred Stock, shall be entitled to receive out
of any funds legally available and when and as declared by the Board of
Directors dividends in cash at the rate for such series fixed in accordance with
the provisions of Section 1 of this Division and no more, payable quarterly on
the dates fixed for such series. Such dividends shall be cumulative, in the case
of shares of each particular series, from and afier the date or dates fixed with
respect to such series. No dividends may be paid upon or declared or set apart
for any of the Serial Preferred Stock for any quarterly dividend period unless
at the same time a like proportionate dividend for the same quarterly dividend
period, ratably in proportion to the respective annual dividend rates fixed
therefor, shall be paid upon or declared or set apart for all Serial Preferred
Stock of all series then issued and outstanding and entitled to receive such
dividend.
Section 3. In no event so long as any Serial Preferred Stock shall
be outstanding shall any dividends, except a dividend payable in Common Stock or
other shares ranking junior to the Serial Preferred Stock, be paid or declared
or any distribution be made except as aforesaid n the Common Stock or any other
shares ranking junior to the Serial Preferred Stock, nor shall y Common Stock or
any other shares ranking junior to the Serial Preferred Stock be purchased,
retired, or otherwise acquired by the Corporation (except out of the proceeds of
the sale of Stock or other shares ranking junior to the Serial Preferred Stock
received by the Corporation subsequent to March 31, 1968):
(a) Unless all accrued and unpaid dividends on Serial Preferred
Stock, including the full dividends for the current quarterly dividend
period, shall have been declared and paid or a sum sufficient for payment
thereof set apart; and
(b) Unless there shall be no arrearages with respect to the
redemption of Serial Preferred Stock of any series from any sinking fund
provided for shares of such series in accordance with the provisions of
Section 1 of this Division.
Section 4. (a) Subject to the express terms of each series and to
the provisions of Section 6(b) (iii) of this Division, the Corporation may from
time to time redeem all or any part of the Serial Preferred Stock of any series
at the time outstanding (i) at the option of the Board of Directors at the
applicable redemption price for such series fixed in accordance with the
provisions of Section 1 of this Division, or (ii) in fulfillment of the
requirements of any sinking
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fund provided for shares of such series at the applicable sinking fund
redemption price, fixed in accordance with the provisions of Section 1 of this
Division, together in each case with an amount equal to all dividends accrued
and unpaid thereon (whether or not such dividends shall have been earned or
declared) to the redemption date.
(b) Notice of every such redemption shall be mailed, postage
prepaid, to the holders of record of the Serial Preferred Stock to be redeemed
at their respective addresses then appearing on the books of the Corporation,
not less than 30 days nor more than 60 days prior to the date fixed for such
redemption. At any time before or after notice has been given as above provided,
the Corporation may deposit the aggregate redemption price of the shares of
Serial Preferred Stock to be redeemed, together with accrued and unpaid
dividends thereon to the redemption date, with any bank or trust company in
Cleveland, Ohio, or New York, New York, having capital and surplus of more than
$5,000,000, named in such notice, and direct that such deposited amount be paid
to the respective holders of the shares of Serial Preferred Stock so to be
redeemed, upon surrender of the stock certificate or certificates held by such
holders. Upon the giving of such notice and the making of such deposit, such
holders shall cease to be shareholders with respect to such shares and shall
have no interest in or claim against the Corporation with respect to such shares
except only to receive such money from such bank or trust company without
interest or the right to exercise any unexpired privileges of conversion. In
case less than all of the outstanding shares of Serial Preferred Stock are to be
redeemed, the Corporation shall select pro rata or by lot the shares so to be
redeemed in such manner as shall be prescribed by its Board of Directors.
If the holders of shares of Serial Preferred Stock which shall
have been called for redemption shall not, within six years after such deposit,
claim the amount deposited for the redemption thereof; any such bank or trust
company shall, upon demand, pay over to the Corporation such unclaimed amounts
and thereupon such bank or trust company and the Corporation shall be relieved
of all responsibility in respect thereof and to such holders.
(c) Any shares of Serial Preferred Stock which are redeemed by the
Corporation pursuant to the provisions of this Section 4 and any shares of
Serial Preferred Stock which are purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series and any shares of
Serial Preferred Stock which are converted in accordance with the express terms
thereof shall be cancelled and not reissued. Any shares of Serial Preferred
Stock otherwise acquired by the Corporation shall resume the status of
authorized and unissued shares of Serial Preferred Stock without serial
designation.
Section 5. (a) The holders of Serial Preferred Stock of any series
shall, in case of voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Corporation, be entitled to receive in full out of the
assets of the Corporation, including its capital, before any amount shall be
paid or distributed among the holders of the Common Stock or any other shares
ranking junior to the Serial Preferred Stock, the amounts fixed with respect to
shares of such series in accordance with Section 1 of this Division plus in any
such event an amount equal to all dividends accrued and unpaid thereon (whether
or not such dividends shall have been eamed or declared) to the date of payment
of the amount due pursuant to such liquidation, dissolution or winding up of the
affairs of the Corporation. In case the net assets of the Corporation legally
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<PAGE> 5
available therefor are insufficient to permit the payment upon all outstanding
shares of Serial Preferred Stock of the full preferential amount to which they
are respectively entitled, then such net assets shall be distributed ratably
upon outstanding shares of Serial Preferred Stock in proportion to the full
preferential amount to which each such share is entitled.
After payment to holders of Serial Preferred Stock of the full
preferential amounts as aforesaid, holders of Serial Preferred Stock as such
have no right or claim to any of the remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation into or with
any other corporation, or the merger of any other corporation into it, or the
sale, lease or conveyance of all or substantially all the property or business
of the Corporation, shall not be deemed to be a dissolution, liquidation or
winding up, voluntary or involuntary, for the purposes of this Section 5.
Section 6. (a) The holders of Serial Preferred Stock shall be
entitled to one vote for each share of such stock upon all matters presented to
the shareholders; and, except as otherwise provided herein or required by law,
the holders of Serial Preferred Stock and the holders of Common Stock shall vote
together as one class on all matters. No adjustment of the voting rights of the
holders of Serial Preferred Stock shall be made in the event of an increase or
decrease in the number of shares of Common Stock authorized or issued or in the
event of a stock split or combination of the Common Stock or in the event of a
stock dividend on any class of stock payable solely in Common Stock.
If; and so often as, the Corporation shall be in default in the
payment of dividends in an amount equivalent to six quarterly dividends (whether
or not consecutive) on any series of Serial Preferred Stock at the time
outstanding, whether or not eamed or declared, the holders of Serial Preferred
Stock of all series, voting separately as a class and in addition to all other
rights to vote for directors, shall thereafter be entitled to elect, as herein
provided, two members of the Board of Directors of the Corporation who shall
serve, except as hereinbelow provided, until the next annual meeting of the
shareholders and until their successors have been elected and qualified:
provided, however, that the holders of shares of Serial Preferred Stock shall
not have or exercise such special class voting rights except at meetings of the
shareholders for the election of directors at which the holders of not less than
35% of the outstanding shares of Serial Preferred Stock of all series then
outstanding are present in person or by proxy; and provided further that the
special class voting rights provided for herein when the same shall have become
vested shall remain so vested until all accrued and unpaid dividends on the
Serial Preferred Stock of all series then outstanding shall have been paid,
whereupon the holders of Serial Preferred Stock shall be divested of their
special class voting rights in respect of subsequent elections of directors and
the terms of the directors elected by the holders of the Serial Preferred Stock
shall automatically terminate, subject to the revesting of such special class
voting rights in the event hereinabove specified in this paragraph.
In the event of default entitling the holders of Serial Preferred
Stock to elect two directors as above specified, a special meeting of the
shareholders for the purpose of electing such directors shall be called by the
Secretary of the Corporation upon wntten request of; or may
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<PAGE> 6
be called by, the holders of record of at least 10% of the shares of Serial
Preferred Stock of all series at the time outstanding, and notice thereof shall
be given in the same manner as that required for the annual meeting of
shareholders; provided, however, that the Corporation shall not be required, and
the holders of Serial Preferred Stock shall not be entitled, to call such
special meeting if the annual meeting of shareholders shall be held within 90
days after the date of receipt of the foregoing written request from the holders
of Serial Preferred Stock. At any meeting at which the holders of Serial
Preferred Stock shall be entitled to elect directors, the holders of 35% of the
then outstanding shares of Serial Preferred Stock of all series, present in
person or by proxy, shall be sufficient to constitute a quorum, and the vote of
the holders of a majority of such shares so present at any such meeting at which
there shall be such a quorum shall be sufficient to elect the members of the
Board of Directors which the holders of Serial Preferred Stock are entitled to
elect as hereinabove provided. If at any such meeting there shall be less than a
quorum present, the holders of a majority of the shares so present may adjourn
the meeting from time to time without notice other than announcement at the
meeting until a quorum shall attend.
The two directors who may be elected by the holders of Serial
Preferred Stock pursuant to the foregoing provisions shall be in addition to any
other directors then in office or proposed to be elected otherwise than pursuant
to such provisions, and nothing in such provisions shall prevent any change
otherwise permitted in the total number of directors of the Corporation or
require the resignation of any director elected otherwise than pursuant to such
provisions.
(b) The affirmative vote or consent of the holders of at least
two-thirds of the shares of Serial Preferred Stock at the time outstanding,
given in person or by proxy either in writing or at a meeting called for the
purpose at which the holders of Serial Preferred Stock shall vote separately as
a class, shall be necessary to effect any one or more of the following (but so
far as the holders of Serial Preferred Stock are concerned, such action may be
effected with such vote or consent):
(i) Any amendment, alteration or repeal of any of the provisions
of the Articles of Incorporation or of the Regulations of the Corporation
which affects adversely the voting powers, right or preferences of the
holders of Serial Preferred Stock; provided, however, that, for the
purpose of this clause (i) only, neither the amendment of the Articles of
Incorporation so as to authorize or create, or to increase the authorized
or outstanding amount of; Serial Preferred Stock or of any shares of any
class ranking on a parity with or junior to the Serial Preferred Stock,
nor the amendment of the provisions of the Regulations so as to increase
the number of directors of the Corporation, shall be deemed to affect
adversely the voting powers, rights or preferences of the holders of
Serial Preferred Stock; and provided further, that if such amendment,
alteration or repeal affects adversely the rights or preferences of one
or more but not all series of Serial Preferred Stock at the time
outstanding, only the vote or consent of the holders of at least
two-thirds of the number of the shares at the time outstanding of the
series so affected shall be required; or
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<PAGE> 7
(ii) The authorization or creation of; or the increase in the
authorized amount of; any shares of any class, or any security
convertible into shares of any class, ranking prior to the Serial
Preferred Stock: or
(iii) The purchase or redemption (for sinking fund purposes or
otherwise) of less than all of the Serial Preferred Stock then
outstanding except in accordance with a stock purchase offer made to all
holders of record of Serial Preferred Stock, unless all dividends upon
all Serial Preferred Stock then outstanding for all previous quarterly
dividend periods shall have been declared and paid or funds therefor set
apart and all accrued sinking fund obligations applicable thereto shall
have been complied with.
(c) The affirmative vote or consent of the holders of at least a
majority of the shares of Serial Preferred Stock at the time outstanding, given
in person or by proxy in writing or at a meeting called for the purpose at which
the holders of Serial Preferred Stock shall vote separately as a class, shall be
necessary to effect any one or more of the following (but so far as the holders
of Serial Preferred Stock are concerned, such action may be effected with such
vote orconsent):
(i) The consolidation of the Corporation with or its merger into
any other corporation unless the corporation resulting from such
consolidation or merger will have after such consolidation or merger no
class of shares either authorized or outstanding ranking prior to or on a
parity with the Serial Preferred Stock except the same number of shares
ranking prior to or on a parity with the Serial Preferred Stock and
having the same rights and preferences as the shares of the Corporation
authorized and outstanding immediately preceding such consolidation or
merger, and each holder of Serial Preferred Stock immediately preceding
such consolidation or merger shall receive the same number of shares,
with the same rights and preferences of the resulting corporation; or
(ii) The authorization of any shares ranking on a parity with the
Serial Preferred Stock or an increase in the authorized number of shares
of Serial Preferred Stock; or
(iii) The sale, lease or conveyance by the Corporation of all
or substantially all of its property or business.
Section 7. If the shares of any series of Serial Preferred Stock
shall be convertible into Common Stock, then upon conversion of shares of such
series the stated capital of the Common Stock issued upon such conversion shall
be the aggregate par value of the shares so issued having par value, or, in the
case of Shares without par value, shall be an amount equal to the stated capital
represented by each share of Common Stock outstanding at the time of such
conversion multiplied by the number of shares of Common Stock issued upon such
conversion. The stated capital of the Corporation shall be correspondingly
increased or reduced to reflect the difference between the stated capital of the
shares of Serial Preferred Stock so converted and the stated capital of the
Common Stock issued upon such conversion.
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<PAGE> 8
Section 8. For the purpose of this Division A:
Whenever reference is made to shares "ranking prior to the Serial
Preferred Stock", such reference shall mean and include all shares of the
Corporation in respect of which the rights of the holders thereof as to the
payment of dividends or as to distributions in the event of an involuntary
liquidation, dissolution or winding up of the Corporation are given preference
over the rights of the holders of Serial Preferred Stock; whenever reference is
made to shares "on a parity with the Serial Preferred Stock", such reference
shall mean and include all shares of the Corporation in respect of which the
rights of the holders thereof as to the payment of dividends and as to
distributions in the event of an involuntary liquidation, dissolution or winding
up of the Corporation rank on an equity (except as to the amounts fixed
therefor) with the rights of the holders of Serial Preferred Stock; and whenever
reference is made to shares "ranking junior to the Serial Preferred Stock", such
reference shall mean and include all shares of the Corporation in respect of
which the rights of the holders as to the payment of dividends and as to
distributions in the event of an involuntary liquidation, dissolution or winding
up of the Corporation are junior and subordinate to the rights of the holders of
the Serial Preferred Stock.
DIVISION A-1
SERIAL PREFERRED STOCK, SERIES A
Section 1. There is established hereby a series of Serial
Preferred Stock that shall be designated, "Serial Preferred Stock, Series A"
(hereinafter sometimes called this "Series" or the "Series A Preferred Shares")
and that shall have the terms set forth in this Division A-1.
Section 2. The number of shares of this Series shall be 450,000.
Section 3. (a) The holders of record of Series A Preferred Shares
shall be entitled to receive, when and as declared by the Board of Directors in
accordance with the terms hereof; out of funds legally available for the
purpose, cumulative quarterly dividends payable in cash on the first day of
January, April, July and October in each year (each such date being referred to
herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a Series A Preferred
Share or fraction of a Series A Preferred Share in an amount per share (rounded
to the nearest cent) equal to the lesser of (i) $1.50 or (ii) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions, other than a
dividend payable in shares of Common Stock, or a subdivision of the outstanding
Common Stock (by reclassification or otherwise), declared on the Common Stock
since the immediately preceding Quarterly Dividend Payment Date, or, with
respect to the first Quarterly Dividend Payment Date, since the first issuance
of any Series A Preferred Share or fraction of a Series A Preferred Share. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the amount to
which holders of Series A Preferred Shares were entitled immediately prior to
such
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event under clause (ii) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(b) Dividends shall begin to accrue and be cumulative on
outstanding Series A Preferred Shares from the Quarterly Dividend Payment Date
next preceding the date of issue of such Series A Preferred Shares, unless the
date of issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Shares entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. No dividends shall be paid upon or declared and set apart for
any Series A Preferred Shares for any dividend period unless at the same time a
dividend for the same dividend period, ratably in proportion to the respective
annual dividend rates fixed therefor, shall be paid upon or declared and set
apart for all Serial Preferred Stock of all series then outstanding and entitled
to receive such dividend. The Board of Directors may fix a record date for the
determination of holders of Series A Preferred Shares entitled to receive
payment of a dividend or distribution declared thereon, which record date shall
be no more than 40 days prior to the date fixed for the payment thereof.
Section 4. Subject to the provisions of Section 6(b)(iii)
ofDivisionA and in accordance with Section 4 of Division A, the Series A
Preferred Shares shall be redeemable from time to time at the option of the
Board of Directors of the Corporation, as a whole or in part, at any time at a
redemption price per share equal to one hundred times the then applicable
Purchase Price as defined in that certain Rights Agreement, dated as of January
27, 1998, between the Corporation and National City Bank, N.A. (the "Rights
Agreement"), as the same may from time to time be amended in accordance with its
ternis, which Purchase Price is $110 as of January 27, 1998, subject to
adjustment from time to time as provided in the Rights Agreement. Copies of the
Rights Agreement are available from the Company upon request. In the event that
fewer than all of the outstanding Series A Preferred Shares are to be redeemed,
the number of shares to be redeemed shall be as determined by the Board of
Directors and the shares to be redeemed shall be selected pro rata or by lot in
such manner as shall be determined by the Board of Directors.
Section 5. (a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation
(hereinafter referred to as a "Liquidation"), no distribution shall be made to
the holders of shares of stock ranking junior (either as to dividends or upon
Liquidation) to the Series A Preferred Shares, unless, prior thereto, the
holders of Series A Preferred Shares shall have received at least an amount per
share equal to one hundred times the then applicable Purchase Price as defined
in the Rights Agreement, as the same may be from time to time amended in
accordance with its terms, which Purchase Price is $110 as of January 27, 1998,
subject to adjustment from time to time as provided in the Rights Agreement,
plus an amount equal to accrued and unpaid dividends and distributions thereon,
whether or not earned
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or declared, to the date of such payment, provided that the holders of shares of
Series A Preferred Shares shall be entitled to receive an aggregate amount per
share, subject to the provision for adjustment hereinafter set forth, equal to
100 times the aggregate amount to be distributed per share to holders of Common
Stock (the "Series A Liquidation Preferences").
(b) In the event, however, that the net assets of the Corporation
are not sufficient to pay in full the amount of the Series A Liquidation
Preference and the liquidation preferences of all other series of Serial
Preferred Stock, if any, which rank on a parity with the Series A Preferred
Shares as to distribution of assets in Liquidation, all shares of this Series
and of such other Serial Preferred Stock shall share ratably in the distribution
of assets (or proceeds thereof) in Liquidation in proportion to the full amounts
to which they are respectively entitled.
(c) In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in Common Stock, or effect a
subdivision or combination or consolidation of the outstanding Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock)
into a greater or lesser number of shares of Common Stock, then in each such
case the amount to which holders of Series A Preferred Shares were entitled
immediately prior to such event pursuant to the proviso set forth in paragraph
(a) above, shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(d) The merger or consolidation of the Corporation into or with
any other corporation, or the merger of any other corporation into it, or the
sale, lease or conveyance of all or substantially all the property or business
of the Corporation, shall not be deemed to be a Liquidation for the purposes of
this Section 5.
Section 6. The Series A Preferred Shares shall not be convertible
into Common Stock.
FIFTH: The Corporation may from time to time, pursuant to
authorization by the Board of Directors and without action by shareholders,
purchase or otherwise acquire shares of the Corporation of any class or classes
in such manner, upon such terms and in such amounts as the Board of Directors
shall determine.
SIXTH: Notwithstanding any provision of the Ohio Revised Code now
or hereafter in force requiring for any purpose the vote, consent, waiver or
release of the holders of shares entitling them to exercise two-thirds, or any
other proportion, of the voting power of the Corporation or of any class or
classes of shares thereof; such action, unless otherwise expressly required by
statute or by the Articles of the Corporation, may be taken by the vote,
consent, waiver or release of the holders of shares entitling them to exercise a
majority of the voting power of the Corporation or of such class or classes.
SEVENTH: Section 1. In addition to any affirmative vote required
by law or these Articles of Incorporation, any Related Party Transaction shall
require the affirmative vote
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of not less than both a majority of the Corporation's outstanding Voting Stock
and a majority of the portion of the Corporation's outstanding Voting Stock
excluding the Voting Stock owned by the Related Party involved in the Related
Party Transaction. In the event of any inconsistency between this Article
Seventh and any other provision of these Articles of Incorporation, this Article
Seventh shall govern.
Section 2. The provisions of Section 1 of this Article Seventh
shall not be applicable to Related Party Transactions in which (a) the aggregate
amount of the cash and the fair market value of consideration other than cash
received per share by holders of outstanding shares of each class or series of
Voting Stock of the Corporation who receive cash or other consideration in the
Related Party Transaction is not less than the highest per share price (with
appropriate adjustments for recapitalizations and for stock splits, stock
dividends, and other distributions) paid by the Related Party in acquiring any
of its holdings of each class or series of such Voting Stock and (b) the form of
consideration received by holders of shares of each class or series of such
Voting Stock in cash or the same form of the consideration used by the Related
Party to acquire the largest percentage of each class or series of such Voting
Stock owned by the Related Party.
Section 3. The provisions of Section 1 of this Article Seventh
shall not be applicable to any Related Party Transaction expressly approved by a
majority vote of the Continuing Directors of the Corporation.
Section 4. For the purpose of this Article Seventh:
(a) The term "Related Party Transaction" shall mean (i) any merger
or consolidation of the Corporation or a Subsidiary with a Related Party,
irrespective of which party, if either, is the surviving party, (ii) any
sale, purchase, lease, exchange, transfer, or other transaction (or
series of transactions) between the Corporation or a Subsidiary and a
Related Party involving the acquisition or disposition of assets for
consideration of $5,000,000 or more in value (except transactions in the
ordinary course of business), (iii) the issuance or transfer of any
securities of the Corporation or of a Subsidiary to a Related Party
(other than an issuance or transfer of securities which is effected on a
pro rata basis to all shareholders of the Corporation), (iv) any
reclassification of securities of the Corporation (including any reverse
stock split) or any recapitalization or other transaction involving the
Corporation or its Subsidiaries that would have the effect of increasing
the voting power of a Related Party, except for any mandatory redemption
required by the terms of outstanding securities, and (v) the adoption of
any plan or proposal for the liquidation or dissolution of the
Corporation in favor of which a Related Party votes its Voting Stock.
(b) The term "Related Party" shall mean (i) any individual,
corporation, partnership, or other person, group or entity which, together with
its Affiliates and Associates, is the beneficial owner often percent (10%) or
more but less than ninety percent (90%) of the Voting Stock of the Corporation
or (ii) any such Affiliate or Associate.
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(c) A person shall be a "beneficial owner" of any shares of Voting
Stock:
(1) Which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; or
(2) Which such person or any of its Affiliates or Associates has
(i) the right to acquire (whether such right is exercisable immediately
or only after the passage of time) pursuant to any agreement, arrangement
or understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding; or
(3) Which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(d) The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 1 2b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as in effect on April
22, 1986.
(e) The term "consideration other than cash" as used in Section
2(a) of this Article Seventh shall include, without limitation, Voting Stock of
the Corporation retained by its existing shareholders in the event of a merger
or consolidation with a Related Party in which the Corporation is the surviving
corporation.
(f) The term "Subsidiary" shall mean any Affiliate of the
Corporation more than fifty percent (50%) of the outstanding securities of which
representing the right, other than as affected by events of default, to vote for
the election of directors is owned by the Corporation or by another Subsidiary
(or both).
(g) The term "Voting Stock" shall mean all securities of the
Corporation entitled to vote generally in the election of directors.
(h) The term "Continuing Director" shall mean a director who
either (i) was a member of the Board of Directors of the Corporation immediately
prior to the time that the Related Party involved in a Related Party Transaction
became a Related Party, or (ii) was designated (before his or her initial
election as a director) as a Continuing Director by a majority of the then
Continuing Directors.
Section 5. A majority of the Continuing Directors shall have the
power and duty to determine conclusively for the purposes of this Article
Seventh, on the basis of information known to them, (a) whether a person is a
Related Party, (b) whether a person is an Affiliate or Associate of another, (c)
whether a transaction between the Corporation or a Subsidiary and a Related
Party involves the acquisition or disposition of assets for consideration of
$5,000,000 or more in value, (d) the fair market value of consideration other
than cash received by holders of
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Voting Stock in a Related Party Transaction, and (e) such other matters with
respect to which a determination or interpretation is required under this
Article Seventh.
Section 6. Nothing contained in this Article Seventh shall be
construed to relieve any Related Party from any fiduciary or other obligation
imposed by law.
Section 7. Notwithstanding any other provision of these Articles
of Incorporation or the Regulations of the Corporation or any provision of law
which might otherwise permit a lesser vote, but in addition to any affirmative
vote of the holders of any particular class or series of stock required by law,
these Articles of Incorporation or the Regulations of the Corporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the Corporation's Voting Stock, voting as a single class, shall be
required to alter, amend or adopt any provision inconsistent with or repeal this
Article Seventh.
EIGHTH: These Second Amended and Restated Articles of
Incorporation supersede and take the place of the heretofore existing Amended
Articles of Incorporation of the Corporation and all amendments thereto.
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Exhibit 4c
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
---------------------------------------------------------
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT
AGREEMENT, dated as of September 2, 1997 ("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, as amended
by a First Amendment to Amended and Restated Credit Agreement date December 30,
1996 (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 2A.01 of the Credit Agreement shall be amended
by deleting the same and substituting in lieu thereof the following:
"2A.01 AMOUNTS. The aggregate amount of the Subject
Commitments shall be fifty five million dollars ($55,000,000), but that amount
may be reduced from time to time pursuant to subsection 2A.03 and the Subject
Commitments may be terminated pursuant to Section 5B. The amount of each Bank's
Subject Commitment (subject to such reduction or termination), and the
proportion (expressed as a percentage) that it bears to all of the Subject
Commitments, is set forth opposite the Bank's name below, to-wit:
<PAGE> 2
$15,000,000 27.28% National City Bank
$10,000,000 18.18% NBD Bank
$10,000,000 18.18% KeyBank National Association
$10,000,000 18.18% Bank One, NA
$10,000,000 18.18% Harris Trust and Savings Bank
----------- -----------------------------
$55,000,000 Total"
(B) Subsections 2A.02 and 2A.05 of the Credit Agreement shall
be amended by deleting the references therein to "April 30, 1998" and inserting
in lieu thereof "April 30, 2000."
(C) 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 30, 1999, inclusive, 3.00, and (ii) on and
after December 31, 1999, 2.75."
(D) Section 9 of the Credit Agreement shall be amended as
follows:
(1) The definition of "Funded Indebtedness" is amended by
deleting clause (c) therein and inserting the following in lieu thereof:
"(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"
(2) The definition of "Indebtedness for Borrowed Money" or
"indebtedness for borrowed money" is amended by deleting clause (ii) therein and
inserting the following in lieu thereof:
"(ii) under or in respect of any Guaranty (whether direct or
indirect) of any money borrowed,"
(3) The definition of "Port Authority Lease" is amended by
deleting the same and inserting the following in lieu thereof:
"PORT AUTHORITY LEASE means the Lease, dated as of
October 1, 1996, between the Toledo-Lucas County
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<PAGE> 3
Port Authority, as lessor, and Borrower, as lessee,
as amended by the First Supplemental Lease, dated as
of April 1, 1997, between National City Bank, as
trustee, as lessor (as assignee of all of the
lessor's rights from the Toledo-Lucas County Port
Authority), relating to certain real and personal
property located at 14710 West Portage River S.
Road, Harris Township, Ohio 43416;"
(4) The following definitions shall be inserted in
alphabetical order:
"PORT AUTHORITY BONDS means the Toledo-Lucas County
Port Authority Taxable Project Development Revenue
Bonds, Series 1996 (Brush Wellman Inc. Project) in
the principal amount of $13,100,000, and the
Toledo-Lucas County Port Authority Taxable Project
Development Revenue Bonds, Series 1997 (Brush Wellman
Inc. Project) in the principal amount of $2,175,000,
both of which were issued, sold and delivered by the
Toledo-Lucas County Port Authority to The Prudential
Insurance Company of America;"
"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;"
(E) Exhibits A, C-1 and C-2 to the Credit Agreement are hereby
deleted and Exhibits A, C-1 and C-2 attached to this Amendment are substituted
in lieu thereof, respectively.
3. SUBSTITUTION OF BANKS. Borrower and each of the Banks that
are parties to this Amendment hereby acknowledge and agree that by virtue of the
execution and delivery of this Amendment (a) the Bank of Nova Scotia will no
longer be a Bank that is a party to the Credit Agreement, and (b) Bank One, NA
and Harris Trust and Savings will become Banks that are parties to the Credit
Agreement as provided in Subsection 2A.01.
4. 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
-3-
<PAGE> 4
Subject Notes delivered in connection with this Amendment 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
delivered in connection with this Amendment 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.
5. MISCELLANEOUS.
(A) This Amendment shall be construed in accordance with and
governed by the laws of the State of Ohio, without 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 and the Subject Notes executed in connection
herewith 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.
-4-
<PAGE> 5
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:________________________
Address: NBD BANK
611 Woodward
Detroit, Michigan 48226 By:___________________________
Title:________________________
Address: BANK ONE, NA
600 Superior Avenue
Cleveland, Ohio 44114 By:___________________________
Title:________________________
-5-
<PAGE> 6
Address: HARRIS TRUST AND SAVINGS BANK
P.O. Box 755 (111/2W)
Chicago, Illinois 60690-0755 By:___________________________
Title:________________________
-6-
<PAGE> 7
EXHIBIT A
EXTENSION REQUEST
-----------------
- -----------------
- -----------------
- -----------------
Subject: Extension of Subject Commitments under Amended and Restated
Credit Agreement dated as of December 13, 1994, as amended
Greetings:
Reference is made to the Amended and Restated Credit Agreement by and among you,
the undersigned ("Borrower") and National City Bank as your agent (the "Credit
Agreement") which provides for, among other things, Subject Commitments
aggregating up to $55,000,000 and available to Borrower, upon certain terms and
conditions, on a revolving basis until ____________________, 20___ (the
"Expiration Date" now in effect) subject, however, to earlier reduction or
termination pursuant to the Credit Agreement.
Borrower hereby requests that the Credit Agreement be amended by deleting the
date "________________________, 20__" from subsection 2A.02 (captioned "Term")
and by substituting for that deleted date the date "___________________, 20__".
In all other respects the Credit Agreement shall remain in full effect.
This letter has been executed and delivered to each of you in triplicate. If you
assent to the extension, kindly send two copies of your assent to your agent who
will, if the extension becomes effective, forward one such copy to Borrower and
inform you of the extension.
BRUSH WELLMAN INC.
By:________________________________
Printed Name:______________________
Title:_____________________________
The undersigned hereby each assent to the foregoing.
National City Bank NBD Bank
By:_______________________ By:___________________________
Printed Name:_____________ Printed Name:_________________
Title:____________________ Title:________________________
<PAGE> 8
KeyBank National Association Harris Trust and Savings
Bank
By:_______________________ By:___________________________
Printed Name:_____________ Printed Name:_________________
Title:____________________ Title:________________________
Bank One, NA
By:_______________________
Printed Name:_____________
Title:____________________
A-2
<PAGE> 9
EXHIBIT C-1
AMENDED AND RESTATED NOTE
$_______________ Cleveland, Ohio
September 2, 1997
FOR VALUE RECEIVED, the undersigned, Brush Wellman Inc., an Ohio corporation,
promises to pay to the order of ______________, at the main office of National
City Bank ("NCB"), Cleveland, Ohio, the principal sum of
________________________________________________________ DOLLARS
(or, if less, the aggregate unpaid principal balance from time to time shown on
the reverse side hereof or in the books and records of the payee), together with
interest computed in the manner provided in the Credit Agreement referred to
below, which principal and interest are payable in accordance with provisions in
the Credit Agreement.
This Note is issued pursuant to an Amended and Restated Credit Agreement (the
"Credit Agreement") dated as of December 13, 1994, as amended, modified or
supplemented from time to time, by and among Borrower, the Banks that are
parties thereto and NCB (as agent of the Banks for the purposes of the Credit
Agreement) which establishes "Subject Commitments" (one by each Bank)
aggregating fifty five million dollars ($55,000,000) pursuant to which Borrower
may obtain Subject Loans from the Banks upon certain terms and conditions.
Reference is made to the Credit Agreement for the definitions of certain terms,
for provisions governing the making of Subject Loans, the acceleration of the
Maturity thereof, rights of prepayment, and for other provisions to which this
Note is subject. Any endorsement by the payee on the reverse side of this Note
(or any allonge thereto) shall be presumptive evidence of the data so endorsed.
Borrower hereby waives diligence, presentment, demand, protest and notice of any
kind whatsoever. The nonexercise by the holder of any of its rights hereunder in
any particular instance shall not constitute a waiver thereof in that or any
subsequent instance.
Address: Brush Wellman Inc.
17876 St. Clair Avenue
Cleveland, Ohio 44110
By:___________________________
Title:________________________
<PAGE> 10
EXHIBIT C-2
AMENDED AND RESTATED COMPETITIVE LOAN NOTE
------------------------------------------
$____________ Cleveland, Ohio
September 2, 1997
FOR VALUE RECEIVED, the undersigned, Brush Wellman Inc., an Ohio corporation
("Maker"), promises to pay to the order of ______________ ("Payee"), at its
office located at the address set forth in the Credit Agreement referred to
below (or at such other address as it may furnish to maker from time to time)
the principal sum of ________________ dollars ($______________) (or, if less,
the aggregate unpaid principal balance of all competitive loans (as defined in
the Credit Agreement) made by Payee from time to time shown on the reverse side
hereof or in the books and records of Payee), together with interest computed in
the manner provided in the Credit Agreement referred to below, which principal
and interest are payable in accordance with provisions in the Credit Agreement.
This note is issued pursuant to an Amended and Restated Credit Agreement (the
"Credit Agreement") dated as of December 13, 1994, as amended, modified or
supplemented from time to time, by and among Borrower, the Banks that are
parties thereto and NCB (as agent of the Banks for the purposes of the Credit
Agreement) which establishes "Subject Commitments" (one by each Bank)
aggregating fifty five million dollars ($55,000,000) pursuant to which Borrower
may obtain Subject Loans from the Banks upon certain terms and conditions.
Reference is made to the Credit Agreement for the definitions of certain terms,
for provisions governing the making of Subject Loans, the acceleration of the
maturity thereof, rights of prepayment, and for other provisions to which this
Note is subject. Any endorsement by the payee on the reverse side of this Note
(or any allonge thereto) shall be presumptive evidence of the data so endorsed.
Borrower hereby waives diligence, presentment, demand, protest and notice of any
kind whatsoever. The nonexercise by the holder of any of its rights hereunder in
any particular instance shall not constitute a waiver thereof in that or any
subsequent instance.
Address: Brush Wellman Inc.
17876 St. Clair Avenue
Cleveland, Ohio 44110
By:___________________________
Title:________________________
<PAGE> 1
Exhibit 4d
================================================================================
RIGHTS AGREEMENT
Dated as of January 27, 1998
By and Between
BRUSH WELLMAN INC.
and
NATIONAL CITY BANK, N.A.
as Rights Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
1. Certain Definitions...................................................1
2. Appointment of Rights Agent...........................................5
3. Issue of Right Certificates...........................................6
4. Form of Right Certificates............................................7
5. Countersignature and Registration.....................................8
6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen Right
Certificates..........................................................9
7. Exercise of Rights....................................................9
8. Cancellation and Destruction of Right Certificates...................11
9. Company Covenants Concerning Securities and Rights...................11
10. Date for Certificates Issued Upon Exercise of Rights.................13
11. Adjustment of Purchase Price, Number and Kind of Securities
or Number of Rights..................................................13
12. Certificate of Adjusted Purchase Price or Number of
Securities...........................................................24
13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power........................................................24
14. Fractional Rights and Fractional Securities..........................27
15. Rights of Action.....................................................29
16. Agreement of Rights Holders..........................................29
17. Right Certificate Holder Not Deemed a Shareholder....................30
18. Concerning the Rights Agent..........................................30
19. Merger or Consolidation or Change of Name of
Rights Agent.........................................................31
20. Duties of Rights Agent...............................................31
21. Change of Rights Agent...............................................34
22. Issuance of New Right Certificates...................................35
(i)
<PAGE> 3
Page
----
23. Redemption...........................................................35
24. Exchange.............................................................36
25. Notice of Certain Events.............................................37
26. Notices..............................................................38
27. Supplements and Amendments...........................................39
28. Successors; Certain Covenants........................................40
29. Benefits of This Agreement...........................................40
30. Governing Law........................................................40
31. Severability.........................................................40
32. Descriptive Headings, Etc............................................40
33. Determinations and Actions by the Directors..........................40
34. Counterparts.........................................................41
Exhibit A A-1
Exhibit B B-1
Exhibit C C-1
(ii)
<PAGE> 4
RIGHTS AGREEMENT
----------------
This RIGHTS AGREEMENT, dated as of January 27, 1998 (this "Agreement"),
is made and entered into by and between Brush Wellman Inc., an Ohio corporation
(the "Company"), and National City Bank, N.A., a national banking association
(the "Rights Agent").
RECITALS
--------
WHEREAS, on January 27, 1998 the Directors of the Company authorized
and declared a dividend distribution of one right (a "Right") for each share of
Common Stock, par value $1.00 per share, of the Company (a "Common Share")
outstanding as of the Close of Business (as hereinafter defined) on February 9,
1998 (the "Record Date"), each Right initially representing the right to
purchase one one-hundredth of a Preferred Share (as hereinafter defined), on the
terms and subject to the conditions herein set forth, and further authorized and
directed the issuance of one Right (subject to adjustment as provided herein)
with respect to each Common Share issued or delivered by the Company (whether
originally issued or delivered from the Company's treasury) after the Record
Date but prior to the earlier of the Distribution Date (as hereinafter defined)
and the Expiration Date (as hereinafter defined) or as provided in Section 22.
NOW, THEREFORE, in consideration of the mutual agreements herein set
forth, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms have the meanings indicated:
(a) "ACQUIRING PERSON" means any Person (other than the Company or any
Related Person) who or which, together with all Affiliates and Associates of
such Person, is the Beneficial Owner of 20% or more of the then-outstanding
Common Shares; PROVIDED, HOWEVER, that a Person will not be deemed to have
become an Acquiring Person solely as a result of a reduction in the number of
Common Shares outstanding unless and until such time as (i) such Person or any
Affiliate or Associate of such Person thereafter becomes the Beneficial Owner of
additional Common Shares representing 1% or more of the then-outstanding Common
Shares, other than as a result of a stock dividend, stock split or similar
transaction effected by the Company in which all holders of Common Shares are
treated equally, or (ii) any other Person who is the Beneficial Owner of Common
Shares representing 1% or more of the then-outstanding Common Shares thereafter
becomes an Affiliate or Associate of such Person. Notwithstanding the foregoing,
if the Directors of the Company determine in good faith that a Person who would
otherwise be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), has attained such status
-1-
<PAGE> 5
inadvertently, and such Person divests as promptly as practicable a sufficient
number of Common Shares so that such Person would no longer be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a),
then such Person shall not be deemed to be an "Acquiring Person" for any
purposes of this Agreement.
(b) "AFFILIATE" and "ASSOCIATE" will have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date of this Agreement.
(c) A Person will be deemed the "BENEFICIAL OWNER" of, and to
"BENEFICIALLY OWN," any securities:
(i) the beneficial ownership of which such Person or any of
such Person's Affiliates or Associates, directly or indirectly, has the
right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to any agreement, arrangement or
understanding (whether or not in writing), or upon the exercise of any
rights (including, without limitation, any conversion rights or
exchange rights), warrants, options or otherwise (in each case, other
than upon exercise or exchange of the Rights); PROVIDED, HOWEVER, that
a Person will not be deemed the Beneficial Owner of, or to Beneficially
Own, securities tendered pursuant to an offer to purchase or a tender
or exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has or shares the right to vote or
dispose of, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); or
(iii) of which any other Person is the Beneficial Owner, if
such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement, or understanding (whether or not in writing)
with such other Person (or any of such other Person's Affiliates or
Associates) with respect to acquiring, holding, voting or disposing of
any securities of the Company;
PROVIDED, HOWEVER, that a Person will not be deemed the Beneficial Owner of, or
to Beneficially Own, any security (A) if such Person has the right to vote such
security pursuant to an agreement, arrangement or understanding (whether or not
in writing) which (1) arises solely from a revocable proxy given to such Person
in response to a public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations of the Exchange Act and
(2) is not also then reportable on Schedule 13D under the Exchange Act (or any
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<PAGE> 6
comparable or successor report), or (B) if such beneficial ownership arises
solely as a result of such Person's status as a "clearing agency," as defined in
Section 3(a)(23) of the Exchange Act; PROVIDED FURTHER, HOWEVER, that nothing in
this paragraph (c) will cause a Person engaged in business as an underwriter of
securities to be the Beneficial Owner of, or to Beneficially Own, any securities
acquired through such Person's participation in good faith in an underwriting
syndicate until the expiration of 40 calendar days after the date of such
acquisition, or such later date as the Directors of the Company may determine in
any specific case.
(d) "BUSINESS DAY" means any day other than a Saturday, Sunday or a day
on which banking institutions in the State of New York (or such other state in
which the principal office of the Rights Agent is located) are authorized or
obligated by law or executive order to close.
(e) "CLOSE OF BUSINESS" on any given date means 5:00 P.M., Eastern
time, on such date; PROVIDED, HOWEVER, that if such date is not a Business Day
it means 5:00 P.M., Eastern time, on the next succeeding Business Day.
(f) "COMMON SHARES" when used with reference to the Company means the
shares of Common Stock, par value $1.00 per share, of the Company; PROVIDED,
HOWEVER, that, if the Company is the continuing or surviving corporation in a
transaction described in Section 13(a)(ii), "Common Shares" when used with
reference to the Company means shares of the capital stock or units of the
equity interests with the greatest aggregate voting power of the Company.
"Common Shares" when used with reference to any corporation or other legal
entity other than the Company, including an Issuer, means shares of the capital
stock or units of the equity interests with the greatest aggregate voting power
of such corporation or other legal entity.
(g) "COMPANY" means Brush Wellman Inc., an Ohio corporation.
(h) "DISTRIBUTION DATE" means the earlier of: (i) the Close of Business
on the tenth calendar day after the Share Acquisition Date, or (ii) the Close of
Business on the tenth Business Day (or, unless the Distribution Date shall have
previously occurred, such later date as may be specified by the Directors of the
Company) after the date of the commencement of a tender or exchange offer by any
Person (other than the Company or any Related Person), if upon the consummation
thereof such Person would be the Beneficial Owner of 20% or more of the
then-outstanding Common Shares.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
-3-
<PAGE> 7
(j) "EXCHANGE RATIO" has the meaning set forth in Section 24(a).
(k) "EXERCISE VALUE" has the meaning set forth in Section 11(a)(iii).
(l) "EXPIRATION DATE" means the earliest of (i) the Close of Business
on the Final Expiration Date, (ii) the time at which the Rights are redeemed as
provided in Section 23, and (iii) the time at which all exercisable Rights are
exchanged as provided in Section 24.
(m) "FINAL EXPIRATION DATE" means the tenth anniversary of the Record
Date.
(n) "FLIP-IN EVENT" means any event described in clauses (A), (B) or
(C) of Section 11(a)(ii).
(o) "FLIP-OVER EVENT" means any event described in clauses (i), (ii) or
(iii) of Section 13(a).
(p) "ISSUER" has the meaning set forth in Section 13(b).
(q) "NASDAQ" means The NASDAQ Stock Market.
(r) "PERSON" means any individual, firm, corporation or other legal
entity, and includes any successor (by merger or otherwise) of such entity.
(s) "PREFERRED SHARES" means shares of Serial Preferred Stock, Series
A, without par value, of the Company having the rights and preferences set forth
in EXHIBIT A to this Agreement.
(t) "PURCHASE PRICE" means initially $110.00 per one one-hundredth of a
Preferred Share, subject to adjustment from time to time as provided in this
Agreement.
(u) "RECORD DATE" has the meaning set forth in the Recitals to this
Agreement.
(v) "REDEMPTION PRICE" means $0.01 per Right, subject to adjustment by
resolution of the Directors of the Company to reflect any stock split, stock
dividend or similar transaction occurring after the Record Date.
(w) "RELATED PERSON" means (i) any Subsidiary of the Company or (ii)
any employee benefit or stock ownership plan of the Company or of any Subsidiary
of the Company or any entity holding Common Shares for or pursuant to the terms
of any such plan.
(x) "RIGHT" has the meaning set forth in the Recitals to this
Agreement.
-4-
<PAGE> 8
(y) "RIGHT CERTIFICATES" means certificates evidencing the Rights, in
substantially the form attached to this Agreement as EXHIBIT B.
(z) "RIGHTS AGENT" means National City Bank, N.A., a national banking
association, unless and until a successor Rights Agent has attained such status
pursuant to the terms of this Agreement, and thereafter, "Rights Agent" means
such successor Rights Agent.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "SHARE ACQUISITION DATE" means the first date of public
announcement by the Company (by press release, filing made with the Securities
and Exchange Commission or otherwise) that an Acquiring Person has attained such
status.
(cc) "SUBSIDIARY" when used with reference to any Person means any
corporation or other legal entity of which a majority of the voting power of the
voting equity securities or equity interests is owned, directly or indirectly,
by such Person; PROVIDED, HOWEVER, that for purposes of Section 13(b),
"Subsidiary" when used with reference to any Person means any corporation or
other legal entity of which at least 20% of the voting power of the voting
equity securities or equity interests is owned, directly or indirectly, by such
Person.
(dd) "TRADING DAY" means any day on which the principal national
securities exchange on which the Common Shares are listed or admitted to trading
is open for the transaction of business or, if the Common Shares are not listed
or admitted to trading on any national securities exchange, a Business Day.
(ee) "TRIGGERING EVENT" means any Flip-in Event or Flip-over Event.
2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints the Rights
Agent to act as agent for the Company and the holders of the Rights (who, in
accordance with Section 3, will also be, prior to the Distribution Date, the
holders of the Common Shares) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment and hereby
certifies that it complies with the requirements of the New York Stock Exchange
governing transfer agents and registrars. The Company may from time to time act
as Co-Rights Agent or appoint such Co-Rights Agents as it may deem necessary or
desirable. Any actions which may be taken by the Rights Agent pursuant to the
terms of this Agreement may be taken by any such Co-Rights Agent. To the extent
that any Co-Rights Agent takes any action pursuant to this Agreement, such
Co-Rights Agent will be entitled to all of the rights and protections of, and
subject to all of the applicable duties and obligations imposed upon, the Rights
Agent pursuant to the terms of this Agreement.
-5-
<PAGE> 9
3. ISSUE OF RIGHT CERTIFICATES. (a) Until the Distribution Date, (i)
the Rights will be evidenced by the certificates representing Common Shares
registered in the names of the record holders thereof (which certificates
representing Common Shares will also be deemed to be Right Certificates), (ii)
the Rights will be transferable only in connection with the transfer of the
underlying Common Shares, and (iii) the surrender for transfer of any
certificates evidencing Common Shares in respect of which Rights have been
issued will also constitute the transfer of the Rights associated with the
Common Shares evidenced by such certificates. On or as promptly as practicable
after the Record Date, the Company will send by first class, postage prepaid
mail, to each record holder of Common Shares as of the Close of Business on the
Record Date, at the address of such holder shown on the records of the Company
as of such date, a copy of a Summary of Rights to Purchase Preferred Stock in
substantially the form attached to this Agreement as EXHIBIT C.
(b) Rights will be issued by the Company in respect of all Common
Shares (other than Common Shares issued upon the exercise or exchange of any
Right) issued or delivered by the Company (whether originally issued or
delivered from the Company's treasury) after the Record Date but prior to the
earlier of the Distribution Date and the Expiration Date. Certificates
evidencing such Common Shares will have stamped on, impressed on, printed on,
written on, or otherwise affixed to them the following legend or such similar
legend as the Company may deem appropriate and as is not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or transaction reporting system on
which the Common Shares may from time to time be listed or quoted, or to conform
to usage:
This Certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights Agreement between Brush Wellman
Inc. and National City Bank, N.A., dated as of January 27, 1998 (the
"Rights Agreement"), the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal executive
offices of Brush Wellman Inc. The Rights are not exercisable prior to
the occurrence of certain events specified in the Rights Agreement.
Under certain circumstances, as set forth in the Rights Agreement, such
Rights may be redeemed, may be exchanged, may expire, may be amended,
or may be evidenced by separate certificates and no longer be evidenced
by this Certificate. Brush Wellman Inc. will mail to the holder of this
Certificate a copy of the Rights Agreement, as in effect on the date of
mailing, without charge promptly after receipt of a written request
therefor. Under certain circumstances as set forth in the Rights
Agreement, Rights that are or were beneficially owned by an Acquiring
Person or any
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<PAGE> 10
Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement) may become null and void.
(c) Any Right Certificate issued pursuant to this Section 3 that
represents Rights beneficially owned by an Acquiring Person or any Associate or
Affiliate thereof and any Right Certificate issued at any time upon the transfer
of any Rights to an Acquiring Person or any Associate or Affiliate thereof or to
any nominee of such Acquiring Person, Associate or Affiliate and any Right
Certificate issued pursuant to Section 6 or 11 hereof upon transfer, exchange,
replacement or adjustment of any other Right Certificate referred to in this
sentence, shall be subject to and contain the following legend or such similar
legend as the Company may deem appropriate and as is not inconsistent with the
provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage:
The Rights represented by this Right Certificate are
or were beneficially owned by a Person who was an
Acquiring Person or an Affiliate or an Associate of
an Acquiring Person (as such terms are defined in
the Rights Agreement). This Right Certificate and
the Rights represented hereby may become null and
void in the circumstances specified in Section
11(a)(ii) or Section 13 of the Rights Agreement.
(d) As promptly as practicable after the Distribution Date, the Company
will prepare and execute, the Rights Agent will countersign and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send), by
first class, insured, postage prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date, at the address of
such holder shown on the records of the Company, a Right Certificate evidencing
one Right for each Common Share so held, subject to adjustment as provided
herein. As of and after the Distribution Date, the Rights will be evidenced
solely by such Right Certificates.
(e) In the event that the Company purchases or otherwise acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares will be deemed cancelled and retired
so that the Company will not be entitled to exercise any Rights associated with
the Common Shares so purchased or acquired.
4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and the form of
election to purchase and the form of assignment to be printed on the reverse
thereof) will be substantially in
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the form attached to this Agreement as EXHIBIT B with such changes and marks of
identification or designation, and such legends, summaries or endorsements
printed thereon, as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or transaction reporting system on
which the Rights may from time to time be listed or quoted, or to conform to
usage. Subject to the provisions of Section 22, the Right Certificates, whenever
issued, on their face will entitle the holders thereof to purchase such number
of one one-hundredths of a Preferred Share as are set forth therein at the
Purchase Price set forth therein, but the Purchase Price, the number and kind of
securities issuable upon exercise of each Right and the number of Rights
outstanding will be subject to adjustment as provided herein.
5. COUNTERSIGNATURE AND REGISTRATION. (a) The Right Certificates will
be executed on behalf of the Company by its Chairman of the Board, President or
any Vice President, either manually or by facsimile signature, and will have
affixed thereto the Company's seal or a facsimile thereof which will be attested
by the Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates will be manually countersigned by
the Rights Agent and will not be valid for any purpose unless so countersigned.
In case any officer of the Company who signed any of the Right Certificates
ceases to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent, and issued and delivered
by the Company with the same force and effect as though the person who signed
such Right Certificates had not ceased to be such officer of the Company; and
any Right Certificate may be signed on behalf of the Company by any person who,
at the actual date of the execution of such Right Certificate, is a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at the principal office of the Rights Agent designated for
such purpose and at such other offices as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange or any transaction reporting system on
which the Rights may from time to time be listed or quoted, books for
registration and transfer of the Right Certificates issued hereunder. Such books
will show the names and addresses of the respective holders of the Right
Certificates, the number of Rights evidenced on its face by each of the Right
Certificates and the date of each of the Right Certificates.
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<PAGE> 12
6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT CERTIFICATES;
MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. (a) Subject to the
provisions of Sections 7(d) and 14, at any time after the Close of Business on
the Distribution Date and prior to the Expiration Date, any Right Certificate or
Right Certificates representing exercisable Rights may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder to purchase a like number of one one-hundredths
of a Preferred Share (or other securities, as the case may be) as the Right
Certificate or Right Certificates surrendered then entitled such holder (or
former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any such Right Certificate
or Rights Certificates must make such request in a writing delivered to the
Rights Agent and must surrender the Right Certificate or Right Certificates to
be transferred, split up, combined or exchanged at the principal office of the
Rights Agent designated for such purpose. Thereupon or as promptly as
practicable thereafter, subject to the provisions of Sections 7(d) and 14, the
Company will prepare, execute and deliver to the Rights Agent, and the Rights
Agent will countersign and deliver, one or more new Right Certificates as so
requested. The Company may require payment of a sum sufficient to cover any tax
or governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Right Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, if requested by the Company,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will prepare, execute and
deliver a new Right Certificate of like tenor to the Rights Agent and the Rights
Agent will countersign and deliver such new Right Certificate to the registered
holder in lieu of the Right Certificate so lost, stolen, destroyed or mutilated.
7. EXERCISE OF RIGHTS. (a) The registered holder of any Right
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein) in whole or in part at any time after the Distribution Date and
prior to the Expiration Date, upon surrender of the Right Certificate, with the
form of election to purchase on the reverse side thereof duly executed, to the
Rights Agent at the principal office or offices of the Rights Agent designated
for such purpose, together with payment in cash, in lawful money of the United
States of America by certified check or bank draft payable to the order of the
Company, equal to the sum of (i) the exercise price for the total number of
securities as to which such surrendered Rights are exercised and (ii) an amount
equal to any applicable transfer tax
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<PAGE> 13
required to be paid by the holder of such Right Certificate in accordance with
the provisions of Section 9(d).
(b) Upon receipt of a Right Certificate representing exercisable Rights
with the form of election to purchase duly executed, accompanied by payment as
described above, the Rights Agent promptly will (i) requisition from any
transfer agent of the Preferred Shares (or make available, if the Rights Agent
is the transfer agent) certificates representing the number of one
one-hundredths of a Preferred Share to be purchased (and the Company hereby
irrevocably authorizes and directs its transfer agent to comply with all such
requests), or, if the Company elects to deposit Preferred Shares issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (and the Company
hereby irrevocably authorizes and directs such depositary agent to comply with
all such requests), (ii) after receipt of such certificates (or depositary
receipts, as the case may be), cause the same to be delivered to or upon the
order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder, (iii) when appropriate,
requisition from the Company or any transfer agent therefor (or make available,
if the Rights Agent is the transfer agent) certificates representing the number
of equivalent common shares to be issued in lieu of the issuance of Common
Shares in accordance with the provisions of Section 11(a)(iii), (iv) when
appropriate, after receipt of such certificates, cause the same to be delivered
to or upon the order of the registered holder of such Right Certificate,
registered in such name or names as may be designated by such holder, (v) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of the issuance of fractional shares in accordance with the provisions of
Section 14 or in lieu of the issuance of Common Shares in accordance with the
provisions of Section 11(a)(iii), (vi) when appropriate, after receipt, deliver
such cash to or upon the order of the registered holder of such Right
Certificate, and (vii) when appropriate, deliver any due bill or other
instrument provided to the Rights Agent by the Company for delivery to the
registered holder of such Right Certificate as provided by Section 11(l).
(c) In case the registered holder of any Right Certificate exercises
less than all the Rights evidenced thereby, the Company will prepare, execute
and deliver a new Right Certificate evidencing Rights equivalent to the Rights
remaining unexercised and the Rights Agent will countersign and deliver such new
Right Certificate to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14.
(d) Notwithstanding anything in this Agreement to the contrary, neither
the Rights Agent nor the Company will be obligated to undertake any action with
respect to any purported
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<PAGE> 14
transfer, split up, combination or exchange of any Right Certificate pursuant to
Section 6 or exercise of a Right Certificate as set forth in this Section 7
unless the registered holder of such Right Certificate has (i) completed and
signed the certificate following the form of assignment or the form of election
to purchase, as applicable, set forth on the reverse side of the Right
Certificate surrendered for such transfer, split up, combination, exchange or
exercise and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company may reasonably request.
8. CANCELLATION AND DESTRUCTION OF RIGHT CERTIFICATES. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange will, if surrendered to the Company or to any of its
stock transfer agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, will be cancelled by it,
and no Right Certificates will be issued in lieu thereof except as expressly
permitted by the provisions of this Agreement. The Company will deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent will so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent will deliver
all cancelled Right Certificates to the Company, or will, at the written request
of the Company, destroy such cancelled Right Certificates, and in such case will
deliver a certificate of destruction thereof to the Company.
9. COMPANY COVENANTS CONCERNING SECURITIES AND RIGHTS. The Company
covenants and agrees that:
(a) It will cause to be reserved and kept available out of its
authorized and unissued Preferred Shares or any Preferred Shares held
in its treasury, a number of Preferred Shares that will be sufficient
to permit the exercise in full of all outstanding Rights in accordance
with Section 7.
(b) So long as the Preferred Shares (and, following the
occurrence of a Triggering Event, Common Shares and/or other
securities) issuable upon the exercise of the Rights may be listed on a
national securities exchange, it will endeavor to cause, from and after
such time as the Rights become exercisable, all securities reserved for
issuance upon the exercise of Rights to be listed on such exchange,
upon official notice of issuance upon such exercise.
(c) It will take all such action as may be necessary to ensure
that all Preferred Shares (and, following the occurrence of a
Triggering Event, Common Shares and/or other securities) delivered upon
exercise of Rights, at the time of delivery of the certificates for
such securities, will be (subject to payment of the Purchase Price)
duly authorized, validly issued, fully paid and nonassessable
securities.
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<PAGE> 15
(d) It will pay when due and payable any and all federal and
state transfer taxes and charges that may be payable in respect of the
issuance or delivery of the Right Certificates and of any certificates
representing securities issued upon the exercise of Rights; PROVIDED,
HOWEVER, that the Company will not be required to pay any transfer tax
or charge which may be payable in respect of any transfer or delivery
of Right Certificates to a person other than, or the issuance or
delivery of certificates or depositary receipts representing securities
issued upon the exercise of Rights in a name other than that of, the
registered holder of the Right Certificate evidencing Rights
surrendered for exercise, or to issue or deliver any certificates or
depositary receipts representing securities issued upon the exercise of
any Rights until any such tax or charge has been paid (any such tax or
charge being payable by the holder of such Right Certificate at the
time of surrender) or until it has been established to the Company's
reasonable satisfaction that no such tax is due.
(e) It will use its best efforts (i) to file on an appropriate
form, as soon as practicable following the later of the Share
Acquisition Date and the Distribution Date, a registration statement
under the Securities Act with respect to the securities issuable upon
exercise of the Rights, (ii) to cause such registration statement to
become effective as soon as practicable after such filing, and (iii) to
cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities and (B) the Expiration Date. The
Company will also take such action as may be appropriate under, or to
ensure compliance with, the securities or "blue sky" laws of the
various states in connection with the exercisability of the Rights. The
Company may temporarily suspend, for a period of time after the date
set forth in clause (i) of the first sentence of this Section 9(e), the
exercisability of the Rights in order to prepare and file such
registration statement and to permit it to become effective. Upon any
such suspension, the Company will issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended,
as well as a public announcement at such time as the suspension is no
longer in effect. In addition, if the Company determines that a
registration statement should be filed under the Securities Act or any
state securities laws following the Distribution Date, the Company may
temporarily suspend the exercisability of the Rights in each relevant
jurisdiction until such time as a registration statement has been
declared effective and, upon any such suspension, the Company will
issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement
at such time as the suspension is no longer in
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<PAGE> 16
effect. Notwithstanding anything in this Agreement to the contrary, the
Rights will not be exercisable in any jurisdiction if the requisite
registration or qualification in such jurisdiction has not been
effected or the exercise of the Rights is not permitted under
applicable law.
(f) Notwithstanding anything in this Agreement to the
contrary, after the later of the Share Acquisition Date and the
Distribution Date it will not take (or permit any Subsidiary to take)
any action if at the time such action is taken it is reasonably
foreseeable that such action will eliminate or otherwise diminish the
benefits intended to be afforded by the Rights.
(g) In the event that the Company is obligated to issue other
securities of the Company and/or pay cash pursuant to Section 11, 13,
14 or 24 it will make all arrangements necessary so that such other
securities and/or cash are available for distribution by the Rights
Agent, if and when appropriate.
10. DATE FOR CERTIFICATES ISSUED UPON EXERCISE OF RIGHTS. Each Person
in whose name any certificate representing Preferred Shares (or Common Shares
and/or other securities, as the case may be) is issued upon the exercise of
Rights will for all purposes be deemed to have become the holder of record of
the Preferred Shares (or Common Shares and/or other securities, as the case may
be) represented thereby on, and such certificate will be dated, the date upon
which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and all applicable transfer taxes) was made;
PROVIDED, HOWEVER, that if the date of such surrender and payment is a date upon
which the transfer books of the Company for the Preferred Shares (or Common
Shares and/or other securities, as the case may be) are closed, such Person will
be deemed to have become the record holder of such securities on, and such
certificate will be dated, the next succeeding Business Day on which the
transfer books of the Company for the Preferred Shares (or Common Shares and/or
other securities, as the case may be) are open. Prior to the exercise of the
Rights evidenced thereby, the holder of a Right Certificate will not be entitled
to any rights of a holder of any security for which the Rights are or may become
exercisable, including without limitation the right to vote, to receive
dividends or other distributions, or to exercise any preemptive rights, and will
not be entitled to receive any notice of any proceedings of the Company, except
as provided herein.
11. ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SECURITIES OR
NUMBER OF RIGHTS. The Purchase Price, the number and kind of securities issuable
upon exercise of each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
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(a) (i) In the event that the Company at any time after the Record Date
(A) declares a dividend on the Preferred Shares payable in Preferred
Shares, (B) subdivides the outstanding Preferred Shares, (C) combines
the outstanding Preferred Shares into a smaller number of Preferred
Shares, or (D) issues any shares of its capital stock in a
reclassification of the Preferred Shares (including any such
reclassification in connection with a consolidation or merger in which
the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification and/or the
number and/or kind of shares of capital stock issuable on such date
upon exercise of a Right, will be proportionately adjusted so that the
holder of any Right exercised after such time is entitled to receive
upon payment of the Purchase Price then in effect the aggregate number
and kind of shares of capital stock which, if such Right had been
exercised immediately prior to such date and at a time when the
transfer books of the Company for the Preferred Shares were open, the
holder of such Right would have owned upon such exercise (and, in the
case of a reclassification, would have retained after giving effect to
such reclassification) and would have been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification;
PROVIDED, HOWEVER, that in no event shall the consideration to be paid
upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock issuable upon exercise of one Right. If an
event occurs which would require an adjustment under both this Section
11(a)(i) and Section 11(a)(ii) or Section 13, the adjustment provided
for in this Section 11(a)(i) will be in addition to, and will be made
prior to, any adjustment required pursuant to Section 11(a)(ii) or
Section 13.
(ii) Subject to the provisions of Section 24, if:
(A) any Person becomes an Acquiring Person; or
(B) any Acquiring Person or any Affiliate or Associate of any
Acquiring Person, directly or indirectly, (1) merges into the Company
or otherwise combines with the Company and the Company is the
continuing or surviving corporation of such merger or combination
(other than in a transaction subject to Section 13), (2) merges or
otherwise combines with any Subsidiary of the Company, (3) in one or
more transactions (otherwise than in connection with the exercise,
exchange or conversion of securities exercisable or exchangeable for or
convertible into shares of any class of capital stock of the Company or
any of its Subsidiaries) transfers cash, securities or any other
property to the Company or any of its Subsidiaries in exchange (in
whole or in part) for shares of any class of capital stock of the
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<PAGE> 18
Company or any of its Subsidiaries or for securities exercisable or
exchangeable for or convertible into shares of any class of capital
stock of the Company or any of its Subsidiaries, or otherwise obtains
from the Company or any of its Subsidiaries, with or without
consideration, any additional shares of any class of capital stock of
the Company or any of its Subsidiaries or securities exercisable or
exchangeable for or convertible into shares of any class of capital
stock of the Company or any of its Subsidiaries (otherwise than as part
of a pro rata distribution to all holders of shares of any class of
capital stock of the Company, or any of its Subsidiaries), (4) sells,
purchases, leases, exchanges, mortgages, pledges, transfers or
otherwise disposes (in one or more transactions) to, from, with or of,
as the case may be, the Company or any of its Subsidiaries (otherwise
than in a transaction subject to Section 13), any property, including
securities, on terms and conditions less favorable to the Company than
the Company would be able to obtain in an arm's-length transaction with
an unaffiliated third party, (5) receives any compensation from the
Company or any of its Subsidiaries other than compensation as a
director or a regular full-time employee, in either case at rates
consistent with the Company's (or its Subsidiaries') past practices, or
(6) receives the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances, guarantees,
pledges or other financial assistance or any tax credits or other tax
advantage provided by the Company or any of its Subsidiaries; or
(C) during such time as there is an Acquiring Person, there is any
reclassification of securities of the Company (including any reverse
stock split), or any recapitalization of the Company, or any merger or
consolidation of the Company with any of its Subsidiaries, or any other
transaction or series of transactions involving the Company or any of
its Subsidiaries (whether or not with or into or otherwise involving an
Acquiring Person), other than a transaction subject to Section 13,
which has the effect, directly or indirectly, of increasing by more
than 1% the proportionate share of the outstanding shares of any class
of equity securities of the Company or any of its Subsidiaries, or of
securities exercisable or exchangeable for or convertible into equity
securities of the Company or any of its Subsidiaries, of which an
Acquiring Person, or any Affiliate or Associate of any Acquiring
Person, is the Beneficial Owner;
then, and in each such case, proper provision will be made so that,
from and after the latest of the Share Acquisition Date, the
Distribution Date and the date of the occurrence of such Flip-in Event,
each holder of a Right, except as provided below, will thereafter have
the right to receive, upon exercise thereof in accordance with the
terms of this
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<PAGE> 19
Agreement at an exercise price per Right equal to the product of the
then-current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to the date of the occurrence of such Flip-in Event
(or, if any other Flip-in Event shall have previously occurred, the
product of the then-current Purchase Price multiplied by the number of
one one-hundredths of a Preferred Share for which a Right was
exercisable immediately prior to the date of the first occurrence of a
Flip-in Event), in lieu of Preferred Shares, such number of Common
Shares as equals the result obtained by (x) multiplying the
then-current Purchase Price by the number of one one-hundredths of a
Preferred Share for which a Right was exercisable immediately prior to
the date of the occurrence of such Flip-in Event (or, if any other
Flip-in Event shall have previously occurred, multiplying the
then-current Purchase Price by the number of one one-hundredths of a
Preferred Share for which a Right was exercisable immediately prior to
the date of the first occurrence of a Flip-in Event), and dividing that
product by (y) 50% of the current per share market price of the Common
Shares (determined pursuant to Section 11(d)) on the date of the
occurrence of such Flip-in Event. Notwithstanding anything in this
Agreement to the contrary, from and after the first occurrence of a
Flip-in Event, any Rights that are Beneficially Owned by (A) any
Acquiring Person (or any Affiliate or Associate of any Acquiring
Person), (B) a transferee of any Acquiring Person (or any such
Affiliate or Associate) who becomes a transferee after the occurrence
of a Flip-in Event, or (C) a transferee of any Acquiring Person (or any
such Affiliate or Associate) who became a transferee prior to or
concurrently with the occurrence of a Flip-in Event pursuant to either
(1) a transfer from an Acquiring Person to holders of its equity
securities or to any Person with whom it has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (2) a
transfer which the Directors of the Company have determined is part of
a plan, arrangement or understanding which has the purpose or effect of
avoiding the provisions of this Section 11(a)(ii), and subsequent
transferees of any of such Persons, will be void without any further
action and any holder of such Rights will thereafter have no rights
whatsoever with respect to such Rights under any provision of this
Agreement. The Company will use all reasonable efforts to ensure that
the provisions of this Section 11(a)(ii) are complied with, but will
have no liability to any holder of Right Certificates or any other
Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or
transferees hereunder. Upon the occurrence of a Flip-in Event, no Right
Certificate that represents Rights that are or have become void
pursuant to the provisions of this Section 11(a)(ii) will thereafter be
issued pursuant to Section 3 or Section 6, and any Right Certificate
delivered
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<PAGE> 20
to the Rights Agent that represents Rights that are or have become void
pursuant to the provisions of this Section 11(a)(ii) will be cancelled.
Upon the occurrence of a Flip-over Event, any Rights that shall not
have been previously exercised pursuant to this Section 11(a)(ii) shall
thereafter be exercisable only pursuant to Section 13 and not pursuant
to this Section 11(a)(ii).
(iii) Upon the occurrence of a Flip-in Event, if there are
not sufficient Common Shares authorized but unissued or issued but not
outstanding to permit the issuance of all the Common Shares issuable in
accordance with Section 11(a)(ii) upon the exercise of a Right, the
Directors of the Company will use their best efforts promptly to
authorize and, subject to the provisions of Section 9(e), make
available for issuance additional Common Shares or other equity
securities of the Company having equivalent voting rights and an
equivalent value (as determined in good faith by the Directors of the
Company) to the Common Shares (for purposes of this Section 11(a)(iii),
"equivalent common shares"). In the event that equivalent common shares
are so authorized, upon the exercise of a Right in accordance with the
provisions of Section 7, the registered holder will be entitled to
receive (A) Common Shares, to the extent any are available, and (B) a
number of equivalent common shares, which the Directors of the Company
have determined in good faith to have a value equivalent to the excess
of (x) the aggregate current per share market value on the date of the
occurrence of the most recent Flip-in Event of all the Common Shares
issuable in accordance with Section 11(a)(ii) upon the exercise of a
Right (the "Exercise Value") over (y) the aggregate current per share
market value on the date of the occurrence of the most recent Flip-in
Event of any Common Shares available for issuance upon the exercise of
such Right; PROVIDED, HOWEVER, that if at any time after 90 calendar
days after the latest of the Share Acquisition Date, the Distribution
Date and the date of the first occurrence of a Flip-in Event, there are
not sufficient Common Shares and/or equivalent common shares available
for issuance upon the exercise of a Right, then the Company will be
obligated to deliver, upon the surrender of such Right and without
requiring payment of the Purchase Price, Common Shares (to the extent
available), equivalent common shares (to the extent available) and then
cash (to the extent permitted by applicable law and any agreements or
instruments to which the Company is a party in effect immediately prior
to the Share Acquisition Date), which securities and cash have an
aggregate value equal to the excess of (1) the Exercise Value over (2)
the product of the then-current Purchase Price multiplied by the number
of one one-hundredths of a Preferred Share for which a Right was
exercisable immediately prior to the date of the occurrence of the most
recent Flip-in Event (or, if any other Flip-in Event shall have
previously occurred, the product of the
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then-current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right would have been
exercisable immediately prior to the date of the occurrence of such
Flip-in Event if no other Flip-in Event had previously occurred). To
the extent that any legal or contractual restrictions prevent the
Company from paying the full amount of cash payable in accordance with
the foregoing sentence, the Company will pay to holders of the Rights
as to which such payments are being made all amounts which are not then
restricted on a pro rata basis and will continue to make payments on a
pro rata basis as promptly as funds become available until the full
amount due to each such Rights holder has been paid.
(b) In the event that the Company fixes a record date for the issuance
of rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or securities having equivalent
rights, privileges and preferences as the Preferred Shares (for purposes of this
Section 11(b), "equivalent preferred shares")) or securities convertible into
Preferred Shares or equivalent preferred shares at a price per Preferred Share
or equivalent preferred share (or having a conversion price per share, if a
security convertible into Preferred Shares or equivalent preferred shares) less
than the current per share market price of the Preferred Shares (determined
pursuant to Section 11(d)) on such record date, the Purchase Price to be in
effect after such record date will be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which is the number of Preferred Shares outstanding on such record
date plus the number of Preferred Shares which the aggregate offering price of
the total number of Preferred Shares and/or equivalent preferred shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current per share market
price and the denominator of which is the number of Preferred Shares outstanding
on such record date plus the number of additional Preferred Shares and/or
equivalent preferred shares to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible);
PROVIDED, HOWEVER, that in no event shall the consideration to be paid upon the
exercise of one Right be less than the aggregate par value of the shares of
capital stock issuable upon exercise of one Right. In case such subscription
price may be paid in consideration part or all of which is in a form other than
cash, the value of such consideration will be as determined in good faith by the
Directors of the Company, whose determination will be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company will not be deemed outstanding for the purpose of any such
computation. Such adjustment will be made successively whenever such a record
date is fixed, and in the event that such rights, options or warrants are not so
issued, the Purchase Price
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<PAGE> 22
will be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In the event that the Company fixes a record date for the making of
a distribution to all holders of Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of
indebtedness, cash (other than a regular periodic cash dividend), assets, stock
(other than a dividend payable in Preferred Shares) or subscription rights,
options or warrants (excluding those referred to in Section 11(b)), the Purchase
Price to be in effect after such record date will be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which is the current per share market price of the
Preferred Shares (as determined pursuant to Section 11(d)) on such record date
or, if earlier, the date on which Preferred Shares begin to trade on an
ex-dividend or when issued basis for such distribution, less the fair market
value (as determined in good faith by the Directors of the Company, whose
determination will be described in a statement filed with the Rights Agent) of
the portion of the evidences of indebtedness, cash, assets or stock so to be
distributed or of such subscription rights, options or warrants applicable to
one Preferred Share, and the denominator of which is such current per share
market price of the Preferred Shares; PROVIDED, HOWEVER, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock issuable upon exercise of one
Right. Such adjustments will be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the Purchase
Price will again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the "current per
share market price" of Common Shares on any date will be deemed to be
the average of the daily closing prices per share of such Common Shares
for the 30 consecutive Trading Days immediately prior to such date;
PROVIDED, HOWEVER, that in the event that the current per share market
price of the Common Shares is determined during a period following the
announcement by the issuer of such Common Shares of (A) a dividend or
distribution on such Common Shares payable in such Common Shares or
securities convertible into such Common Shares (other than the Rights)
or (B) any subdivision, combination or reclassification of such Common
Shares, and prior to the expiration of 30 Trading Days after the
ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in
each such case, the current per share market price will be
appropriately adjusted to take into account ex-dividend trading or to
reflect the current per share market price per Common Share equivalent.
The closing price for each day
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<PAGE> 23
will be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked
prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the
Common Shares are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal
national securities exchange on which the Common Shares are listed or
admitted to trading or, if the Common Shares are not listed or admitted
to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by Nasdaq or such other
system then in use, or, if on any such date the Common Shares are not
quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a
market in the Common Shares selected by the Directors of the Company.
If the Common Shares are not publicly held or not so listed or traded,
or are not the subject of available bid and asked quotes, "current per
share market price" will mean the fair value per share as determined in
good faith by the Directors of the Company, whose determination will be
described in a statement filed with the Rights Agent.
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares will be
determined in the same manner as set forth above for Common Shares in
Section 11(d)(i), other than the last sentence thereof. If the current
per share market price of the Preferred Shares cannot be determined in
the manner provided above, the "current per share market price" of the
Preferred Shares will be conclusively deemed to be an amount equal to
the current per share market price of the Common Shares multiplied by
one hundred (as such number may be appropriately adjusted to reflect
events such as stock splits, stock dividends, recapitalizations or
similar transactions relating to the Common Shares occurring after the
date of this Agreement). If neither the Common Shares nor the Preferred
Shares are publicly held or so listed or traded, or the subject of
available bid and asked quotes, "current per share market price" of the
Preferred Shares will mean the fair value per share as determined in
good faith by the Directors of the Company, whose determination will be
described in a statement filed with the Rights Agent. For all purposes
of this Agreement, the current per share market price of one
one-hundredth of a Preferred Share will be equal to the current per
share market price of one Preferred Share divided by one hundred.
(e) Except as set forth below, no adjustment in the Purchase Price will
be required unless such adjustment would
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<PAGE> 24
require an increase or decrease of at least 1% in such price; PROVIDED, HOWEVER,
that any adjustments which by reason of this Section 11(e) are not required to
be made will be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11 will be made to the nearest
cent or to the nearest one one-millionth of a Preferred Share or one
ten-thousandth of a Common Share or other security, as the case may be.
Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 will be made no later than the earlier of (i) three
years from the date of the transaction which requires such adjustment and (ii)
the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a), the
holder of any Right thereafter exercised becomes entitled to receive any
securities of the Company other than Preferred Shares, thereafter the number
and/or kind of such other securities so receivable upon exercise of any Right
(and/or the Purchase Price in respect thereof) will be subject to adjustment
from time to time in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Preferred Shares (and the Purchase Price
in respect thereof) contained in this Section 11, and the provisions of Sections
7, 9, 10, 13 and 14 with respect to the Preferred Shares (and the Purchase Price
in respect thereof) will apply on like terms to any such other securities (and
the Purchase Price in respect thereof).
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder will evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share issuable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company has exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price pursuant to Section
11(b) or Section 11(c), each Right outstanding immediately prior to the making
of such adjustment will thereafter evidence the right to purchase, at the
adjusted Purchase Price, that number of one one-hundredths of a Preferred Share
(calculated to the nearest one one-millionth of a Preferred Share) obtained by
(i) multiplying (x) the number of one one-hundredths of a Preferred Share
issuable upon exercise of a Right immediately prior to such adjustment of the
Purchase Price by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect, on or after the date of any adjustment of
the Purchase Price, to adjust the number of Rights in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share issuable
upon the exercise of a
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<PAGE> 25
Right. Each of the Rights outstanding after such adjustment of the number of
Rights will be exercisable for the number of one one-hundredths of a Preferred
Share for which a Right was exercisable immediately prior to such adjustment.
Each Right held of record prior to such adjustment of the number of Rights will
become that number of Rights (calculated to the nearest one ten-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company will make a public
announcement of its election to adjust the number of Rights, indicating the
record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. Such record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, will be at least 10 calendar days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company will, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to the
provisions of Section 14, the additional Rights to which such holders are
entitled as a result of such adjustment, or, at the option of the Company, will
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof if required by the Company, new Right
Certificates evidencing all the Rights to which such holders are entitled after
such adjustment. Right Certificates so to be distributed will be issued,
executed, and countersigned in the manner provided for herein (and may bear, at
the option of the Company, the adjusted Purchase Price) and will be registered
in the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Without respect to any adjustment or change in the Purchase Price
and/or the number and/or kind of securities issuable upon the exercise of the
Rights, the Right Certificates theretofore and thereafter issued may continue to
express the Purchase Price and the number and kind of securities which were
expressed in the initial Right Certificate issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares or below the then par value, if any, of any other securities of
the Company issuable upon exercise of the Rights, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Preferred Shares or such other securities, as the case may be, at such adjusted
Purchase Price.
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<PAGE> 26
(l) In any case in which this Section 11 otherwise requires that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
the number of Preferred Shares or other securities of the Company, if any,
issuable upon such exercise over and above the number of Preferred Shares or
other securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment; PROVIDED,
HOWEVER, that the Company delivers to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
Preferred Shares or other securities upon the occurrence of the event requiring
such adjustment.
(m) Notwithstanding anything in this Agreement to the contrary, the
Company will be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in its good faith judgment the Directors of the Company
determines to be advisable in order that any (i) consolidation or subdivision of
the Preferred Shares, (ii) issuance wholly for cash of Preferred Shares at less
than the current per share market price therefor, (iii) issuance wholly for cash
of Preferred Shares or securities which by their terms are convertible into or
exchangeable for Preferred Shares, (iv) stock dividends, or (v) issuance of
rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of its Preferred Shares is not taxable to such
shareholders.
(n) Notwithstanding anything in this Agreement to the contrary, in the
event that the Company at any time after the Record Date but prior to the
Distribution Date (i) pays a dividend on the outstanding Common Shares payable
in Common Shares, (ii) subdivides the outstanding Common Shares, (iii) combines
the outstanding Common Shares into a smaller number of shares, or (iv) issues
any shares of its capital stock in a reclassification of the outstanding Common
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation), the
number of Rights associated with each Common Share then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, will be
proportionately adjusted so that the number of Rights thereafter associated with
each Common Share following any such event equals the result obtained by
multiplying the number of Rights associated with each Common Share immediately
prior to such event by a fraction the numerator of which is the total number of
Common Shares outstanding immediately prior to the occurrence of the event and
the denominator of which is the total number of Common Shares outstanding
immediately following the occurrence of such event. The adjustments provided for
in this Section 11(n) will be made successively whenever such a dividend is paid
or such a subdivision, combination or reclassification is effected.
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<PAGE> 27
12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SECURITIES.
Whenever an adjustment is made as provided in Section 11 or Section 13, the
Company will promptly (a) prepare a certificate setting forth such adjustment
and a brief statement of the facts accounting for such adjustment, (b) file with
the Rights Agent and with each transfer agent for the Preferred Shares and the
Common Shares a copy of such certificate, and (c) if such adjustment is made
after the Distribution Date, mail a brief summary of such adjustment to each
holder of a Right Certificate in accordance with Section 26.
13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR EARNING
POWER. (a) In the event that:
(i) at any time after a Person has become an Acquiring
Person, the Company consolidates with, or merges with or into, any
other Person and the Company is not the continuing or surviving
corporation of such consolidation or merger; or
(ii) at any time after a Person has become an Acquiring
Person, any Person consolidates with the Company, or merges with or
into the Company, and the Company is the continuing or surviving
corporation of such merger or consolidation and, in connection with
such merger or consolidation, all or part of the Common Shares is
changed into or exchanged for stock or other securities of any other
Person or cash or any other property; or
(iii) at any time after a Person has become an Acquiring
Person, the Company, directly or indirectly, sells or otherwise
transfers (or one or more of its Subsidiaries sells or otherwise
transfers), in one or more transactions, assets or earning power
(including without limitation securities creating any obligation on the
part of the Company and/or any of its Subsidiaries) representing in the
aggregate more than 50% of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to any Person or Persons other
than the Company or one or more of its wholly owned Subsidiaries;
then, and in each such case, proper provision will be made so that from and
after the latest of the Share Acquisition Date, the Distribution Date and the
date of the occurrence of such Flip-over Event (A) each holder of a Right
thereafter has the right to receive, upon the exercise thereof in accordance
with the terms of this Agreement at an exercise price per Right equal to the
product of the then-current Purchase Price multiplied by the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to the Share Acquisition Date, such number of duly authorized,
validly issued, fully paid, nonassessable and freely tradeable Common Shares of
the Issuer, free and clear of any liens, encumbrances and other adverse claims
and not subject to any rights of call or first refusal, as equals the result
obtained by (x) multiplying the then-current
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<PAGE> 28
Purchase Price by the number of one one-hundredths of a Preferred Share for
which a Right was exercisable immediately prior to the Share Acquisition Date
and dividing that product by (y) 50% of the current per share market price of
the Common Shares of the Issuer (determined pursuant to Section 11(d)), on the
date of the occurrence of such Flip-over Event; (B) the Issuer will thereafter
be liable for, and will assume, by virtue of the occurrence of such Flip-over
Event, all the obligations and duties of the Company pursuant to this Agreement;
(C) the term "Company" will thereafter be deemed to refer to the Issuer; and (D)
the Issuer will take such steps (including without limitation the reservation of
a sufficient number of its Common Shares to permit the exercise of all
outstanding Rights) in connection with such consummation as may be necessary to
assure that the provisions hereof are thereafter applicable, as nearly as
reasonably may be possible, in relation to its Common Shares thereafter
deliverable upon the exercise of the Rights.
(b) For purposes of this Section 13, "Issuer" means (i) in the case of
any Flip-over Event described in Sections 13(a)(i) or (ii) above, the Person
that is the continuing, surviving, resulting or acquiring Person (including the
Company as the continuing or surviving corporation of a transaction described in
Section 13(a)(ii) above), and (ii) in the case of any Flip-over Event described
in Section 13(a)(iii) above, the Person that is the party receiving the greatest
portion of the assets or earning power (including without limitation securities
creating any obligation on the part of the Company and/or any of its
Subsidiaries) transferred pursuant to such transaction or transactions;
PROVIDED, HOWEVER, that, in any such case, (A) if (1) no class of equity
security of such Person is, at the time of such merger, consolidation or
transaction and has been continuously over the preceding 12-month period,
registered pursuant to Section 12 of the Exchange Act, and (2) such Person is a
Subsidiary, directly or indirectly, of another Person, a class of equity
security of which is and has been so registered, the term "Issuer" means such
other Person; and (B) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, a class of equity security of two or more
of which are and have been so registered, the term "Issuer" means whichever of
such Persons is the issuer of the equity security having the greatest aggregate
market value. Notwithstanding the foregoing, if the Issuer in any of the
Flip-over Events listed above is not a corporation or other legal entity having
outstanding equity securities, then, and in each such case, (x) if the Issuer is
directly or indirectly wholly owned by a corporation or other legal entity
having outstanding equity securities, then all references to Common Shares of
the Issuer will be deemed to be references to the Common Shares of the
corporation or other legal entity having outstanding equity securities which
ultimately controls the Issuer, and (y) if there is no such corporation or other
legal entity having outstanding equity securities, (I) proper provision will be
made so that the Issuer creates or otherwise makes available for purposes of the
exercise of the
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<PAGE> 29
Rights in accordance with the terms of this Agreement, a kind or kinds of
security or securities having a fair market value at least equal to the economic
value of the Common Shares which each holder of a Right would have been entitled
to receive if the Issuer had been a corporation or other legal entity having
outstanding equity securities; and (II) all other provisions of this Agreement
will apply to the issuer of such securities as if such securities were Common
Shares.
(c) The Company will not consummate any Flip-over Event if, (i) at the
time of or immediately after such Flip-over Event, there are or would be any
rights, warrants, instruments or securities outstanding or any agreements or
arrangements in effect which would eliminate or substantially diminish the
benefits intended to be afforded by the Rights, (ii) prior to, simultaneously
with or immediately after such Flip-over Event, the shareholders of the Person
who constitutes, or would constitute, the Issuer for purposes of Section 13(a)
shall have received a distribution of Rights previously owned by such Person or
any of its Affiliates or Associates, or (iii) the form or nature of the
organization of the Issuer would preclude or limit the exercisability of the
Rights. In addition, the Company will not consummate any Flip-over Event unless
the Issuer has a sufficient number of authorized Common Shares (or other
securities as contemplated in Section 13(b) above) which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in accordance
with this Section 13 and unless prior to such consummation the Company and the
Issuer have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in subsections (a) and (b) of this Section 13
and further providing that as promptly as practicable after the consummation of
any Flip-over Event, the Issuer will:
(A) prepare and file a registration statement under the
Securities Act with respect to the Rights and the securities issuable
upon exercise of the Rights on an appropriate form, and use its best
efforts to cause such registration statement to (1) become effective as
soon as practicable after such filing and (2) remain effective (with a
prospectus at all times meeting the requirements of the Securities Act)
until the Expiration Date;
(B) take all such action as may be appropriate under, or to
ensure compliance with, the securities or "blue sky" laws of the
various states in connection with the exercisability of the Rights; and
(C) deliver to holders of the Rights historical financial
statements for the Issuer and each of its Affiliates which comply in
all respects with the requirements for registration on Form 10 under
the Exchange Act.
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<PAGE> 30
(d) The provisions of this Section 13 will similarly apply to
successive mergers or consolidations or sales or other transfers. In the event
that a Flip-over Event occurs at any time after the occurrence of a Flip-in
Event, except for Rights that have become void pursuant to Section 11(a)(ii),
Rights that shall not have been previously exercised will cease to be
exercisable in the manner provided in Section 11(a)(ii) and will thereafter be
exercisable in the manner provided in Section 13(a).
14. FRACTIONAL RIGHTS AND FRACTIONAL SECURITIES. (a) The Company will
not be required to issue fractions of Rights or to distribute Right Certificates
which evidence fractional Rights. In lieu of such fractional Rights, the Company
will pay as promptly as practicable to the registered holders of the Right
Certificates with regard to which such fractional Rights otherwise would be
issuable, an amount in cash equal to the same fraction of the current market
value of one Right. For the purposes of this Section 14(a), the current market
value of one Right is the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights otherwise would
have been issuable. The closing price for any day is the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by Nasdaq or such other system then in use,
or, if on any such date the Rights are not quoted by any such organization, the
average of the closing bid and asked prices as furnished by a professional
market maker making a market in the Rights selected by the Directors of the
Company. If the Rights are not publicly held or are not so listed or traded, or
are not the subject of available bid and asked quotes, the current market value
of one Right will mean the fair value thereof as determined in good faith by the
Directors of the Company, whose determination will be described in a statement
filed with the Rights Agent.
(b) Following the occurrence of a Triggering Event, the Company will
not be required to issue fractions of Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share) upon
exercise of the Rights or to distribute certificates which evidence fractional
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share). Fractions of Preferred
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<PAGE> 31
Shares in integral multiples of one one-hundredth of a Preferred Share may, at
the election of the Company, be evidenced by depositary receipts pursuant to an
appropriate agreement between the Company and a depositary selected by it,
provided that such agreement provides that the holders of such depositary
receipts have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Shares represented by such
depositary receipts. In lieu of fractional Preferred Shares that are not
integral multiples of one one-hundredth of a Preferred Share, the Company may
pay to any Person to whom or which such fractional Preferred Shares would
otherwise be issuable an amount in cash equal to the same fraction of the
current market value of one Preferred Share. For purposes of this Section 14(b),
the current market value of one Preferred Share is the closing price of the
Preferred Shares (as determined in the same manner as set forth for Common
Shares in the second sentence of Section 11(d)(i)) for the Trading Day
immediately prior to the date of such exercise; PROVIDED, HOWEVER, that if the
closing price of the Preferred Shares cannot be so determined, the closing price
of the Preferred Shares for such Trading Day will be conclusively deemed to be
an amount equal to the closing price of the Common Shares (determined pursuant
to the second sentence of Section 11(d)(i)) for such Trading Day multiplied by
one hundred (as such number may be appropriately adjusted to reflect events such
as stock splits, stock dividends, recapitalizations or similar transactions
relating to the Common Shares occurring after the date of this Agreement);
PROVIDED FURTHER, HOWEVER, that if neither the Common Shares nor the Preferred
Shares are publicly held or listed or admitted to trading on any national
securities exchange, or the subject of available bid and asked quotes, the
current market value of one Preferred Share will mean the fair value thereof as
determined in good faith by the Directors of the Company, whose determination
will be described in a statement filed with the Rights Agent.
(c) Following the occurrence of a Triggering Event, the Company will
not be required to issue fractions of Common Shares or other securities issuable
upon exercise or exchange of the Rights or to distribute certificates which
evidence any such fractional securities. In lieu of issuing any such fractional
securities, the Company may pay to any Person to whom or which such fractional
securities would otherwise be issuable an amount in cash equal to the same
fraction of the current market value of one such security. For purposes of this
Section 14(c), the current market value of one Common Share or other security
issuable upon the exercise or exchange of Rights is the closing price thereof
(as determined in the same manner as set forth for Common Shares in the second
sentence of Section 11(d)(i)) for the Trading Day immediately prior to the date
of such exercise or exchange; PROVIDED, HOWEVER, that if neither the Common
Shares nor any such other securities are publicly held or listed or admitted to
trading on any national securities exchange, or the subject of available bid and
asked quotes, the current market value of one Common Share or such other
security will mean the
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<PAGE> 32
fair value thereof as determined in good faith by the Directors of the Company,
whose determination will mean the fair value thereof as be described in a
statement filed with the Rights Agent.
15. RIGHTS OF ACTION. All rights of action in respect of this
Agreement, excepting the rights of action given to the Rights Agent under
Section 18, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the holder of any Common Shares), may in his own behalf
and for his own benefit enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his right to exercise the Rights evidenced by such Right Certificate in the
manner provided in such Right Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and will therefore be entitled to
specific performance of the obligations under this Agreement, and injunctive
relief against actual or threatened violations of the obligations of any Person
subject to this Agreement.
16. AGREEMENT OF RIGHTS HOLDERS. Every holder of a Right by accepting
the same consents and agrees with the Company and the Rights Agent and with
every other holder of a Right that:
(a) Prior to the Distribution Date, the Rights are
transferable only in connection with the transfer of the Common Shares.
(b) After the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the principal office of the Rights Agent designated for
such purpose, duly endorsed or accompanied by a proper instrument of
transfer.
(c) The Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the
Distribution Date, the associated Common Share certificate) is
registered as the absolute owner thereof and of the Rights evidenced
thereby (notwithstanding any notations of ownership or writing on the
Right Certificate or the associated Common Share certificate made by
anyone other than the Company or the Rights Agent) for all purposes
whatsoever, and neither the Company nor the Rights Agent will be
affected by any notice to the contrary.
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(d) Such holder expressly waives any right to receive any
fractional Rights and any fractional securities upon exercise or
exchange of a Right, except as otherwise provided in Section 14.
(e) Notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent will have any
liability to any holder of a Right or other Person as a result of its
inability to perform any of its obligations under this Agreement by
reason of any preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or any
statute, rule, regulation or executive order promulgated or enacted by
any governmental authority, prohibiting or otherwise restraining
performance of such obligation; PROVIDED, HOWEVER, that the Company
will use its best efforts to have any such order, decree or ruling
lifted or otherwise overturned as soon as possible.
17. RIGHT CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER. No holder, as
such, of any Right Certificate will be entitled to vote, receive dividends, or
be deemed for any purpose the holder of Preferred Shares or any other securities
of the Company which may at any time be issuable upon the exercise of the Rights
represented thereby, nor will anything contained herein or in any Right
Certificate be construed to confer upon the holder of any Right Certificate, as
such, any of the rights of a shareholder of the Company or any right to vote for
the election of Directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting shareholders (except as
provided in Section 25), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by such Right Certificate shall
have been exercised in accordance with the provisions of this Agreement or
exchanged pursuant to the provisions of Section 24.
18. CONCERNING THE RIGHTS AGENT. (a) The Company will pay to the Rights
Agent reasonable compensation for all services rendered by it hereunder and,
from time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company will also indemnify the Rights Agent for, and hold it
harmless against, any loss, liability, suit, action, proceeding or expense,
incurred without negligence, bad faith, or willful misconduct on the part of the
Rights Agent, for anything done or omitted to be done by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability arising
therefrom, directly or indirectly.
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(b) The Rights Agent will be protected and will incur no liability for
or in respect of any action taken, suffered, or omitted by it in connection with
its administration of this Agreement in reliance upon any Right Certificate or
certificate evidencing Preferred Shares or Common Shares or other securities of
the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement or other paper or document believed by it to be genuine and to be
signed, executed, and, where necessary, verified or acknowledged, by the proper
Person or Persons.
19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT. (a) Any
corporation into which the Rights Agent or any successor Rights Agent may be
merged or with which it may be consolidated, or any corporation resulting from
any merger or consolidation to which the Rights Agent or any successor Rights
Agent is a party, or any corporation succeeding to the corporate trust business
of the Rights Agent or any successor Rights Agent, will be the successor to the
Rights Agent under this Agreement without the execution or filing of any paper
or any further act on the part of any of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21. If at the time such successor Rights Agent
succeeds to the agency created by this Agreement any of the Right Certificates
shall have been countersigned but not delivered, any such successor Rights Agent
may adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and if at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases such
Right Certificates will have the full force provided in the Right Certificates
and in this Agreement.
(b) If at any time the name of the Rights Agent changes and at such
time any of the Right Certificates have been countersigned but not delivered,
the Rights Agent may adopt the countersignature under its prior name and deliver
Right Certificates so countersigned; and if at that time any of the Right
Certificates have not been countersigned, the Rights Agent may countersign such
Right Certificates either in its prior name or in its changed name; and in all
such cases such Right Certificates will have the full force provided in the
Right Certificates and in this Agreement.
20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Right Certificates, by their
acceptance thereof, will be bound:
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(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel will
be full and complete authorization and protection to the Rights Agent
as to any action taken or omitted by it in good faith and in accordance
with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent deems it necessary or desirable that any
fact or matter be proved or established by the Company prior to taking
or suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate
signed by any one of the Chairman of the Board, the President, any Vice
President, the Secretary or the Treasurer of the Company and delivered
to the Rights Agent, and such certificate will be full authorization to
the Rights Agent for any action taken or suffered in good faith by it
under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent will be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent will not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement
or in the Right Certificates (except its countersignature thereof) or
be required to verify the same, but all such statements and recitals
are and will be deemed to have been made by the Company only.
(e) The Rights Agent will not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution and delivery hereof by the Rights
Agent) or in respect of the validity or execution of any Right
Certificate (except its countersignature thereof); nor will it be
responsible for any breach by the Company of any covenant contained in
this Agreement or in any Right Certificate; nor will it be responsible
for any adjustment required under the provisions of Sections 11 or 13
(including any adjustment which results in Rights becoming void) or
responsible for the manner, method or amount of any such adjustment or
the ascertaining of the existence of facts that would require any such
adjustment (except with respect to the exercise of Rights evidenced by
Right Certificates after actual notice of any such adjustment); nor
will it by any act hereunder be deemed to make any representation or
warranty as to the authorization or reservation of any shares of stock
or other securities to be issued pursuant to this Agreement or any
Right Certificate or as to whether any shares of stock or other
securities
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will, when issued, be duly authorized, validly issued, fully paid and
nonassessable.
(f) The Company will perform, execute, acknowledge and deliver
or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be
required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from any one of the Chairman of the Board, the President, any
Vice President, the Secretary or the Treasurer of the Company, and to
apply to such officers for advice or instructions in connection with
its duties, and it will not be liable for any action taken or suffered
to be taken by it in good faith in accordance with instructions of any
such officer.
(h) The Rights Agent and any shareholder, director, officer,
or employee of the Rights Agent may buy, sell, or deal in any of the
Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as fully
and freely as though it were not Rights Agent under this Agreement.
Nothing herein precludes the Rights Agent from acting in any other
capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights
Agent will not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss
to the Company resulting from any such act, default, neglect or
misconduct, provided reasonable care was exercised in the selection and
continued employment thereof. The Rights Agent will not be under any
duty or responsibility to ensure compliance with any applicable federal
or state securities laws in connection with the issuance, transfer or
exchange of Right Certificates.
(j) If, with respect to any Right Certificate surrendered to
the Rights Agent for exercise, transfer, split up, combination or
exchange, either (i) the certificate attached to the form of assignment
or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 or 2
thereof, or (ii) any other actual or suspected irregularity exists, the
Rights Agent will not take any further action with respect to such
requested exercise, transfer, split up, combination or exchange without
first
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consulting with the Company, and will thereafter take further action
with respect thereto only in accordance with the Company's written
instructions.
21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon 30
calendar days' notice in writing mailed to the Company and to each transfer
agent of the Preferred Shares or the Common Shares by registered or certified
mail, and to the holders of the Right Certificates by first class mail. The
Company may remove the Rights Agent or any successor Rights Agent upon 30
calendar days' notice in writing, mailed to the Rights Agent or successor Rights
Agent, as the case may be, and to each transfer agent of the Preferred Shares
and the Common Shares by registered or certified mail, and to the holders of the
Right Certificates by first class mail. If the Rights Agent resigns or is
removed or otherwise becomes incapable of acting, the Company will appoint a
successor to the Rights Agent. If the Company fails to make such appointment
within a period of 30 calendar days after giving notice of such removal or after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who will, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
will be a corporation or other legal entity organized and doing business under
the laws of the United States or of the State of Ohio or New York (or of any
other state of the United States so long as such corporation is authorized to do
business as a banking institution in the State of Ohio or New York), in good
standing, having a principal office in the State of Ohio or New York, which is
authorized under such laws to exercise corporate trust or stock transfer powers
and is subject to supervision or examination by federal or state authority and
which has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
will be vested with the same powers, rights, duties, and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent will deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act, or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company will file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Preferred Shares or the Common Shares, and mail a notice thereof in writing
to the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, will not affect
the legality or validity of the resignation or removal of the Rights Agent or
the appointment of the successor Rights Agent, as the case may be.
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22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, issue new Right Certificates evidencing Rights in such form as
may be approved by its Directors to reflect any adjustment or change in the
Purchase Price per share and the number or kind of securities issuable upon
exercise of the Rights made in accordance with the provisions of this Agreement.
In addition, in connection with the issuance or sale by the Company of Common
Shares following the Distribution Date and prior to the Expiration Date, the
Company (a) will, with respect to Common Shares so issued or sold pursuant to
the exercise, exchange or conversion of securities (other than Rights) issued
prior to the Distribution Date which are exercisable or exchangeable for, or
convertible into Common Shares, and (b) may, in any other case, if deemed
necessary, appropriate or desirable by the Directors of the Company, issue Right
Certificates representing an equivalent number of Rights as would have been
issued in respect of such Common Shares if they had been issued or sold prior to
the Distribution Date, as appropriately adjusted as provided herein as if they
had been so issued or sold; PROVIDED, HOWEVER, that (i) no such Right
Certificate will be issued if, and to the extent that, in its good faith
judgment the Directors of the Company determine that the issuance of such Right
Certificate could have a material adverse tax consequence to the Company or to
the Person to whom or which such Right Certificate otherwise would be issued and
(ii) no such Right Certificate will be issued if, and to the extent that,
appropriate adjustment otherwise has been made in lieu of the issuance thereof.
23. REDEMPTION. (a) Prior to the Expiration Date, the Directors of the
Company may, at their option, redeem all but not less than all of the
then-outstanding Rights at the Redemption Price at any time prior to the Close
of Business on the later of (i) the Distribution Date and (ii) the date of the
first occurrence of a Triggering Event. Any such redemption will be effective
immediately upon the action of the Directors of the Company ordering the same,
unless such action of the Directors of the Company expressly provides that such
redemption will be effective at a subsequent time or upon the occurrence or
nonoccurrence of one or more specified events (in which case such redemption
will be effective in accordance with the provisions of such action of the
Directors of the Company).
(b) Immediately upon the effectiveness of the redemption of the Rights
as provided in Section 23(a), and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights will be to receive the Redemption Price,
without interest thereon. Promptly after the effectiveness of the redemption of
the Rights as provided in Section 23(a), the Company will publicly announce such
redemption and, within 10 calendar days thereafter, will give notice of such
redemption to the holders of the then-outstanding Rights by mailing such notice
to all such
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holders at their last addresses as they appear upon the registry books of the
Company; PROVIDED, HOWEVER, that the failure to give, or any defect in, any such
notice will not affect the validity of the redemption of the Rights. Any notice
that is mailed in the manner herein provided will be deemed given, whether or
not the holder receives the notice. The notice of redemption mailed to the
holders of Rights will state the method by which the payment of the Redemption
Price will be made. The Company may, at its option, pay the Redemption Price in
cash, Common Shares (based upon the current per share market price of the Common
Shares (determined pursuant to Section 11(d)) at the time of redemption), or any
other form of consideration deemed appropriate by the Directors of the Company
(based upon the fair market value of such other consideration, determined by the
Directors of the Company in good faith) or any combination thereof. The Company
may, at its option, combine the payment of the Redemption Price with any other
payment being made concurrently to holders of Common Shares and, to the extent
that any such other payment is discretionary, may reduce the amount thereof on
account of the concurrent payment of the Redemption Price. If legal or
contractual restrictions prevent the Company from paying the Redemption Price
(in the form of consideration deemed appropriate by the Directors) at the time
of redemption, the Company will pay the Redemption Price, without interest,
promptly after such time as the Company ceases to be so prevented from paying
the Redemption Price.
(c) At any time following the Share Acquisition Date, the Directors of
the Company may relinquish the right to redeem the Rights under this Section 23
by duly adopting a resolution to that effect. Immediately upon adoption of such
resolution, the rights of the Directors of the Company to redeem the Rights will
terminate without further action and without any notice. Promptly after adoption
of such a resolution, the Company will publicly announce such action; PROVIDED,
HOWEVER, that the failure to give, or any defect in, any such notice will not
affect the validity of the action of the Directors of the Company.
24. EXCHANGE. (a) The Directors of the Company may, at their option, at
any time after the later of the Share Acquisition Date and the Distribution
Date, exchange all or part of the then-outstanding and exercisable Rights (which
will not include Rights that have become void pursuant to the provisions of
Section 11(a)(ii)) for Common Shares at an exchange ratio of one Common Share
per Right, appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the Record Date (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Any such exchange will be
effective immediately upon the action of the Directors of the Company ordering
the same, unless such action of the Directors of the Company expressly provides
that such exchange will be effective at a subsequent time or upon the occurrence
or nonoccurrence of one or more specified events (in which case such
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exchange will be effective in accordance with the provisions of such action of
the Directors of the Company). Notwithstanding the foregoing, the Directors of
the Company will not be empowered to effect such exchange at any time after any
Person (other than the Company or any Related Person), who or which, together
with all Affiliates and Associates of such Person, becomes the Beneficial Owner
of 50% or more of the then-outstanding Common Shares.
(b) Immediately upon the effectiveness of the exchange of any Rights as
provided in Section 24(a), and without any further action and without any
notice, the right to exercise such Rights will terminate and the only right with
respect to such Rights thereafter of the holder of such Rights will be to
receive that number of Common Shares equal to the number of such Rights held by
such holder multiplied by the Exchange Ratio. Promptly after the effectiveness
of the exchange of any Rights as provided in Section 24(a), the Company will
publicly announce such exchange and, within 10 calendar days thereafter, will
give notice of such exchange to all of the holders of such Rights at their last
addresses as they appear upon the registry books of the Rights Agent; PROVIDED,
HOWEVER, that the failure to give, or any defect in, such notice will not affect
the validity of such exchange. Any notice that is mailed in the manner herein
provided will be deemed given, whether or not the holder receives the notice.
Each such notice of exchange will state the method by which the exchange of the
Common Shares for Rights will be effected and, in the event of any partial
exchange, the number of Rights which will be exchanged. Any partial exchange
will be effected pro rata based on the number of Rights (other than Rights which
have become void pursuant to the provisions of Section 11(a)(ii)) held by each
holder of Rights.
(c) In any exchange pursuant to this Section 24, the Company, at its
option, may substitute for any Common Share exchangeable for a Right (i)
equivalent common shares (as such term is used in Section 11(a)(iii)), (ii)
cash, (iii) debt securities of the Company, (iv) other assets, or (v) any
combination of the foregoing, in any event having an aggregate value, as
determined in good faith by the Directors of the Company (whose determination
will be described in a statement filed with the Rights Agent), equal to the
current market value of one Common Share (determined pursuant to Section 11(d))
on the Trading Day immediately preceding the date of the effectiveness of the
exchange pursuant to this Section 24.
25. NOTICE OF CERTAIN EVENTS. (a) If, after the Distribution Date, the
Company proposes (i) to pay any dividend payable in stock of any class to the
holders of Preferred Shares or to make any other distribution to the holders of
Preferred Shares (other than a regular periodic cash dividend), (ii) to offer to
the holders of Preferred Shares rights, options or warrants to subscribe for or
to purchase any additional Preferred Shares or shares of stock of any class or
any other securities,
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rights, or options, (iii) to effect any reclassification of its Preferred Shares
(other than a reclassification involving only the subdivision of outstanding
Preferred Shares), (iv) to effect any consolidation or merger into or with, or
to effect any sale or other transfer (or to permit one or more of its
Subsidiaries to effect any sale or other transfer), in one or more transactions,
of assets or earning power (including without limitation securities creating any
obligation on the part of the Company and/or any of its Subsidiaries)
representing more than 50% of the assets and earning power of the Company and
its Subsidiaries, taken as a whole, to any other Person or Persons other than
the Company or one or more of its wholly owned Subsidiaries, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or reclassification of the Common Shares then, in each
such case, the Company will give to each holder of a Right Certificate, to the
extent feasible and in accordance with Section 26, a notice of such proposed
action, which specifies the record date for the purposes of such stock dividend,
distribution or offering of rights, options or warrants, or the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution or winding up is to take place and the date of participation therein
by the holders of the Common Shares and/or Preferred Shares, if any such date is
to be fixed, and such notice will be so given, in the case of any action covered
by clause (i) or (ii) above, at least 10 calendar days prior to the record date
for determining holders of the Preferred Shares for purposes of such action,
and, in the case of any such other action, at least 10 calendar days prior to
the date of the taking of such proposed action or the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, whichever
is the earlier.
(b) In case any Triggering Event occurs, then, in any such case, the
Company will as soon as practicable thereafter give to the Rights Agent and each
holder of a Right Certificate, in accordance with Section 26, a notice of the
occurrence of such event, which specifies the event and the consequences of the
event to holders of Rights.
26. NOTICES. (a) Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Right Certificate to
or on the Company will be sufficiently given or made if sent by first class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
Brush Wellman Inc.
17876 St. Clair Avenue
Cleveland, OH 44110
Attention: Secretary
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(b) Subject to the provisions of Section 21 hereof, any notice or
demand authorized by this Agreement to be given or made by the Company or by the
holder of any Right Certificate to or on the Rights Agent will be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed (until
another address is filed in writing with the Company) as follows:
National City Bank, N.A.
Corporate Trust Administration
629 Euclid Avenue, Suite 635
Cleveland, OH 44114
Attention: Vice President - Administration
(c) Notices or demands authorized by this Agreement to be given or made
by the Company or the Rights Agent to the holder of any Right Certificate (or,
if prior the Distribution Date, to the holder of any certificate evidencing
Common Shares) will be sufficiently given or made if sent by first class mail,
postage prepaid, addressed to such holder at the address of such holder as shown
on the registry books of the Company.
27. SUPPLEMENTS AND AMENDMENTS. Prior to the time at which the Rights
cease to be redeemable pursuant to Section 23, and subject to the last sentence
of this Section 27, the Company may in its sole and absolute discretion, and the
Rights Agent will if the Company so directs, supplement or amend any provision
of this Agreement in any respect without the approval of any holders of Rights
or Common Shares. From and after the time at which the Rights cease to be
redeemable pursuant to Section 23, and subject to the last sentence of this
Section 27, the Company may, and the Rights Agent will if the Company so
directs, supplement or amend this Agreement without the approval of any holders
of Rights or Common Shares in order (a) to cure any ambiguity, (b) to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, (c) to shorten or lengthen any time period
hereunder, or (d) to supplement or amend the provisions hereunder in any manner
which the Company may deem desirable; provided that no such supplement or
amendment shall adversely affect the interests of the holders of Rights as such
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person), and no such supplement or amendment shall cause the Rights again to
become redeemable or cause this Agreement again to become supplementable or
amendable otherwise than in accordance with the provisions of this sentence.
Without limiting the generality or effect of the foregoing, this Agreement may
be supplemented or amended to provide for such voting powers for the Rights and
such procedures for the exercise thereof, if any, as the Directors of the
Company may determine to be appropriate. Upon the delivery of a certificate from
an officer of the Company which states that the proposed supplement or amendment
is in compliance with the terms of this Section 27, the Rights Agent will
execute such supplement or amendment; PROVIDED, HOWEVER, that the failure or
refusal of
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the Rights Agent to execute such supplement or amendment will not affect the
validity of any supplement or amendment adopted by the Directors of the Company,
any of which will be effective in accordance with the terms thereof.
Notwithstanding anything in this Agreement to the contrary, no supplement or
amendment may be made which decreases the stated Redemption Price to an amount
less than $0.01 per Right.
28. SUCCESSORS; CERTAIN COVENANTS. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent will be
binding on and inure to the benefit of their respective successors and assigns
hereunder.
29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement will be
construed to give to any Person other than the Company, the Rights Agent, and
the registered holders of the Right Certificates (and, prior to the Distribution
Date, the Common Shares) any legal or equitable right, remedy or claim under
this Agreement. This Agreement will be for the sole and exclusive benefit of the
Company, the Rights Agent, and the registered holders of the Right Certificates
(or prior to the Distribution Date, the Common Shares).
30. GOVERNING LAW. This Agreement, each Right and each Right
Certificate issued hereunder will be deemed to be a contract made under the
internal substantive laws of the State of Ohio and for all purposes will be
governed by and construed in accordance with the internal substantive laws of
such State applicable to contracts to be made and performed entirely within such
State.
31. SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement will remain in full force and
effect and will in no way be affected, impaired or invalidated; PROVIDED,
HOWEVER, that nothing contained in this Section 31 will affect the ability of
the Company under the provisions of Section 27 to supplement or amend this
Agreement to replace such invalid, void or unenforceable term, provision,
covenant or restriction with a legal, valid and enforceable term, provision,
covenant or restriction.
32. DESCRIPTIVE HEADINGS, ETC. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and will not
control or affect the meaning or construction of any of the provisions hereof.
Unless otherwise expressly provided, references herein to Sections, paragraphs
and Exhibits are to Sections, paragraphs and Exhibits of or to this Agreement.
33. DETERMINATIONS AND ACTIONS BY THE DIRECTORS. For all purposes of
this Agreement, any calculation of the number of Common Shares outstanding at
any particular time, including for
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purposes of determining the particular percentage of such outstanding Common
Shares of which any Person is the Beneficial Owner, will be made in accordance
with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and
Regulations under the Exchange Act. The Directors of the Company will have the
exclusive power and authority to administer this Agreement and to exercise all
rights and powers specifically granted to the Directors of the Company or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including without limitation the right and power to (a) interpret the
provisions of this Agreement and (b) make all determinations deemed necessary or
advisable for the administration of this Agreement (including any determination
as to whether particular Rights shall have become void). All such actions,
calculations, interpretations and determinations (including, for purposes of
clause (ii) below, any omission with respect to any of the foregoing) which are
done or made by the Directors of the Company in good faith will (i) be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights and all other parties and (ii) not subject the Directors of the Company
to any liability to any Person, including without limitation the Rights Agent
and the holders of the Rights.
34. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts will for all purposes be deemed to be
an original, and all such counterparts will together constitute but one and the
same instrument.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
-41-
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
[SEAL]
Attest: BRUSH WELLMAN INC.
By:
- ---------------------------------- ----------------------------
Michael C. Hasychak Gordon D. Harnett
Treasurer and Secretary Chairman of the Board,
President and Chief
Executive Officer
[SEAL]
Attest: NATIONAL CITY BANK, N.A.
By:
- ---------------------------------- ----------------------------
David B. Davis J. Dean Presson
Vice President Vice President
-42-
<PAGE> 46
EXHIBIT A
TERMS OF PREFERRED SHARES
-------------------------
DIVISION A-1
SERIAL PREFERRED STOCK, SERIES A
SECTION 1. There is established hereby a series of Serial Preferred
Stock that shall be designated, "Serial Preferred Stock, Series A" (hereinafter
sometimes called this "Series" or the "Series A Preferred Shares") and that
shall have the terms set forth in this Division A-1.
SECTION 2. The number of shares of this Series shall be 450,000.
SECTION 3. (a) The holders of record of Series A Preferred Shares shall
be entitled to receive, when and as declared by the Board of Directors in
accordance with the terms hereof, out of fund legally available for the purpose,
cumulative quarterly dividends payable in cash on the first day of January,
April, July and October in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a Series A Preferred Share or fraction
of a Series A Preferred Share in an amount per share (rounded to the nearest
cent) equal to the lesser of (i) $1.50 or (ii) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share amount of
all cash dividends, and 100 times the aggregate per share amount (payable in
kind) of all non-cash dividends or other distributions, other than a dividend
payable in shares of Common Stock, or a subdivision of the outstanding Common
Stock (by reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date, or, with respect to the
first Quarterly Dividend Payment Date, since the first issuance of any Series A
Preferred Share or fraction of a Series A Preferred Share. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in Common Stock, or effect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which holders of
Series A Preferred Shares were entitled immediately prior to such event under
clause (ii) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
A-1
<PAGE> 47
(b) Dividends shall begin to accrue and be cumulative on outstanding
Series A Preferred Shares from the Quarterly Dividend Payment Date next
preceding the date of issue of such Series A Preferred Shares, unless the date
of issue of such shares is prior to the record date for the First Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Shares entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. No dividends shall be paid upon or declared and set apart for
any Series A Preferred Shares for any dividend period unless at the same time a
dividend for the same dividend period, ratably in proportion to the respective
annual dividend rates fixed therefor, shall be paid upon or declared and set
apart for all Serial Preferred Stock of all series then outstanding and entitled
to receive such dividend. The Board of Directors may fix a record date for the
determination of holders of Series A Preferred Shares entitled to receive
payment of a dividend or distribution declared thereon, which record date shall
be no more than 40 days prior to the date fixed for the payment thereof.
SECTION 4. Subject to the provisions of Section 6(b)(iii) of Division A
and in accordance with Section 4 of Division A, the Series A Preferred Shares
shall be redeemable from time to time at the option of the Board of Directors of
the Corporation, as a whole or in part, at any time at a redemption price per
share equal to one hundred times the then applicable Purchase Price as defined
in that certain Rights Agreement, dated as of January 27, 1998, between the
Corporation and National City Bank, N.A. (the "Rights Agreement"), as the same
may from time to time be amended in accordance with its terms, which Purchase
Price is as of January 27, 1998, subject to adjustment from time to time
as provided in the Rights Agreement. Copies of the Rights Agreement are
available from the Company upon request. In the event that fewer than all of the
outstanding Series A Preferred Shares are to be redeemed, the number of shares
to be redeemed shall be as determined by the Board of Directors and the shares
to be redeemed shall be selected pro rata or by lot in such manner as shall be
determined by the Board of Directors.
SECTION 5. (a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation
(hereinafter referred to as a "Liquidation"), no distribution shall be made to
the holders of shares of stock ranking junior (either as to dividends or upon
Liquidation) to the Series A Preferred Shares, unless, prior thereto, the
holders of Series A Preferred Shares shall have received at least an amount per
share equal to one hundred times the then-applicable Purchase Price as defined
in the Rights Agreement, as the same
A-2
<PAGE> 48
may be from time to time amended in accordance with its terms, which Purchase
Price is as of January 27, 1998, subject to adjustment from time to time
as provided in the Rights Agreement, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not earned or declared, to the
date of such payment, provided that the holders of shares of Series A Preferred
Shares shall be entitled to receive an aggregate amount per share, subject to
the provision for adjustment hereinafter set forth, equal to 100 times the
aggregate amount to be distributed per share to holders of Common Stock (the
"Series A Liquidation Preference").
(b) In the event, however, that the net assets of the Corporation are
not sufficient to pay in full the amount of the Series A Liquidation Preference
and the liquidation preferences of all other series of Serial Preferred Stock,
if any, which rank on a parity with the Series A Preferred Shares as to
distribution of assets in Liquidation, all shares of this Series and of such
other Serial Preferred Stock shall share ratably in the distribution of assets
(or proceeds thereof) in Liquidation in proportion to the full amounts to which
they are respectively entitled.
(c) In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in Common Stock, or effect a subdivision or
combination or consolidation of the outstanding Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock)
into a greater or lesser number of shares of Common Stock, then in each such
case the amount to which holders of Series A Preferred Shares were entitled
immediately prior to such event pursuant to the proviso set forth in paragraph
(a) above, shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(d) The merger or consolidation of the Corporation into or with any
other corporation, or the merger of any other corporation into it, or the sale,
lease or conveyance of all or substantially all the property or business of the
Corporation, shall not be deemed to be a Liquidation for the purposes of this
Section 5.
SECTION 6. The Series A Preferred Shares shall not be convertible into
Common Stock.
A-3
<PAGE> 49
EXHIBIT B
---------
FORM OF RIGHT CERTIFICATE
Certificate No. R- __________ Rights
NOT EXERCISABLE AFTER FEBRUARY 9, 2008 (SUBJECT TO POSSIBLE EXTENSION
AT THE OPTION OF THE COMPANY) OR EARLIER IF REDEEMED, EXCHANGED OR
AMENDED. THE RIGHTS ARE SUBJECT TO REDEMPTION, EXCHANGE AND AMENDMENT
AT THE OPTION OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS
AGREEMENT. UNDER CERTAIN CIRCUMSTANCES SPECIFIED IN THE RIGHTS
AGREEMENT, RIGHTS THAT ARE OR WERE BENEFICIALLY OWNED BY AN ACQUIRING
PERSON OR AN AFFILIATE OR AN ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR A TRANSFEREE THEREOF MAY
BECOME NULL AND VOID.
Right Certificate
BRUSH WELLMAN INC.
This certifies that _______________, or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions, and conditions of the
Rights Agreement, dated as of January 27, 1998 (the "Rights Agreement"), between
Brush Wellman Inc., an Ohio corporation (the "Company"), and National City Bank,
N.A., a national banking association (the "Rights Agent"), to purchase from the
Company at any time after the Distribution Date (as such term is defined in the
Rights Agreement) and prior to 5:00 P.M. (Eastern time) on the Expiration Date
(as such term is defined in the Rights Agreement) at the principal office or
offices of the Rights Agent designated for such purpose, one one-hundredth of a
fully paid nonassessable share of Serial Preferred Stock, Series A, without par
value (the "Preferred Shares"), of the Company, at a purchase price of [INSERT
INITIAL PURCHASE PRICE] per one one-hundredth of a Preferred Share (the
"Purchase Price"), upon presentation and surrender of this Right Certificate
with the Form of Election to Purchase and related Certificate duly executed. If
this Right Certificate is exercised in part, the holder will be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised. The number of Rights evidenced by
this Right Certificate (and the number of one one-hundredths of a Preferred
Share which may be purchased upon exercise thereof) set forth above, and the
Purchase Price set forth above, are the number and Purchase Price as of the
date of
B-1
<PAGE> 50
the Rights Agreement, based on the Preferred Shares as constituted at such date.
As provided in the Rights Agreement, the Purchase Price and/or the
number and/or kind of securities issuable upon the exercise of the Rights
evidenced by this Right Certificate are subject to adjustment upon the
occurrence of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities of the Rights Agent,
the Company and the holders of the Right Certificates, which limitations of
rights include the temporary suspension of the exercisability of the Rights
under the circumstances specified in the Rights Agreement. Copies of the Rights
Agreement are on file at the above-mentioned office of the Rights Agent and can
be obtained from the Company without charge upon written request therefor. Terms
used herein with initial capital letters and not defined herein are used herein
with the meanings ascribed thereto in the Rights Agreement.
Pursuant to the Rights Agreement, from and after the first occurrence
of a Flip-in Event, any Rights that are Beneficially Owned by (i) any Acquiring
Person (or any Affiliate or Associate of any Acquiring Person), (ii) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
becomes a transferee after the occurrence of a Flip-in Event, or (iii) a
transferee of any Acquiring Person (or any such Affiliate or Associate) who
became a transferee prior to or concurrently with the occurrence of a Flip-in
Event pursuant to either (a) a transfer from an Acquiring Person to holders of
its equity securities or to any Person with whom it has any continuing
agreement, arrangement or understanding regarding the transferred Rights or (b)
a transfer which the Directors of the Company have determined is part of a plan,
arrangement or understanding which has the purpose or effect of avoiding certain
provisions of the Rights Agreement, and subsequent transferees of any of such
Persons, will be void without any further action and any holder of such Rights
will thereafter have no rights whatsoever with respect to such Rights under any
provision of the Rights Agreement. From and after the occurrence of a Flip-in
Event, no Right Certificate will be issued that represents Rights that are or
have become void pursuant to the provisions of the Rights Agreement, and any
Right Certificate delivered to the Rights Agent that represents Rights that are
or have become void pursuant to the provisions of the Rights Agreement will be
cancelled.
This Right Certificate, with or without other Right Certificates, may
be transferred, split up, combined or exchanged for another Right Certificate or
Right Certificates entitling the
B-2
<PAGE> 51
holder to purchase a like number of one one-hundredths of a Preferred Share (or
other securities, as the case may be) as the Right Certificate or Right
Certificates surrendered entitled such holder (or former holder in the case of a
transfer) to purchase, upon presentation and surrender hereof at the principal
office of the Rights Agent designated for such purpose, with the Form of
Assignment (if appropriate) and the related Certificate duly executed.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company at its option at a redemption
price of $.01 per Right or may be exchanged in whole or in part. The Rights
Agreement may be supplemented and amended by the Company, as provided therein.
The Company is not required to issue fractions of Preferred Shares
(other than fractions which are integral multiples of one one-hundredth of a
Preferred Share, which may, at the option of the Company, be evidenced by
depositary receipts) or other securities issuable upon the exercise of any Right
or Rights evidenced hereby. In lieu of issuing such fractional Preferred Shares
or other securities, the Company may make a cash payment, as provided in the
Rights Agreement.
No holder of this Right Certificate, as such, will be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable upon the exercise of the Right or Rights represented hereby, nor will
anything contained herein or in the Rights Agreement be construed to confer upon
the holder hereof, as such, any of the rights of a shareholder of the Company or
any right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
shareholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate have been exercised in accordance with the
provisions of the Rights Agreement.
This Right Certificate will not be valid or obligatory for any purpose
until it has been countersigned by the Rights Agent.
B-3
<PAGE> 52
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of __________, ____.
[SEAL]
ATTEST: BRUSH WELLMAN INC.
By:
- --------------------------------- -------------------------------
Michael C. Hasychak Gordon D. Harnett
Secretary Chairman of the Board,
President and Chief
Executive Officer
Countersigned:
NATIONAL CITY BANK, N.A.
By:
--------------------------
Authorized Signature
B-4
<PAGE> 53
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate)
FOR VALUE RECEIVED, _______________ hereby sells, assigns
and transfers unto _____________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
________________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: __________, ____
-------------------------------
Signature
Signature Guaranteed:
B-5
<PAGE> 54
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ] are not
being sold, assigned, transferred, split up, combined or exchanged by or on
behalf of a Person who is or was an Acquiring Person or an Affiliate or
Associate of any such Person (as such terms are defined in the Rights
Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: __________, ____
---------------------------
Signature
B-6
<PAGE> 55
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to
exercise the Right Certificate)
To BRUSH WELLMAN INC.:
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Right Certificate to purchase the one one-hundredths of a
Preferred Share or other securities issuable upon the exercise of such Rights
and requests that certificates for such securities be issued in the name of and
delivered to:
Please insert social security or other identifying number: _____________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights is not all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
will be registered in the name of and delivered to:
Please insert social security or other identifying number: _____________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: __________, ____
_______________________
Signature
Signature Guaranteed:
B-7
<PAGE> 56
CERTIFICATE
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Person (as such terms are defined pursuant
to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Right Certificate from
any Person who is, was, or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: __________, ____
-----------------------------------
Signature
NOTICE
SIGNATURES ON THE FOREGOING FORM OF ASSIGNMENT AND FORM OF ELECTION TO
PURCHASE AND IN THE RELATED CERTIFICATES MUST CORRESPOND TO THE NAME AS WRITTEN
UPON THE FACE OF THIS RIGHT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE PROGRAM) PURSUANT TO RULE 17AD-15
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
B-8
<PAGE> 57
EXHIBIT C
---------
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
The Directors (the "Directors") of Brush Wellman Inc. (the "Company")
have declared a dividend distribution of one right (a "Right") for each
outstanding share of Common Stock, par value $1.00 per share (the "Common
Shares"), of the Company. The distribution is payable on February 9, 1998 (the
"Record Date") to the shareholders of record as of the close of business on the
Record Date. Each Right entitles the registered holder thereof to purchase from
the Company one one-hundredth of a share of Serial Preferred Stock, Series A,
without par value (the "Preferred Shares"), of the Company at a price (the
"Purchase Price") of [INSERT INITIAL PURCHASE PRICE] per one one-hundredth of
a Preferred Share, subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement, dated as of January 27, 1998 (the
"Rights Agreement"), between the Company and National City Bank, N.A., as
Rights Agent (the "Rights Agent").
Under the Rights Agreement, the Rights will be evidenced by the
certificates evidencing Common Shares until the earlier of (the "Distribution
Date"): (i) the close of business on the tenth calendar day following the first
date (the "Share Acquisition Date") of public announcement that a person (other
than the Company, a subsidiary or employee benefit or stock ownership plan of
the Company or any subsidiary or any entity holding Common Shares for or
pursuant to the terms of any such plan), together with its affiliates and
associates, has acquired beneficial ownership of 20% or more of the
then-outstanding Common Shares (any such person being hereinafter called an
"Acquiring Person") or (ii) the close of business on the tenth business day (or
such later date as may be specified by the Directors) following the commencement
of a tender offer or exchange offer by any person (other than the Company, a
subsidiary or employee benefit or stock ownership plan of the Company or any
subsidiary or any entity holding Common Shares for or pursuant to the terms of
any such plan), the consummation of which would result in beneficial ownership
by such person of 20% or more of the then-outstanding Common Shares.
The Rights Agreement provides that, until the Distribution Date, the
Rights may be transferred with and only with the Common Shares. Until the
Distribution Date (or earlier redemption or expiration of the Rights), any
certificate evidencing Common Shares of the Company issued upon transfer or new
issuance of the Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption or
expiration of the Rights), the surrender for transfer of any certificates
evidencing Common Shares will also constitute the transfer of the Rights
associated with such certificates. As soon as practicable following the
Distribution
C-1
<PAGE> 58
Date, separate certificates evidencing the Rights ("Rights Certificates") will
be mailed to holders of record of Common Shares as of the close of business on
the Distribution Date and such separate Rights Certificates alone will evidence
the Rights. No Right is exercisable at any time prior to the Distribution Date.
The Rights will expire on the tenth anniversary of the Record Date (the "Final
Expiration Date") unless earlier redeemed, exchanged or amended by the Company
as described below. Until a Right is exercised, the holder thereof, as such,
will have no rights as a shareholder of the Company, including the right to vote
or to receive dividends.
The Purchase Price payable, and the number of the Preferred Shares or
other securities issuable, upon exercise of the Rights will be subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of Preferred Shares of certain rights or
warrants to subscribe for or purchase the Preferred Shares at a price, or
securities convertible into the Preferred Shares with a conversion price, less
than the then-current market price of the Preferred Shares, or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness,
cash (excluding regular periodic cash dividends), assets, stock (excluding
dividends payable in the Preferred Shares) or subscription rights or warrants
(other than those referred to above). The number of Rights associated with each
Preferred Share will be subject to adjustment in the event of a stock dividend
on the Common Shares payable in Common Shares or a subdivision, combination or
reclassification of Common Shares occurring, in any such case, prior to the
Distribution Date.
Subject to the Company's Second Amended and Restated Articles of
Incorporation, the Preferred Shares issuable upon exercise of the Rights will be
redeemable from time to time at the option of the Directors, in whole or in
part, at a redemption price per share equal to one hundred times the then
applicable Purchase Price. In the event that fewer than all of the outstanding
Preferred Shares are to be redeemed, the number of shares to be redeemed shall
be as determined by the Board of Directors and the shares to be redeemed shall
be selected pro rata or by lot in such manner as determined by the Directors.
The holders of the Preferred Shares will be entitled to receive, when and as
declared by the Directors in accordance with the Company's Second Amended and
Restated Articles of Incorporation, cumulative quarterly dividends payable in
cash on the first day of January, April, July and October in each year (a
"Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a Preferred Share or fraction thereof.
C-2
<PAGE> 59
Rights will be exercisable to purchase Preferred Shares only after the
Distribution Date occurs and prior to the occurrence of a Flip-in Event as
described below. A Distribution Date resulting from the commencement of a tender
offer or exchange offer described in clause (ii) of the second paragraph of this
summary could precede the occurrence of a Flip-in Event and thus result in the
Rights being exercisable to purchase Preferred Shares. A Distribution Date
resulting from any occurrence described in clause (i) of the second paragraph of
this summary would necessarily follow the occurrence of a Flip-in Event and thus
result in the Rights being exercisable to purchase Common Shares or other
securities as described below.
Under the Rights Agreement, in the event ( a "Flip-in Event") that (i)
any person, together with its affiliates and associates, becomes the beneficial
owner of 20% or more of the outstanding Common Shares, (ii) any Acquiring Person
or any affiliate or associate thereof merges into or combines with the Company
and the Company is the surviving corporation, (iii) any Acquiring Person or any
affiliate or associate thereof effects certain other transactions with the
Company, or (iv) during such time as there is an Acquiring Person the Company
effects certain transactions, in each case as described in the Rights Agreement,
then, in each such case, proper provision will be made so that from and after
the latest of the Share Acquisition Date, the Distribution Date and the date of
the occurrence of such Flip-in Event each holder of a Right, other than Rights
that are or were owned beneficially by an Acquiring Person (which, from and
after the date of a Flip-in Event, will be void), will have the right to
receive, upon exercise thereof at the then-current exercise price of the Right,
that number of Common Shares (or, under certain circumstances, an economically
equivalent security or securities of the Company) that at the time of such
Flip-in Event have a market value of two times the exercise price of the Right.
In the event (a "Flip-over Event") that, at any time after a person has
become an Acquiring Person, (i) the Company merges with or into any person and
the Company is not the surviving corporation, (ii) any person merges with or
into the Company and the Company is the surviving corporation, but all or part
of the Common Shares are changed or exchanged for stock or other securities of
any other person or cash or any other property, or (iii) 50% or more of the
Company's assets or earning power, including securities creating obligations of
the Company, are sold, in each case as described in the Rights Agreement, then,
and in each such case, proper provision will be made so that, from and after the
latest of the Share Acquisition Date, the Distribution Date and the date of the
occurrence of such Flip-over Event each holder of a Right, other than Rights
which have become void, will thereafter have the right to receive, upon the
exercise thereof at the then-current exercise price of the Right,
C-3
<PAGE> 60
that number of shares of common stock (or, under certain circumstances, an
economically equivalent security or securities) of such other person that at the
time of such Flip-over Event have a market value of two times the exercise price
of the Right.
From and after the date of the first occurrence of a Flip-in Event,
Rights (other than any Rights that have become void) will be exercisable as
described above, upon payment of the aggregate exercise price in cash. In
addition, at any time after the later of the Share Acquisition Date and the
Distribution Date and prior to the acquisition by any person or group of
affiliated or associated persons of 50% or more of the outstanding Common
Shares, the Company may exchange the Rights (other than any rights that have
become void), in whole or in part, at an exchange ratio of one Common Share per
Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment in the Purchase
Price of at least 1%. The Company will not be required to issue fractional
Preferred Shares (other than fractions that are integral multiples of one
one-hundredth of a Preferred Share, which may, at the option of the Company, be
evidenced by depositary receipts) or fractional Common Shares or other
securities issuable upon the exercise of Rights. In lieu of issuing such
securities, the Company may make a cash payment, as provided in the Rights
Agreement.
The Company may, at its option, redeem the Rights in whole, but not in
part, at a price of $.01 per Right, subject to adjustment (the "Redemption
Price"), at any time prior to the close of business on the later of (i) the
Distribution Date and (ii) date of the first occurrence of a Flip-in Event or
Flip-over Event. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
The Rights Agreement may be amended by the Company without the approval
of any holders of Rights Certificates, including amendments that increase or
decrease the Purchase Price, that add other events requiring adjustment to the
Purchase Price payable and the number of the Preferred Shares or other
securities issuable upon the exercise of the Rights or that modify procedures
relating to the redemption of the Rights, except that no amendment may be made
that decreases the stated Redemption Price to an amount less than $.01 per
Right.
The Directors will have the exclusive power and authority to administer
the Rights Agreement and to exercise all rights and powers specifically granted
to the Directors or to the Company therein, or as may be necessary or advisable
in the
C-4
<PAGE> 61
administration of the Rights Agreement, including without limitation the right
and power to interpret the provisions of the Rights Agreement and to make all
determinations deemed necessary or advisable for the administration of the
Rights Agreement (including any determination to redeem or not redeem the Rights
or to amend or not amend the Rights Agreement). All such actions, calculations,
interpretations and determinations (including any omission with respect to any
of the foregoing) which are done or made by the Directors in good faith will be
final, conclusive and binding on the Company, the Rights Agent, the holders of
the Rights and all other parties and will not subject the Directors to any
liability to any person, including without limitation the Rights Agent and the
holders of the Rights.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an exhibit to a Registration Statement on Form 8-A. A
copy of the Rights Agreement is available free of charge from the Company.
This summary description of the Rights is as of the Record Date, does
not purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, which is incorporated herein by this reference.
C-5
<PAGE> 1
Exhibit 13
BRUSH WELLMAN INC.
1997
ANNUAL REPORT
......SUSTAINABLE GROWTH
[PHOTO]
INVESTING FOR ...............
<PAGE> 2
Cover: Brush Wellman's sales have grown dramatically since 1992. To equip the
Company for Sustainable Growth in the future, Brush Wellman is in the midst of a
major expansion and upgrading of its capabilities, highlighted by an investment
of $117 million in its Elmore, Ohio facility. This new facility will
significantly boost capacity, reduce production costs, improve working capital
utilization and enable the Company to offer improved service to customers. The
new facility should be fully operational by the end of 1998.
METAL SYSTEMS GROUP
(Approximately 70% of Sales)
ALLOY PRODUCTS are tailored metallurgically to specific customer performance
requirements. Copper beryllium 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.
BERYLLIUM is a unique material exhibiting physical and mechanical properties
unmatched by any other metal. It is one of the lightest structural materials
known, yet 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.
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.
MICROELECTRONICS GROUP
(Approximately 30% of Sales)
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.
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.
CIRCUITS PROCESSING TECHNOLOGY INC.
produces thick-film substrates for use in
high-frequency wireless telecommunications
applications, both ground and satellite based.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(Dollars in millions except per share amounts) 1997 1996 % Change
------- ------- --------
<S> <C> <C> <C>
Sales ................................................. $ 433.8 $ 376.3 +15%
Net Income ............................................ 25.6 24.5 +5%
Net Income per share (diluted) ........................ 1.56 1.53 +2%
Dividends per share ................................... 0.46 0.42 +10%
Shareholders' equity per share (diluted) .............. 14.41 13.72 +5%
</TABLE>
<TABLE>
<CAPTION>
93 94 95 96 97
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
NET SALES
(in millions) $295.5 $345.9 $369.6 $376.3 $433.8
NET INCOME
(in millions) $ 6.5 $ 18.9 $ 20.7 $ 24.5 $ 25.6
NET INCOME PER SHARE
(diluted) $ 0.40 $ 1.15 $ 1.27 $ 1.53 $ 1.56
RETURN ON
SHAREHOLDERS' EQUITY 3.8% 9.9% 10.3% 11.2% 10.8%
</TABLE>
<PAGE> 3
BRUSH WELLMAN INC.
is a leading international supplier of high performance engineered materials. It
is the only fully-integrated producer of beryllium, beryllium-containing alloys
and beryllia ceramic in the world. Brush Wellman also produces engineered
material systems through Technical Materials, Inc. and precious metal products
through Williams Advanced Materials Inc., both wholly-owned subsidiaries.
Brush Wellman materials continue to find new applications in a widening
array of markets. Manufacturers of electronic equipment and computers,
telecommunications systems, automobiles, aerospace products and systems, medical
equipment, home appliances and high performance recreational goods specify the
Company's high-quality materials in applications where superior performance and
reliability are essential.
Brush Wellman has nine production facilities in the United States, and
it markets its products through Company-owned Technical Service and Distribution
Centers in Japan, Germany, the United Kingdom and the United States, a
joint-venture service center in Singapore, and through a network of independent
distributors throughout the world. The Company is headquartered in Cleveland,
Ohio, the city in which the Company was founded in 1931. Brush Wellman stock is
traded of the New York Stock Exchange, identified with the symbol, "BW".
TO OUR SHAREHOLDERS
On behalf of all employees of Brush Wellman, I am pleased and encouraged to
report the achievement of another all-time sales and production record in 1997.
The fact that Brush Wellman sales grew by 15% despite the strong dollar and
capacity constraints in our Alloy Products business is a credit to the hard work
and innovation of our employees and provides evidence of the growing acceptance
of our engineered materials in high-reliability applications throughout the
world. Sales have now increased for five consecutive years and have established
new record levels in each of the last four years. Clearly, we are succeeding in
developing new applications for our products and are effectively delivering
high-quality products, on time, to our customers. In the 1996 Annual Report,
Brush Wellman's strategy for the future was articulated as focusing on three
major strategic thrusts: improve our base business, expand alloy and build a
microelectronics business. During 1997, we made progress on each of these
issues. Improvements were made in yield, productivity and operating performance
in Ceramic Products and Beryllium Products, and we continue to identify areas
for additional improvement. Alloy Products' performance was strong, both in
North America and overseas, despite the translation effects of the strong
dollar. We are proceeding on schedule with our Alloy Strip expansion project and
the Brush Engineered Bronze facility opened in the fourth quarter. In addition,
we achieved strong sales increases in microelectronics applications at Williams
Advanced Materials Inc. and Ceramic Products. Our 1997 Annual Report details our
progress in 1997 and provides an outline of our strategy for sustainable growth
in the years ahead.
1997 FINANCIAL RESULTS
For the year 1997, Brush Wellman Inc. reported diluted earnings per share of
$1.56, basic earnings per share of $1.58 and net income of $25.6 million. This
compares with 1996 diluted earnings of $1.53 per share, basic earnings per share
of $1.55 and net income of $24.5 million. Sales during 1997 totaled a record
$434 million, a 15% increase over 1996 sales of $376 million, which had
represented the previous record. Brush Wellman's sales have now increased for
five consecutive years, and have established new sales records in each of the
past four years. During 1997 the Company achieved sales increases in all major
product lines.
Throughout the year, Brush Wellman's earnings were adversely affected by
currency exchange rates. The stronger dollar reduced earnings by 24 cents per
share for the full year 1997, compared with 1996. A strong dollar, relative to
comparative periods, tends to reduce sales and income from the Company's
overseas operations due to currency translation effects. Actual production
volumes are generally unaffected by changes in currency exchange rates because
overseas sales are typically priced in local currencies. In addition, earnings
were pressured by business and product mix shifts, a higher tax rate, costs
associated with the company owned life insurance program and start-up costs
associated with Brush Engineered Bronze. Despite these unusual factors, Brush
Wellman's earnings increased in 1997.
1
<PAGE> 4
Brush Wellman's capital expenditures increased in 1997, reflecting
investments in Alloy Strip, Brush Engineered Bronze and Mine Development.
Capital expenditures are expected to remain high in 1998. In addition, Brush
Wellman is financing a considerable amount of the Alloy Strip expansion via a
combination of operating and synthetic lease arrangements.
Our balance sheet remains strong. Long-term debt as a percent of total
capital was 7% at the end of 1997. This ratio will grow in 1998, however, with
our major expansion and upgrading of our Alloy Strip capability. The leasing
obligations mentioned above will be in addition to long-term debt reflected on
the balance sheet. Management remains committed to maintaining the Company's
strong financial condition. Our debt and leasing arrangements are detailed in
Notes E and F, pages 13 and 14.
PRODUCT AND MARKET SUMMARY
We look at our various products in two major groups:
the Metal Systems Group and the Microelectronics Group.
METAL SYSTEMS GROUP
The Metal Systems Group represents approximately 70% of sales, and includes
Alloy Products, Engineered Material Systems (produced by the Company's
subsidiary, Technical Materials, Inc.), and Beryllium Products. Alloy Products'
sales grew in 1997 relative to 1996, both domestically and overseas. This
continuing strength reflects high levels of demand for these materials in
electronics applications and our continuing success in developing new
applications in automotive electronics, telecommunications, appliances,
commercial aircraft and plastic mold materials markets. In addition, Alloy Strip
production continues at full capacity, creating strains on the manufacturing
system, cost pressures and limiting our short-term growth. These strains should
begin to be relieved as the new Alloy Strip capacity becomes operational. Start
up on the new casting facility occurred on schedule during the fourth quarter
1997. The new rolling equipment should be operational in the second half 1998.
The Company's new Brush Engineered Bronze facility began operating in the fourth
quarter and is now shipping high quality specialty alloys to customers.
Technical Materials, Inc. (TMI) also had a very strong year, posting significant
increases in sales and profit. Over the past five years TMI has consistently
contributed to Brush Wellman's growth and profitability. Sales of Beryllium
Products also grew in 1997. The Company is encouraged by the success in
developing new applications for AlBeMet(R), in aerospace, commercial satellites,
industrial and high-performance automotive applications. Beryllium Products
operated at a loss for the whole of 1997 but was profitable for the second half
of the year. The Company's international sales grew by 31% in 1997, despite the
translation effects from a stronger dollar.
MICROELECTRONICS GROUP
Our Microelectronics Group includes Precious Metal Products (produced by
Williams Advanced Materials Inc., a Brush Wellman subsidiary), Ceramic Products
and Circuits Processing Technology. The Microelectronics Group represents
slightly less than 30% of Brush Wellman sales.
Sales of the Company's Williams Advanced Materials Inc. (WAM) subsidiary
increased dramatically in 1997 and established an all-time record. The
profitability of precious metal products continued to increase in 1997. Sales of
vapor deposition products were particularly strong. This performance was the
result of the team at WAM's success in developing new markets and adapting to
rapidly changing customer requirements. However, WAM sales, though profitable,
tend to contribute lower margins because of their high precious metal content.
In addition, volatility in the worldwide platinum and palladium markets during
the second and third quarters of 1997 caused WAM's profitability to be less than
it otherwise would have been. Despite this external pressure, WAM's contribution
to sales and earnings was considerably higher than in 1996.
Ceramic Products' sales grew in 1997, particularly in wireless
telecommunications applications. Sales of CuPack, our family of high performance
direct bond copper packages also grew significantly in 1997. Brush Wellman
Ceramic Products offer thermal management solutions for electronics applications
in wireless telecommunications, automotive, computer and satellite markets.
Circuits Processing Technology (CPT) also made a positive contribution.
2
<PAGE> 5
Additional details of sales and financial performance during 1996 are
contained in Management's Discussion and Analysis, beginning on page 22.
STRATEGIC REVIEW
The decade of the 1990's has been one of transition and growth for Brush
Wellman. Sales have grown steadily over the past five years, from a low of $265
million in 1992, to a record $434 million in 1997. This is an average annual
growth rate of over 10%, a rate considerably more robust than the United States
economy over the same period. This performance is especially gratifying
considering the structural changes that occurred in the Company's market base.
At the beginning of the decade, defense and mainframe computer applications
represented nearly 70% of the Company's sales. The end of the Cold War and the
major changes in mainframe computer design resulted in dramatic reductions in
demand for our materials. By 1997, these two markets represented less than 10%
of the Company's sales.
Data processing/electronics, including personal computers, data storage
devices and related connectors, switches relays and microelectronic components
accounted for more than 30% of sales in 1997. Telecommunications, automotive
electronics, appliances, plastic molds, commercial aviation and consumer
products are now important markets for our products. This transition in Brush
Wellman's business was the result of the successful implementation of a
strategic, targeted marketing and product development plan. Most of the growth
the Company has achieved in recent years has been in new or improved products.
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. International sales represented 32% of the Company's total in
1997, and achieved an all-time record despite the translation effects of the
strong dollar.
THE FUTURE: BRUSH WELLMAN'S STRATEGY FOR SUSTAINABLE 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 sales and earnings have grown consistently throughout the past
five years. During 1997, this improved
"Our investments . . . are designed to allow Brush Wellman to reposition itself
in the materials marketplace, thereby creating opportunities for growth."
3
<PAGE> 6
performance began to be reflected in our returns to shareholders, as the price
of Brush Wellman stock increased by 50% from the beginning through the end of
the year. Improving shareholder value will continue to be an important priority
in 1998. To do that, we realize that we must achieve earnings growth, and
improve our asset utilization. We also realize that we must continue to
demonstrate the success of our Alloy Products' growth strategy, including a
successful start-up of our Alloy Strip expansion.
For the longer term, we remain focused on three major Strategic Thrusts:
o First, improve the base business,
o Second, become the worldwide leader in specialty nonferrous alloys, and
o Third, build a microelectronics business.
Improve the Base.....
Despite the progress made in 1997, there remain opportunities to improve the
base business. In particular, many opportunities for improvement have been
identified in Ceramic Products, Beryllium Products, our Elmore operation, and
business systems.
Ceramic Products' profitability improvement efforts are concentrated on cost
reduction, focusing on yield improvements, and the pursuit of Direct Bond Copper
and Copper Tungsten as major new opportunities for growth. We achieved a major
turnaround in Ceramic profitability in 1997, but this product area continued to
operate at a loss throughout the year. Thus, Ceramic remains an area for profit
improvement focus.
Beryllium Products' profitability is being enhanced through
a combination of cost reduction efforts, product and process improvements, and
growth in sales of AlBeMet(R). Beryllium Products lost money for 1997 overall,
but was profitable during the second half and is expected to continue improving
this year.
We are determined to improve the efficiency of our Elmore, Ohio operation,
which is by far the largest in the Company. The Alloy expansion will help
considerably, but it will only get us part of the way to being a truly world
class operation. In 1998 we are challenging ourselves to make demonstrable
progress in cost, quality and worker safety at our Elmore operation.
In addition, during 1998 we are continuing our program to convert all
business systems for the year 2000. Details of our year 2000 compliance program
can be found in Management's Discussion and Analysis, page 25.
... Become the Global Leader in Non-Ferrous
Specialty Alloys ...
Our second strategic thrust involves expanding our alloy capabilities, with the
goal to become the global leader in non-ferrous specialty alloys. Alloy has
enjoyed good growth over the past five years, led by Alloy 174 strip. This
lower-priced, patented copper beryllium alloy has become a major part of the
product mix in terms of dollar sales and an even larger portion of Alloy
production in terms of pounds. Traditional alloy strip has also continued to
grow over the past few years. However, despite our sales gains, copper beryllium
represents a small proportion of non-ferrous alloys. We are convinced that our
products have the potential to capture a much larger share of this market, if we
make some fundamental changes. Specifically, the keys to positioning Alloy to be
the world's leader in specialty, high-performance non-ferrous alloys are: expand
capacity, introduce new alloys, broaden international marketing capabilities,
fully utilize organizational strengths and expand the range of alloy product
offerings by adding specialty, 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 $117
million. The goals of this investment are to increase capacity, reduce costs,
improve service and optimize working capital utilization. In addition, the new
capacity will incorporate advanced environmental, health and safety technology,
so as to be the safest work place reasonably
4
<PAGE> 7
achievable, and have minimal impact on the external environment.
The expansion involves the installation of a new cast shop,
hot and cold rolling mills, annealing, pickling and finishing equipment. The new
cast shop will increase the capacity, improve the quality and reduce the cost of
all our alloy products.
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. By reducing our
costs and allowing us to produce strip in much larger coils, the new capacity
will 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. Casting began in
November 1997. Remaining construction is proceeding on schedule, and the new
capacity should be fully operational by the fourth quarter.
The project is being financed primarily off-balance sheet, through a
combination of:
o an Operating Lease arrangement with the Toledo Port Authority
for the building, amounting to just under $19 million,
o a Synthetic Lease on equipment, involving the participation of
several banks, which could total $62 million, and
o the balance, or about $36 million, will be financed through a combination of
cash outlays and debt.
This financing arrangement not only enhances the project from a balance sheet
and cash flow standpoint, but it also involves a very attractive total financing
cost over the life of the project. 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 must also introduce new alloys.
Traditionally, our alloy products have been confined to the highest end,
"premium" niche of the market. Today, 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, telecommunications, computer and appliance
markets. Thus far, the interest in this new alloy system among potential users
is very strong. Alloy 171 has been approved for design in major connector
applications in the United States and internationally. We also continue to
broaden international marketing capabilities. We have been very 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 scope to the ASIAN region
through our joint venture Distribution Center in Singapore, which opened in
1997.
Over the years, we have built a strong Alloy Marketing organization. Moving
forward, we are identifying ways to utilize this organizational strength to do a
more effective job of target market and account development, particularly in
international markets.
We intend to exploit opportunities in non-beryllium alloys. The new Brush
Engineered Bronze, a family of specialty alloys in rod, bar and tube form, is
currently being introduced, supported by a $12 million, 50,000 square foot
greenfield expansion in Lorain, Ohio. This facility began casting specialty
non-ferrous alloys during the fourth quarter 1997. The addition of Brush
Engineered Bronze to our product line further strengthens our position in the
specialty alloys business. It represents another step toward our goal to be the
world's leading producer of high-quality, specialty non-ferrous alloys..
...BUILD A MICROELECTRONICS BUSINESS
Our third strategic thrust involves building a microelectronics business. The
Microelectronics Group competes for a multi-billion dollar worldwide market, and
currently represents approximately 30% of Brush Wellman's sales. We have an
5
<PAGE> 8
established marketing and sales presence in this business with a range of
products which meet the high performance requirements of the microelectronics
industry. We believe that by executing a strategy based on internal growth and
acquisition, we will be able to significantly expand our presence in these
attractive, fast growing worldwide markets.
Our strategic vision for microelectronics involves exploiting growth
opportunities for materials and value-added package components. Williams
Advanced Materials has been very successful in expanding its markets over the
past few years. WAM is positioned to continue developing new markets and
applications for precious metal materials both in North America and Asia,
through its facility in Singapore. Beryllium Oxide Ceramic materials grew in
1997 in wireless telecommunications applications. This material provides
solutions to thermal management problems which are presented by high-frequency
or high-power microelectronics, particularly in small spaces. We are also
exploring certain metal matrix composites and powder metal materials. Our
value-added components include CuPack and other direct bond copper components as
well as the thick-film substrate package components produced by Circuits
Processing Technology Inc. These value-added components offer alternative
thermal management solutions, focusing on high-performance, wireless
telecommunications. Our growth plans for the future involve internal development
by maximizing our organizational and technical strengths, interunit synergy and
targeted acquisitions.
DIVIDEND INCREASE
In August, the Board of Directors approved a 9% increase in the quarterly cash
dividend to a rate of 12 cents per share. This raised the annualized dividend
rate to 48 cents per share from the previous rate of 44 cents.
SHARE REPURCHASE
In May, the Board of Directors granted the authority for share repurchases, in
the open market, of a maximum of one million shares over the next four years.
The plan is intended to offset dilution due to issuance of stock through the
incentive compensation plans, and to provide the Company the option of acquiring
shares of Brush Wellman when such investment appears especially attractive.
During 1997, Brush Wellman repurchased 205,600 shares.
ORGANIZATION
In May, the Board of Directors elected Mr. Brian J. Derry Vice President
Operations. In this position, Mr. Derry is responsible for all of the Company's
Alloy and Beryllium manufacturing operations in Delta, Utah, Elmore, Ohio and
Reading, Pennsylvania.
Mr. Derry joins Brush Wellman with over twenty-five years of operations
management experience, most recently for the Ethyl Corporation, a $1.5 billion
manufacturer of fuel additives in Richmond, Virginia, and also for General
Electric Company's Plastics Group and Allied Chemical Company. We are very
pleased that Brian has joined Brush Wellman. He has quickly become an important
contributor to the accomplishment of our objectives.
In August, Mr. James P. Mooney resigned from the Board of Directors. Mr.
Mooney is Chairman and Chief Executive Officer of The OM Group, Inc. He had
joined the Brush Wellman Board of Directors in October 1996, but was unable to
continue on the Board due to scheduling conflicts. He made a positive impact on
Brush Wellman during his short tenure on our Board. We wish him and OM Group
continued success in the future.
Three long-standing members -- Mr. Henry G. Piper, Mr. Gerald C. McDonough
and Mr. Frank B. Carr -- retired from the Board of Directors during 1997. Mr.
Piper originally joined the Company in 1959 and rose through the ranks to
Chairman, President and CEO, before retiring in 1991. He had served on the Board
of Directors since 1967.
Mr. McDonough had been a member of the Board since 1983. During his fourteen
years of service on the Board, he was an immense help to the Company, and a
strong advocate of shareholder interests.
Mr. Carr retired from the Board in December, in accordance with the Company's
mandatory retirement policy for Directors who reach age 70. Brush Wellman is
grateful to Mr. Carr for his twenty-seven years of service as a Director. He
contributed greatly to the Company's success for nearly three decades. All three
of these
6
<PAGE> 9
long-standing Board members served with distinction. We wish them well on their
retirement from the Board.
We also welcomed two new Directors in 1997. Mr. Joseph P. Keithley was
appointed to the Board of Directors in June. Mr. Keithley, 49, is the Chairman
of the Board, President and Chief Executive Officer of Keithley Instruments,
Inc. in Cleveland, Ohio.
In December Brush Wellman announced the appointment of Mr. William R.
Robertson to its Board of Directors. Mr. Robertson, 56, is a Managing Partner of
Kirtland Capital. Prior to joining Kirtland, Mr. Robertson was President of
National City Corporation. He is a Director of National City Corporation and
National City Bank.
We are very pleased that Mr. Keithley and Mr. Robertson have joined our Board
of Directors. They bring to the Board a wealth of knowledge and understanding of
high technology industry, finance and capital markets as well as management
expertise.
ENVIRONMENTAL, HEALTH AND SAFETY ISSUES
In solid form, the form in which it is nearly always used, beryllium and
beryllium alloys pose no special health risk. However, 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 (CBD). Chronic
beryllium disease is a lung condition that occurs in that small 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. The risk of CBD
is generally confined to workplaces in which operations are performed that
generate beryllium-containing dust or fumes. At Brush Wellman, efforts in regard
to CBD focus on two fronts: prevention and treatment.
In terms of prevention, we continue to work -- and to invest resources -- to
protect workers from potentially harmful exposures to airborne beryllium. During
1997 we continued to implement changes in work practices in certain operations
to more effectively limit potential for harmful exposure. In addition, in May
1997, the Board of Directors authorized investing an additional $2.5 million for
capital improvements to our Beryllium Products operation in Elmore, Ohio aimed
specifically at further reducing the potential for employee exposure to airborne
beryllium.
Our efforts to develop more effective treatments involve a continuing
commitment to medical research. In 1997 we completed surveillance blood testing
of employees in Utah and presented results of this work and the related
Epidemiological Study to the employees. This work is part of an ongoing effort
to increase the medical understanding of CBD, with a goal of developing more
effective treatments, and hopefully, a cure for the condition. We also continue
to support the work of the Beryllium Industry Science Advisory Committee.
OUTLOOK
Looking forward, demand for our products is at an all time high and continues to
grow. We should begin to see some of the benefits of our capital investment
program in 1998. Brush Engineered Bronze is now operating. In addition,
successful trial heats on the new casting equipment in Elmore were conducted in
the fourth quarter, and material from this new equipment is now beginning to
feed our commercial alloy production stream. The new alloy strip rolling and
finishing equipment in Elmore is scheduled to be operational by the fourth
quarter of 1998. However we are currently operating at capacity in this, our
largest product line, and will likely remain capacity constrained until the new
equipment is in operation. In addition, our profits will continue to suffer from
currency pressures if the dollar remains at its current high levels or
strengthens further.
For the longer term, Brush Wellman remains committed to its strategic plan to
increase shareholder value through a combination of actions focused on improving
our base, becoming the worldwide leader in specialty, non-ferrous alloys, and
building a microelectronics business. Our plans are ambitious, but I am
convinced that we have a unique combination of products, processes, technology,
facilities, a global distribution system, financial resources and, most
importantly, competent and dedicated people. The employees of Brush Wellman can
be proud that we have met the challenges of the past decade, and I look forward
with enthusiasm to achieving our goals of significant and sustainable growth in
sales, earnings and shareholder returns in the years ahead.
/s/ Gordon D. Harnett
Gordon D. Harnett
Chairman of the Board
President and Chief Executive Officer
March 1998
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<PAGE> 10
Consolidated Statements of Income
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Sales .................................................................... $ 433,801 $ 376,279 $ 369,618
Cost of sales.............................................................. 320,792 267,713 268,732
--------- ------------ ------------
Gross Margin.................................................................. 113,009 108,566 100,886
Selling, administrative and general expenses............................... 68,953 64,991 62,736
Research and development expenses ......................................... 7,707 8,309 7,814
Other-- net ............................................................... 325 961 1,250
--------- ------------ ------------
Operating Profit.............................................................. 36,024 34,305 29,086
Interest expense .......................................................... 553 1,128 1,653
--------- ------------ ------------
INCOME BEFORE INCOME TAXES ............... 35,471 33,177 27,433
--------- ------------ ------------
Income taxes:
Currently payable ......................................................... 8,506 9,825 9,547
Deferred .................................................................. 1,368 (1,139) (2,803)
--------- ------------ -----------
9,874 8,686 6,744
--------- ------------ -----------
NET INCOME ............... $ 25,597 $ 24,491 $ 20,689
========== ============ ============
Net income per share of Common Stock--basic............................... $ 1.58 $ 1.55 $ 1.28
========== ============ ============
Average number of shares of Common Stock outstanding-basic.................... 16,214,718 15,846,358 16,159,508
Net income per share of Common Stock--diluted.............................. $ 1.56 $ 1.53 $ 1.27
=========== ============ ============
Average number of shares of Common Stock outstanding--diluted................. 16,429,468 15,980,481 16,289,795
</TABLE>
See notes to consolidated financial statements.
8
<PAGE> 11
Consolidated Statements of Cash Flows
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income ....................................................................... $ 25,597 $ 24,491 $ 20,689
Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities:
Depreciation, depletion and amortization ....................................... 18,695 18,537 18,042
Amortization of mine development ............................................... 634 4,417 2,869
Decrease (Increase) in accounts receivable ..................................... (12,652) (557) (308)
Decrease (Increase) in inventory ............................................... 3,653 (2,946) 874
Decrease (Increase) in prepaid and other current assets ........................ (4,001) (460) (1,951)
Increase (Decrease) in accounts payable and accrued expenses ................... 10,126 1,158 (1,856)
Increase (Decrease) in interest and taxes payable (2,536) (1,327) 1,050
Increase (Decrease) in deferred income tax ..................................... 1,466 (1,189) (1,284)
Increase (Decrease) in other long-term liabilities ............................. 962 1,954 2,061
Other--net .................................................................... (1,550) 966 (589)
-------- -------- --------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 40,394 45,044 39,597
Cash Flows from Investing Activities:
Payments for purchase of property, plant and equipment ........................... (53,155) (26,825) (24,244)
Payments for mine development .................................................... (9,526) (3,663) (787)
Other investments--net .......................................................... (1,686) (4,909) 718
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (64,367) (35,397) (24,313)
Cash Flows from Financing Activities:
Proceeds from issuance of short-term debt ........................................ 6,997 552 5,845
Proceeds from issuance of long-term debt ......................................... -- 8,305 --
Repayment of long-term debt ...................................................... (960) (813) (758)
Repayment of short-term debt ..................................................... (93) (2,149) (5,000)
Purchase of treasury stock ....................................................... (4,927) (6,656) (2,826)
Issuance of Common Stock under stock option plans ................................ 5,872 1,460 1,141
Payments of dividends ............................................................ (7,285) (6,489) (5,489)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (396) (5,790) (7,087)
Effects of Exchange Rate Changes on Cash & Cash Equivalents ......................... (210) (1,661) 915
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (24,579) 2,196 9,112
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 31,749 29,553 20,441
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 7,170 $ 31,749 $ 29,553
======== ======== ========
</TABLE>
See notes to consolidated financial statements
9
<PAGE> 12
Consolidated Balance Sheets
Brush Wellman Inc. and Subsidiaries
December 31, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................................................... $ 7,170 $31,749
Accounts receivable (less allowance of $1,059 for 1997 and $954 for 1996)...................... 62,812 52,211
Inventories.................................................................................... 90,714 96,324
Prepaid expenses and deferred income taxes..................................................... 18,215 16,949
-------- --------
TOTAL CURRENT ASSETS 178,911 197,233
OTHER ASSETS...................................................................................... 31,319 28,326
Property, Plant and Equipment
Land........................................................................................... 5,043 5,186
Buildings...................................................................................... 85,721 80,057
Machinery and equipment........................................................................ 312,088 274,903
Construction in progress....................................................................... 26,735 19,405
Allowances for depreciation.................................................................... (272,192) (256,690)
--------- ---------
157,395 122,861
Mineral resources.............................................................................. .5,693 5,693
Mine development............................................................................... 28,409 18,883
Allowances for amortization and depletion...................................................... (17,875) (17,217)
--------- ---------
16,227 7,359
--------- ---------
PROPERTY, PLANT AND EQUIPMENT-- NET 173,622 130,220
--------- ---------
$ 383,852 $ 355,779
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt................................................................................$ 28,877 $ 25,670
Accounts payable............................................................................... 13,519 7,713
Salaries and wages............................................................................. 12,341 9,672
Taxes other than income taxes.................................................................. 2,611 2,212
Other liabilities and accrued items............................................................ 13,628 13,810
Dividends payable.............................................................................. 1,967 1,789
Income taxes................................................................................... 5,369 8,195
--------- ---------
TOTAL CURRENT LIABILITIES 78,312 69,061
OTHER LONG-TERM LIABILITIES 8,200 6,906
RETIREMENT AND POST-EMPLOYMENT BENEFITS 39,825 40,365
LONG-TERM DEBT 17,905 18,860
DEFERRED INCOME TAXES 2,797 1,330
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 22,227,006 shares (21,908,885 for 1996)................. 22,227 21,909
Additional paid-in capital..................................................................... 59,583 53,650
Retained income................................................................................ 254,174 236,043
--------- ---------
335,984 311,602
Less: Common Stock in treasury, 5,843,561 shares in 1997 (5,618,377 in 1996)................... 96,639 91,357
Other Equity transactions.................................................................... 2,532 988
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 236,813 219,257
--------- ---------
$ 383,852 $ 355,779
========= =========
</TABLE>
See notes to consolidated financial statements
10
<PAGE> 13
Consolidated Statements of Shareholders' Equity
Brush Wellman Inc and Subsidiaries
Years ended December 31, 1997, 1996 and 1995
(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, 1995 $ 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)
Net income............................................. 25,597
Declared dividends $.46 per share...................... (7,463)
Proceeds from sale of 309,196 shares under option plans 309 4,821
Income tax benefit from employees' stock options....... 742
Other equity transactions.............................. 9 370 (3) (1,544)
Forfeiture of restricted stock......................... (355)
Purchase of shares for treasury........................ (4,927)
--------- --------- --------- --------- ---------
BALANCES AT DECEMBER 31, 1997 $ 22,227 $ 59,583 $ 254,174 $ (96,639) $ (2,532)
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements
11
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brush Wellman Inc. and Subsidiaries
December 31, 1997
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 are beryllium
alloys, beryllium, engineered material systems, precious metals, ceramics and
thick film circuits. The Company is vertically integrated and distributes its
products through a combination of Company-owned facilities and outside
distributors and agents.
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.
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:
Years
------------
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
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 are marked-to-market
using the applicable rates and any unrealized losses are taken to income.
Realized gains and losses on forward contracts and commodity 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.
REVENUE RECOGNITION: The Company recognizes revenue when goods are shipped and
title passes to the customer.
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 1997 consolidated financial statement presentation.
NET INCOME PER SHARE: The Company adopted SFAS No. 128, "Earnings per Share" in
1997 as prescribed, replacing the presentation of primary and fully diluted
earnings per share (EPS) with a presentation of basic and diluted EPS. Basic EPS
is computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the assumed conversion of all dilutive common stock equivalents as appropriate
under the treasury stock method. The EPS for all periods reported herein have
been restated to comply with SFAS No. 128, including the quarterly results for
1996 and 1997.
ENVIRONMENTAL REMEDIATION: The Company adopted the Statement of Position ("SOP")
96-1, "Environmental Remediation Liabilities" in the first quarter of 1997. The
adoption did not have a material impact on its financial position or results of
operations. Contingencies, including environmental remediation liabilities, are
further outlined in Note M to the Consolidated Financial Statements.
12
<PAGE> 15
NEW PRONOUNCEMENTS: In 1997, the Financial Accounting Standards Board issued
SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." These pronouncements
set forth certain public reporting requirements and standards, but do not
necessitate any changes in accounting practices nor will they affect reported
earnings. The Company is studying the impact of these new requirements on its
reporting and will adopt them as prescribed in 1998.
NOTE B - ACQUISITIONS
In October 1996, the Company acquired the Common Stock of Circuits Processing
Technology, Inc. for Company Common Stock. This transaction was accounted for as
a purchase and did not have a material impact on operations.
NOTE C - INVENTORIES
Inventories in the consolidated balance sheets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
(Dollars in thousands) 1997 1996
Principally average cost: -------- --------
<S> <C> <C>
Raw materials and supplies.............................. $17,331 $20,210
In process.............................................. 58,666 55,242
Finished................................................ 37,008 42,536
-------- --------
113,005 117,988
Excess of average cost over LIFO
inventory value......................................... 22,291 21,664
-------- --------
$90,714 $96,324
======== ========
</TABLE>
Inventories aggregating $66,221,000 and $67,730,000 are stated at LIFO at
December 31, 1997 and 1996, 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 $2,560,000, $2,168,000 and $2,284,000 in 1997,
1996 and 1995, respectively. Interest costs capitalized and the amounts
amortized are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Interest incurred........................... $2,371 $2,103 $2,099
Less capitalized interest................... 1,818 975 446
------ ----- -------
$ 553 $1,128 $1,653
====== ======= =======
Amortization, included principally
in cost of sales......................... $ 600 $ 573 $ 578
====== ======= =======
</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 $1,075,000, ($190,000) and $954,000 in 1997, 1996 and
1995, respectively. The related interest expense was $3,081,000, $5,115,000 and
$4,788,000, respectively.
NOTE E - DEBT
<TABLE>
<CAPTION>
A summary of long-term debt follows:
DECEMBER 31
(Dollars in thousands) 1997 1996
---- ----
<S> <C> <C>
9.60% - 9.68% medium-term notes, $5 million
payable in each of 1997 and 2000..................... $ 5,000 $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 through 2000............ 2,400 3,200
Variable rate industrial development
revenue bonds payable in 2016......................... 8,305 8,305
Variable rate note payable in equal installments
through 1999 (paid off in 1997)....................... 0 253
------- -------
4.90% note payable in yen in equal installments
through 1997 (converted to short-term debt)........... 0 706
------- -------
18,705 25,464
Current portion of long-term debt........................ (800) (6,604)
------- -------
$17,905 $18,860
======= =======
</TABLE>
Maturities on long-term debt instruments as of December 31, 1997, are as
follows:
<TABLE>
<S> <C>
1998............................................................ $ 800
1999............................................................ 800
2000............................................................ 5,800
2001............................................................ 0
2002............................................................ 0
Thereafter...................................................... 11,305
--------
$ 18,705
========
</TABLE>
The Company has a revolving credit agreement with five banks which provides a
maximum availability of $55,000,000 through April 30, 2000. At December 31,
1997, there were no borrowings outstanding against this agreement.
The Company established a $10,000,000 multi-currency line of credit during
1997. At December 31, 1997 a short-term loan of 513,600,000 yen ($3,948,000) was
outstanding.
Included in short-term debt is $28,077,000 ($19,066,000 at December 31, 1996)
outstanding under lines of credit totaling $82,894,000 ($114,612,000 at December
31, 1996). The $82,894,000 lines of credit consist of $40,000,000, $35,519,000
and $7,375,000 of domestic, foreign and precious metal (primarily gold)
denominated debt respectively. The domestic lines of $40,000,000 are
uncommitted, unsecured and renewed annually. The foreign lines are uncommitted,
unsecured and renewed annually. The precious metal facility is secured and
renewed annually. Of the amount outstanding, $20,702,000 is payable in foreign
currencies and $7,375,000 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. The average rate on short-term debt was
3.0% and 3.5% as of December 31, 1997 and 1996, respectively.
13
<PAGE> 16
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
The Company has a private placement agreement whereby the Company can issue
up to an aggregate of $75,000,000 of medium-term notes ($5,000,000 outstanding
at December 31, 1997). 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.
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 variable rate ranged from 3.32% to 4.79% during
1997.
During 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.
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 25 years.
Rent expense amounted to $4.3 million, $4.7 million and $ 4.1 million during
1997, 1996, and 1995, respectively. The future estimated minimum lease payments
under non-cancelable operating leases with initial lease terms in excess of one
year at December 31, 1997, are as follows: 1998 - $3.6 million; 1999 - $ 7.6
million; 2000 - $ 7.4 million; 2001 - $7.1 million; 2002 - $ 3.1 million; and
thereafter - $22.3 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 $81.1 million. Start-up of this facility, which will be phased
in over time, began in the fourth quarter of 1997. Lease payments for the
facility 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 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.
All hedge contracts mature in two years or less. 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, 1997
and December 31, 1996 were as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996
Currency: ---------- --------
<S> <C> <C>
Deutschemark............................................... $ 10,650 $ 9,300
Yen........................................................ 10,950 7,400
Sterling.................................................... 4,328 8,293
--------- ---------
Total....................................................... $ 25,928 $ 24,993
========= =========
</TABLE>
CASH AND CASH EQUIVALENTS
Included in cash equivalents at December 31, 1996 were $12.4 million 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. There were no investments of this type
at December 31, 1997.
LONG- AND SHORT-TERM DEBT
The fair value of the Company's debt (which had a carrying value of $46,782,000)
at December 31, 1997 was estimated at $48,289,000 using a discounted cash flow
analysis based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements. At December 31, 1996, the fair value of the
Company's $44,530,000 of debt was estimated at $45,915,000 using the same
procedure.
OTHER SWAP ARRANGEMENTS
The Company has commodity swap agreements to hedge a portion of anticipated
copper purchases through 1999. Under these agreements, the Company receives or
makes payments based on the difference between a specified price and the market
price of copper. The fair value of these contracts at December 31, 1997 was
$11.9 million (notional amount $12.9 million).
INTEREST RATE SWAP AGREEMENTS
In December, 1996, the Company entered into an interest rate swap agreement to
hedge the variable rate payments to be made during the initial
14
<PAGE> 17
term of an equipment lease (see Note F to the Consolidated Financial
Statements). The Company has accounted for the swap as a hedge effectively
fixing the estimated lease payments through the initial lease term. The fair
value of this contract was a negative $1.2 million at December 31, 1997. The
fair value approximated the notional value at December 31, 1996.
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 at December 31, 1997 and December
31, 1996 approximated its notional value.
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 27, 1998, the Company's Board of Directors adopted a new share
purchase rights plan and declared a dividend distribution of one right for each
share of Common Stock outstanding as of the close of business on February 9,
1998. The plan allows for new shares issued after February 9, 1998 to receive
one right subject to certain limitations and exceptions. 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 $110. 450,000 unissued shares of
Serial Preferred Stock will be 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 Common Stock. Each share of
Series A Preferred Stock will be entitled to one vote. The rights will not be
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 27, 2008, and can be redeemed for 1 cent per
right under certain circumstances.
In May 1997, the Company's Board of Directors authorized the repurchase of up
to 1,000,000 shares of its Common Stock (not to exceed 250,000 shares per year)
over a four year period. Through December 31, 1997, the Company repurchased
205,600 shares at a total cost of $4.9 million.
In December 1995, the Company's Board of Directors authorized a repurchase of
up to 1,000,000 shares of its Common Stock. Through December 31, 1996, the
Company repurchased 524,400 shares at a total cost of $9,481,000 under this
program. In May 1996, the Company's Board of Directors withdrew the authority
for additional share re-purchases.
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 1997, a total of 9,000 special
restricted shares (1,200 were subsequently forfeited) were granted to certain
employees. In 1996, a total of 116,653 performance restricted shares and 118,127
performance shares 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. Deferred
compensation is amortized over the vesting period and amounted to $270,000 and
$188,000 in 1997 and 1996, 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. In 1995, the Company's right to grant options on a total of 228,565
shares (under the Company's 1979, 1984 and 1989 stock option plans) were
terminated upon shareholder approval of the 1995 Stock Incentive Plan. No
further stock awards will be made under the Company's 1979, 1984 and 1989 stock
option plans except to the extent that shares become available for grant under
these plans by reason of termination of options previously granted.
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 interpretation in accounting for its stock incentive plan. If the
Company had elected to recognize compensation expense for its stock incentive
plan awards based on the estimated fair value of the awards on the grant dates,
consistent with the method prescribed by SFAS No. 123 by amortizing the expense
over the options' vesting periods, the pro forma net income and earnings per
share (E.P.S.) would have been as noted below:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1997 1996 1995
<S> <C> <C> <C>
Net income As reported $25,597 $24,491 $20,689
Pro forma $25,263 $24,255 $20,662
Basic E.P.S. As reported $ 1.58 $ 1.55 $ 1.28
Pro forma $ 1.56 $ 1.53 $ 1.28
Diluted E.P.S. As reported $ 1.56 $ 1.53 $ 1.27
Pro forma $ 1.54 $ 1.52 $ 1.27
</TABLE>
Note: The pro forma disclosures shown are not representative of the effects on
net income and earnings per share in future years.
The weighted average fair value of the Company's stock options used to
compute the pro forma net income and earnings per share disclosures is $4.99,
$5.96 and $5.48 for 1997, 1996 and 1995, respectively. The fair
15
<PAGE> 18
Notes to Consolidated Statements continued
value is the estimated present value at grant date using the Black-Scholes
option-pricing model with the following weighted average assumptions for the
various grants in 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate..................... 6.15% 6.88% 7.75%
Dividend yield.............................. 2.00% 2.03% 1.54%
Volatility of stock......................... 29.90% 29.35% 30.90%
Expected life of option..................... 4 years 10 years 4 years
</TABLE>
<TABLE>
<CAPTION>
A summary of option activity during the years 1997, 1996 and 1995 follows:
Range of Weighted Avg.
Shares Option Prices Exercise Price
------ ------------- --------------
<S> <C> <C> <C> <C>
Outstanding at December 31, 1994........ 1,578,300 $11.81 to $38.94 $18.58
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 $18.32
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 $18.12
Granted................................. 212,550 $18.13 to $21.81 $18.26
Exercised............................... (309,696) $12.00 to $22.06 $16.65
Canceled................................ (107,040) $13.56 to $38.94 $28.79
---------
Outstanding at December 31, 1997........ 1,340,384 $11.81 to $29.94 $17.62
=========
</TABLE>
At December 31, 1997, options for 1,141,774 shares (1,375,730 shares at December
31, 1996) were exercisable with a weighted average remaining life of 5.5 years
and 4.9 years for 1997 and 1996, respectively, and a weighted average exercise
price of $17.58 and $18.28 for 1997 and 1996, respectively. The outstanding
options as of December 31, 1997, may be divided into the following ranges:
<TABLE>
<CAPTION>
Range of Average
Option Prices Outstanding Exercisable Remaining Life
<S> <C> <C> <C>
$11.81 to $17.69 789,334 724,274 5.06
$18.63 to $25.50 544,050 410,500 6.16
$28.38 to $29.94 7,000 7,000 0.79
--------- ----------
Total 1,340,384 1,141,774
</TABLE>
As of December 31, 1997, there were 194,757 shares (334,112 at December 31,
1996) available for future grants.
NOTE I - INCOME TAXES
Income before income taxes and income taxes are comprised of the following
components, respectively:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1997 1996 1995
Income before income taxes: -------- ------ -------
<S> <C> <C> <C>
Domestic................................ $30,993 $28,750 $20,480
Foreign................................. 4,478 4,427 6,953
------- ------- -------
Total before income taxes.............. $35,471 $33,177 $27,433
======= ======= =======
Income taxes:
Current income taxes:
Domestic................................ $ 5,982 $ 7,736 $6,779
Foreign................................. 2,524 2,089 2,768
------- ------- --------
Total current......................... 8,506 9,825 9,547
Deferred income taxes:
Principally domestic.................... 1,368 (1,139) (2,803)
------- ------- --------
Total income taxes.................... $ 9,874 $ 8,686 $ 6,744
======= ======= ========
</TABLE>
A reconciliation of the federal statutory and effective income tax rates
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate ...................... 35.0% 35.0% 35.0%
State and local income taxes, net
of federal tax effect...................... 1.7 1.1 2.1
Effect of excess of percentage
depletion over cost depletion.............. (5.5) (4.9) (5.5)
Company-owned life insurance................. (1.5) (3.6) (4.9)
Difference due to book and tax basis
of assets of acquired businesses........... 0.4 1.1 0.4
Taxes on foreign income - net................ (1.2) (1.2) (2.2)
Other items.................................. (1.1) (1.3) (0.3)
---- ---- ----
Effective tax rate....................... 27.8% 26.2% 24.6%
==== ==== ====
</TABLE>
Included in income taxes currently payable, as shown in the Consolidated
Statements of Income, are $935,000, $585,000 and $904,000 of state and local
income taxes in 1997, 1996 and 1995, respectively.
The Company made domestic and foreign income tax payments, net of
refunds, of $10,507,000, $11,144,000 and $8,087,000 in 1997, 1996 and 1995,
respectively.
16
<PAGE> 19
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) 1997 1996
------- -------
<S> <C> <C>
Postretirement benefits other than pensions $12,455 $12,391
Alternative minimum tax credit.......................... 5,582 5,155
Other reserves.......................................... 7,095 6,592
Environmental reserves.................................. 1,666 1,236
Inventory .............................................. -- 380
Miscellaneous........................................... 652 744
------- --------
Total deferred tax assets............................... 27,450 26,498
Depreciation............................................ (9,765) (9,693)
Pensions................................................ (3,946) (3,851)
Mine development........................................ (4,139) (2,005)
Capitalized interest expense............................ (1,179) (1,358)
Inventory .............................................. (198) --
------- --------
Total deferred tax liabilities.......................... (19,227) (16,907)
-------- --------
Net deferred tax asset ................................. $ 8,223 $ 9,591
======== ========
</TABLE>
NOTE J - EARNINGS PER SHARE
Years ended December 31, 1997, 1996, and 1995.
The following table sets forth the computation of basic and diluted earnings per
share (E.P.S.):
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ----------
Numerator for basic and diluted E.P.S.:
<S> <C> <C> <C>
Net income............................ $25,597,000 $24,491,000 $ 20,689,000
Denominator:
Denominator for basic E.P.S.
Weighted-average shares
outstanding....................... 16,214,718 15,846,358 16,159,508
Effect of diluted securities:
Employee stock options.............. 194,189 112,440 129,859
Performance restricted stock ....... 18,680 12,857 428
Special restricted stock............ 1,881 8,826 --
----------- --------- ----------
Diluted potential common shares..... 214,750 134,123 130,287
Denominator for diluted E.P.S.
Adjusted weighted-average shares
outstanding....................... 16,429,468 15,980,481 16,289,795
=========== ========== ==========
Basic E.P.S............................. $1.58 $1.55 $1.28
=========== ========= ==========
Diluted E.P.S........................... $1.56 $1.53 $1.27
=========== ========= ==========
</TABLE>
NOTE K - 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 1997, 1996 or 1995.
A summary of the components of net periodic pension cost (credits) for
pension plans follows (in thousands):
<TABLE>
<CAPTION>
DEFINED BENEFIT PLANS: 1997 1996 1995
<S> <C> <C> <C>
Service cost-benefits earned
during the year........................ $ 2,509 $2,591 $ 1,942
Interest cost on projected
benefit obligation..................... 4,916 4,958 4,512
Actual return (increase)/decrease
on plan assets......................... (15,433) (11,084) (12,684)
Net amortization and deferral............ 7,903 3,890 5,759
------- ------- -------
Total (credit) expense................. $ (105) $ 355 $ (471)
======= ======= =======
</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
1997 1996
------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.................................. $54,983 $ 51,898
======= =========
Accumulated benefit obligation........................... $58,688 $ 56,288
======= =========
Plan assets at fair value....................................$96,372 $ 84,819
Projected benefit obligation.............................. (70,665) (68,264)
------- ---------
Plan assets in excess of projected benefit obligation.... 25,707 16,555
Unrecognized net (gain) or loss.......................... (13,772) (3,577)
Unrecognized net assets, at date of adopting
SFAS 87, net of amortization............................ (3,308) (4,015)
Unrecognized prior service cost.......................... 2,980 2,365
------- ---------
Net pension asset recognized at December 31.... .......... $11,607 $ 11,328
======= =========
</TABLE>
Assumptions used in accounting for the pension plans were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate............................ 7.25% 7.50% 7.25%
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, 1997, the projected
benefit obligation was $2,041,000 ($1,910,000 in 1996). A corresponding
accumulated benefit obligation of $1,835,000 ($1,747,000 in 1996) has
17
<PAGE> 20
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
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 $2,207,000 in 1997, $1,844,000 in 1996 and $1,683,000
in 1995.
NOTE L - 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. Employees hired on or after January 3, 1994 are not eligible for
postretirement health benefits. The Company also provides medical benefits to
certain retired employees and spouses from an operation that was divested in
1985.
Covered 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,
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees.............................................. $21,505 $22,477
Fully eligible active plan participants............... 5,382 5,371
Other active plan participants........................ 3,888 3,995
------- -------
30,775 31,843
Plan assets............................................... -- --
Unrecognized net gain/(loss).............................. 5,875 4,612
------- -------
Accrued postretirement benefit obligation................. $36,650 $36,455
======= =======
</TABLE>
Net periodic postretirement benefit cost includes the following components (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service cost.......................................... $ 312 $ 385 $ 304
Interest cost......................................... 2,174 2,277 2,409
Amortization of (gain)/loss........................... (230) (25) (140)
------ ------ ------
Net periodic postretirement benefit cost .......... $2,256 $2,637 $2,573
====== ====== ======
</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, 1997 is 6.25%
for retirees age 65 and over and 8.00% for retirees under age 65 in 1998, 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, 1997 by
$1,773,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for 1997 by $121,000. 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 7.25% at December 31, 1997, 7.50% at
December 31, 1996 and 7.25% at December 31, 1995.
NOTE M - CONTINGENCIES AND COMMITMENTS
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 undiscounted reserves of $5.1 million at
December 31, 1997 ($4.0 million at December 31, 1996). 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, 1997, the Company has outstanding commitments of $8.2
million to purchase capital equipment.
18
<PAGE> 21
NOTES TO CONSOLIDATED STATEMENTS (CONTINUED)
Note N - OPERATIONS BY GEOGRAPHIC AREA
Years ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------
OPERATIONS INTERNATIONAL
IN THE DISTRIBUTION ADJUSTMENTS &
UNITED STATES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.................................... $345,100 $ 88,701 $433,801
Transfers between operations....................................... 62,844 ($62,844)
-------- ------- -------- --------
Net Sales...................................................... $407,944 $88,701 ($62,844) $433,801
======== ======= ======== ========
Operating profit (loss) ........................................... $ 33,438 $ 4,888 ($ 2,302) $ 36,024
======== ======= ========
Interest expense................................................... (553)
--------
Income before income taxes..................................... 35,471
========
Identifiable assets at December 31, 1997........................... $321,760 $45,606 ($ 4,449) $362,917
======== ======= ========
Corporate assets................................................... 20,935
--------
Total assets at December 31, 1997.............................. $383,852
========
</TABLE>
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
OPERATIONS INTERNATIONAL
IN THE DISTRIBUTION ADJUSTMENTS &
UNITED STATES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------- ------------- ------------- -------------
<S> <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
=========
<CAPTION>
1995
------------------------------------------------------------
OPERATIONS INTERNATIONAL
IN THE DISTRIBUTION ADJUSTMENTS &
UNITED STATES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------------- ------------- ------------- -------------
<S> <C> <C> <C>
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
========
</TABLE>
Transfers between operations are accounted for in the same manner as sales to
unaffiliated customers. Corporate assets are principally cash and cash
equivalents, property, plant and equipment, and investments.
Total international sales were $142,423,000 in 1997, $108,402,000 in
1996, and $127,289,000 in 1995. 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 $53,722,000 in 1997,
$33,574,000 in 1996, and $36,126,000 in 1995.
19
<PAGE> 22
Notes to Consolidated Statements (continued)
NOTE O - QUARTERLY DATA (UNAUDITED)
Years ended December 31, 1997 and 1996
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1997
------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales.............................................. $99,688 $ 113,374 $ 109,073 $ 111,666 $ 433,801
Gross Profit............................................ 25,691 29,786 27,227 30,305 113,009
Percent of Sales ................................... 25.8% 26.3% 25.0% 27.1% 26.1%
Net Income ............................................ 6,490 7,489 3,989 7,629 25,597
Earnings Per Share of Common Stock:
Basic .............................................. 0.40 0.46 0.25 0.47 1.58
Diluted ............................................ 0.40 0.46 0.24 0.46 1.56
Dividends Per Share of Common Stock ................... 0.11 0.11 0.12 0.12 0.46
Stock price range
High............................................... 19.25 22.13 26.81 25.87
Low .................................................. 16.25 17.75 20.94 23.06
1996
--------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- -------- ------- ------- --------
Net Sales............................................. $93,801 $104,349 $88,312 $89,817 $376,279
Gross Profit............................................ 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
Earnings Per Share of Common Stock:
Basic................................................ 0.33 0.52 0.29 0.41 1.55
Diluted.............................................. 0.32 0.51 0.29 0.41 1.53
Dividends Per Share of Common Stock..................... 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>
20
<PAGE> 23
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
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, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 27, 1998
- -------------------------------------------------------------------------------
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
21
<PAGE> 24
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 services, 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
1997 TO 1996 COMPARISON
Sales in 1997 were a record $433.8 million, a 15% improvement over 1996 sales of
$376.3 million. Sales have increased for five consecutive years, establishing
record highs in each of the past four years. Diluted earnings per share grew to
$1.56 in 1997 from $1.53 in 1996.
Metal Systems sales, which are approximately 70% of total sales, increased
in 1997 over 1996. The primary markets for these products are
telecommunications, automotive and electronics. Aerospace, defense and plastic
tooling are smaller, but important markets as well. Major products included in
Metal Systems are beryllium, beryllium alloy strip and bulk and engineered
materials. These products offer a wide variety of performance characteristics
that are ideal in high reliability applications, and enable customers to improve
efficiencies and lower costs. Depending upon their form and application, these
products can provide superior electrical conductivity, formability, wear
resistance and high strength and hardness. Applications for these materials
include connectors, switches, relays, mold tooling, bushings, contacts and
structural components.
Alloy strip sales posted significant gains in 1997 over 1996 in the domestic
and international markets. Pounds shipped increased at a higher rate than the
sale values as a large portion of the additional sales was in relatively lower
priced alloys. The translation rate differences also adversely affected
international sales. Strip production was near capacity for most of the year.
The new casting facility in Elmore, Ohio, part of the three-year $117 million
alloy expansion project, started up on schedule late in the fourth quarter 1997.
In addition to increasing capacity, this equipment is designed to lower costs
and improve quality of beryllium alloy products. The strip mill portion of the
expansion project is scheduled to be completed in the summer of 1998.
Sales of alloy bulk products declined year on year due to lower sales to the
recreation and leisure market. The Company has now developed new alloys and
marketing strategies in attempts to regain its share in this profitable, but
somewhat seasonal and inconsistent, market. Bulk product sales to other markets
increased slightly in 1997 over 1996. To augment the markets served by its
traditional beryllium alloy bulk products, the Company recently completed
construction of a new facility in Lorain, Ohio, to produce a specialty family of
non-beryllium containing alloys in rod, bar and tube form. Production in limited
quantities began in the fourth quarter 1997 and the facility is anticipated to
be fully operational in 1998.
Sales of engineered material systems once again demonstrated strong growth
in the current year continuing a five-year trend of improving revenues and
profits. Engineered material systems include clad inlay or overlay metals,
contour profiling of metals, electron beam welded metal systems, precious and
base metal electroplating and solder-coated metal systems, or any combinations
of these systems. Capital investments to support and expand these product
offerings were made in 1997 and are planned to continue in 1998.
Beryllium sales also grew in 1997 from 1996. AlBeMet(R) sales, while still
relatively small, increased in the current year and the Company is encouraged by
its potential commercial applications. Investment cast products also offer an
opportunity for growth. Beryllium metal sales, primarily for defense
applications, were flat year on year.
Sales of Microelectronic Group products, which include precious metals,
ceramics and thick film circuits, increased dramatically in 1997 from 1996 to
account for approximately 30% of the Company's total sales. The majority of the
sales growth was in precious metals, primarily physical vapor deposition targets
used in the optical data storage and hybrid electronic markets. Revenues from
the Company's gold refining operations increased in 1997 as well. Because of the
high precious metal content, the cost of which is passed through to customers,
these sales have a lower margin percent than the average margins earned on the
Company's other products. While profitable, the large increase in precious metal
sales has the effect of lowering the Company's overall gross margin percent.
Ceramic sales were higher in 1997 than 1996 on the strength of additional
base beryllia ceramic sales to the telecommunications market. Direct bond copper
sales increased slightly, but their profitability remained disappointing. Thick
film circuit sales from Circuits Processing Technology, Inc. ("CPT") were a
minor contributor to the increased sales in 1997 from 1996.
International operations consist of distribution centers in Germany, England
and Japan, a marketing office in Singapore and a precious metal finishing
facility in Singapore. In addition, in 1997, the Company entered into a joint
venture in Singapore to provide slitting and distribution facilities for
beryllium alloys. Sales by international operations totaled $88.7 million in
1997 compared to $74.8 million in 1996. Sales by these operations are
predominantly in their respective currencies while the majority of the
underlying cost of sales is incurred in dollars. In 1997, the U.S. dollar on
average strengthened 11% against the yen and 14% against the deutschmark from
1996, thereby reducing the comparative translated value of these sales and
resulting margins. The dollar's value against the yen and the deutschmark was
higher at December 31, 1997 than the average value for 1997. Direct exports to
unaffiliated customers were $53.7 million in 1997 and $33.6 million in 1996. The
majority of these sales are to North America and
22
<PAGE> 25
western Europe and are denominated in dollars. International markets 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, 1997, outstanding hedge contracts totaled $25.9
million, compared to $25.0 million at year end 1996.
Gross margin was $113.0 million in 1997, a gain of $4.4 million from 1996.
However, the margin percentage declined to 26.1% of sales from 28.9%. The two
major causes for the decline in the percentage were the effects of the stronger
dollar and the large increase in precious metal products that carry smaller
margins as previously discussed. Capacity constraints at several facilities
created additional cost pressures (increased overtime, limited availability of
the optimal equipment, etc.). Tempering these effects was the increase in
beryllium strip sales earning greater margins. The Utah beryllium extraction
facility operated at very efficient levels in 1997. The cost of copper,
typically passed through to beryllium alloy customers, was essentially flat year
on year. Selling prices in general were fairly stable during 1997.
Selling, administrative and general expenses were $69.0 million or 15.9% of
sales in 1997 compared to $65.0 million or 17.2% of sales in 1996. Costs
associated with the start-up of the new facility in Lorain, Ohio and charges for
the company-owned life insurance program were two main causes for the increase.
The expense portion of the new computer based information system project, begun
in 1996, continued into 1997.
Research and development (R&D) expenses were $7.7 million or 1.8% of sales
in 1997, a decline from $8.3 million or 2.2% of sales in 1996. Expenses were
lower in 1997 in part because of reimbursements for R&D work performed under
government contracts. Additionally, two major initiatives in 1996 achieved their
objectives in early 1997 and, therefore, caused a reduction in expenditures. The
Company is planning on increasing its investment and staffing in R&D in order to
continue developing new products and technologies.
Other-net expense was $0.3 million in 1997 and $1.0 million in 1996. Foreign
currency hedge gains were higher in 1997 than 1996 while goodwill expense was
lower in 1997. Partially offsetting these benefits was an increase in the cost
of financing the consigned platinum and palladium stocks that support a portion
of the precious metal business. Major disruptions to the supply of metal in the
international markets in the summer of 1997 caused the higher rates. By the end
of 1997, financing rates had significantly declined, although they still were
higher than the typically nominal rates of prior years. The Company has taken
additional measures to reduce its exposures.
Interest expense was $0.6 million in 1997 versus $1.1 million in 1996 net of
capitalized interest associated with long-term capital projects of $1.9 million
in 1997 and $1.0 million in 1996. The higher incurred interest expense in 1997
was the result of increased borrowings, as the weighted average interest rate
declined slightly in 1997 from 1996.
Income before income taxes was $35.5 million in 1997, an increase of
$2.3 million from 1996. As explained above, this improvement was due to higher
sales volume generating an increase in margin that was partially offset by an
unfavorable currency effect and higher expenses.
The Company's effective tax rate was 27.8% of pre-tax earnings in 1997
compared to 26.2% in 1996. Higher earnings and a decreased tax benefit from the
company-owned life insurance program caused the increase in the rate.
Adjustments to the statutory tax rate are detailed in Note I to the Consolidated
Financial Statements.
Comparative basic earnings per share were $1.58 in 1997 and $1.55 in 1996.
Diluted earnings per share were $1.56 in 1997 and $1.53 in 1996. All earnings
per share calculations have been restated to comply with SFAS No. 128, which
revised the methodology for determining the weighted average shares outstanding.
(See Note J to the Consolidated Financial Statements for a reconciliation of
basic and diluted earnings per share.)
1996 TO 1995 COMPARISON
Worldwide sales in 1996 were $376.3 million compared to $369.6 million achieved
in 1995. The revenue growth came primarily from domestic beryllium alloy
products and engineered material systems. The resulting profits grew faster than
sales, as diluted earnings per share were $1.53 in 1996, an improvement of 20%
over the prior 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. Sales of bulk products (bar, tube, plate, custom fabricated parts) also
increased in 1996, further penetrating 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 are 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 stronger dollar
in 1996 relative to 1995 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.
Sales of engineered material 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 adversely affected
second half sales.
23
<PAGE> 26
Precious metal sales were down in 1996 from 1995'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 1996
from 1995, reflecting the drop-off in frame lid assembly shipments.
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.
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.
Sales from international operations totaled $74.8 million in 1996 compared
to $91.2 million in 1995. Direct exports to unaffiliated customers totaled $33.6
million in 1996 and $36.1 million in 1995.
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, was
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
alloy 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 and in-house investment casting technology. 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 account for the improvement.
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 rate. Adjustments to the statutory tax rate are detailed in
Note I to the Consolidated Financial Statements.
Comparative basic earnings per share were $1.55 in 1996 and $1.28 in 1995
and diluted earnings per share were $1.53 in 1996 and $1.27 in 1995.
FINANCIAL POSITION
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operations was $40.4 million in 1997 down from $45.0 million in
1996. Accounts receivable increased $12.7 million since the prior year end as a
result of the 24% growth in fourth quarter sales; the collection period remains
essentially unchanged. Inventory declined by $3.7 million in large part as a
result of the strong demand for the Company's products. The cash balance at
December 31, 1997, was $7.2 million compared to $31.7 million at the prior year
end. As discussed below, the increase in capital expenditures is the main cause
for the decline in cash.
The aforementioned $117 million alloy expansion project begun in 1996 is
being financed, in part, by two operating leases totaling approximately $81.1
million (See Note F to the Consolidated Financial Statements). Payments under
the facility lease began in December 1997 and payments under the equipment lease
will begin in 1999. Equipment lease payments are graduated to increase over
time.
Capital expenditures for property, plant and equipment totaled $53.2
million, excluding items under lease. Included in this total is the construction
cost of the new manufacturing facility in Lorain, Ohio, which was financed in
part by tax-advantaged industrial revenue bonds, a portion of the alloy
expansion project in Elmore, Ohio, and new plating lines and related equipment
at the Lincoln, Rhode Island facility. Capital expenditures in 1997 were
significantly higher than in
24
<PAGE> 27
recent years and expenditures in 1998 are anticipated to approximate 1997's
level.
New bertrandite mine pits in Utah were developed at a total cost of $13.2
million, including $3.7 million expended in 1996. The pits have an average life
of four to five years.
In 1996, the Company initiated a project to implement a new computer-based
information system replacing the majority of its older systems. The new system
was designed primarily to improve the efficiency of information flow, but it
also mitigates the requirements to make numerous legacy systems year 2000
compliant. The new system is anticipated to be substantially implemented by the
end of 1998 and have a capitalized cost of approximately $15 million. Year 2000
compliant costs for the remaining legacy systems are estimated at approximately
five cents per share in 1998. The Company anticipates that the majority of its
systems will be year 2000 compliant by the end of 1998. The Company does not
believe it is materially dependent upon any vendor or customer who may have a
year 2000 compliance problem.
Short-term debt at year end 1997 was $28.9 million, an increase of $3.2
million from the prior year end. Included in this amount is $0.8 million of the
current portion of long-term debt with the balance denominated in precious
metals and foreign currencies to provide hedges for assets so denominated.
Credit lines amounting to $54.8 million are available for additional borrowing.
The precious metal facility is committed, secured and renewed annually. All
other lines are uncommitted, unsecured and renewed annually.
Long-term debt on the balance sheet was $17.9 million at December 31, 1997,
compared to $18.9 million at December 31, 1996. Long-term available financial
resources include $70 million of medium-term notes and $55 million under a
revolving credit agreement.
The Company repurchased 205,600 shares of Common Stock at a cost of $4.9
million in 1997 under a program authorized by the Board of Directors in the
second quarter 1997. The purpose of the program is to help offset the dilutive
effect of exercisable stock options and other stock-based compensation. Common
stock was used to acquire CPT in the fourth quarter 1996, increasing the number
of outstanding shares. Dividends paid in 1997 were $7.3 million, an increase of
$0.8 million from 1996. The quarterly dividend per share increased to $0.12 from
$0.11 in the third quarter 1997 following a similar increase in the third
quarter 1996.
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 1996 was $45.0 million. Cash balances
increased $2.2 million while total balance sheet debt increased $4.8 million
during 1996. Capital expenditures and mine development expenditures were $30.5
million in 1996. The Company re-purchased $6.7 million of Common Stock and paid
$6.5 million in dividends in 1996.
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>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Proven bertrandite
ore reserves at
year end (thousands
of dry tons) .......................... 6,924 6,763 6,927 6,747 6,786
Grade % beryllium......................... 0.249% 0.249% 0.249% 0.251% 0.251%
Probable bertrandite
ore reserves at
year-end (thousands
of dry tons) ............................ 6,750 7,432 7,346 7,559 7,594
Grade % beryllium.......................... 0.277% 0.281 0.281 0.279 0.279%
Bertrandite ore
processed (thousands
of dry tons, diluted) ................... 110 97 96 79 92
Grade % beryllium,
diluted.................................. 0.229% 0.236% 0.232% 0.240% 0.232%
</TABLE>
INFLATION AND CHANGING PRICES
The prices of certain major raw materials, including copper, nickel, gold and
other precious metals purchased by the Company, fluctuate during a given year.
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 M 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 $5.1 million at December 31, 1997 ($4.0 million at December 31, 1996).
This reserve covers existing and currently foreseen projects.
25
<PAGE> 28
SELECTED FINANCIAL DATA
Brush Wellman Inc. and Subsidiaries
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
FOR THE YEAR
<S> <C> <C> <C> <C> <C>
Net Sales............................................ $433,801 $376,279 $369,618 $345,878 $295,478
Cost of sales........................................ 320,792 267,713 268,732 253,938 227,686
Gross profit......................................... 113,009 108,566 100,886 91,940 67,792
Operating profit..................................... 36,024 34,305 29,086 25,098 10,658
Interest expense..................................... 553 1,128 1,653 2,071 2,952
Income (loss) from continuing operations
before income taxes................................ 35,471 33,177 27,433 23,027 7,706
Income taxes (benefit)............................... 9,874 8,686 6,744 4,477 1,248
Net Income (loss) ................................... 25,597 24,491 20,689 18,550 6,458
Earnings Per share of Common Stock:
Basic Net Income (loss)........................... 1.58 1.55 1.28 1.15 0.40
Diluted Net Income (loss)......................... 1.56 1.53 1.27 1.15 0.40
Dividends Per share of Common Stock.................. 0.46 0.42 0.36 0.26 0.20
Depreciation and amortization........................ 19,329 22,954 20,911 19,619 21,720
Capital expenditures................................. 53,155 26,825 24,244 17,214 11,901
Mine development expenditures........................ 9,526 3,663 787 543 814
YEAR-END POSITION
Working Capital...................................... 100,599 128,172 125,156 116,708 105,272
Ratio of current assets to current liabilities....... 2 .3 to 1 2.9 to 1 2.9 to 1 2.8 to 1 3.1 to 1
Property and equipment:
At cost........................................... 463,689 404,127 374,367 350,811 337,342
Cost less depreciation and impairment............. 173,622 130,220 121,194 116,763 118,926
Total assets......................................... 383,852 355,779 331,853 317,133 293,372
Other long-term liabilities.......................... 48,025 47,271 45,445 43,354 40,663
Long-term debt....................................... 17,905 18,860 16,996 18,527 24,000
Shareholders' equity................................. 236,813 219,257 200,302 186,940 172,075
Book value per share
Basic............................................. 14.60 13.84 12.40 11.61 10.70
Diluted........................................... 14.41 13.72 12.30 11.57 10.69
Average Number of shares of stock outstanding
Basic............................................. 16,214,718 15,846,358 16,159,508 16,102,350 16,087,250
Diluted........................................... 16,429,468 15,980,481 16,289,795 16,156,159 16,093,696
Shareholders of record............................... 2,329 2,407 2,351 2,521 2,566
Number of employees.................................. 2,160 1,926 1,856 1,833 1,803
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ----
FOR THE YEAR
<S> <C> <C> <C> <C> <C> <C>
Net Sales............................................ $265,034 $267,473 $297,390 $317,828 $345,838 $307,571
Cost of sales........................................ 192,944 202,080 212,841 233,165 239,554 211,885
Gross profit......................................... 72,090 65,383 84,549 84,663 106,284 95,686
Operating profit..................................... 16,949 (57,354) 28,132 29,195 54,704 48,788
Interest expense..................................... 3,206 3,755 3,359 2,860 2,843 2,965
Income (loss) from continuing operations
before income taxes................................ 13,743 (61,109) 24,773 26,335 51,861 45,823
Income taxes (benefit)............................... 3,243 (17,091) 7,214 7,793 19,344 19,658
Net Income (loss) ................................... 10,500 (44,018) 17,559 18,542 32,517 26,165
Earnings Per share of Common Stock:
Basic Net Income (loss)........................... 0.65 (2.74) 1.09 1.10 1.79 1.39
Diluted Net Income (loss)......................... 0.65 (2.74) 1.09 1.10 1.79 1.39
Dividends Per share of Common Stock.................. 0.26 0.59 0.71 0.67 0.63 0.59
Depreciation and amortization........................ 20,180 22,759 24,070 24,077 23,405 22,098
Capital expenditures................................. 13,604 13,605 16,160 19,946 22,645 18,464
Mine development expenditures........................ 848 6,389 5,699 259 503 581
YEAR-END POSITION
Working Capital...................................... 88,616 80,427 87,570 78,346 92,530 109,063
Ratio of current assets to current liabilities....... 2.5 to 1 2.2 to 1 2.4 to 1 2.1 to 1 2.4 to 1 2.6 to 1
Property and equipment:
At cost........................................... 332,971 321,981 307,088 292,708 279,927 266,543
Cost less depreciation and impairment............. 127,991 132,579 143,635 141,639 143,180 144,829
Total assets......................................... 310,039 307,296 338,982 338,279 357,751 367,473
Other long-term liabilities.......................... 40,332 38,029 9,356 9,087 9,547 10,333
Long-term debt....................................... 33,808 34,946 26,673 21,076 29,908 25,481
Shareholders' equity................................. 168,824 162,264 215,891 211,769 232,840 242,673
Book value per share
Basic............................................. 10.50 10.10 13.40 12.60 12.82 12.90
Diluted........................................... 10.48 10.09 13.40 12.59 12.81 12.88
Average Number of shares of stock outstanding
Basic............................................. 16,080,554 16,069,902 16,108,479 16,805,701 18,159,338 18,815,020
Diluted........................................... 16,111,090 16,080,568 16,116,210 16,820,735 18,173,092 18,840,193
Shareholders of record............................... 2,762 3,116 3,446 3,820 4,014 4,212
Number of employees.................................. 1,831 1,943 2,079 2,160 2,602 2,564
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 30
BRUSH WELLMAN INC.
DIRECTORS
Albert C. Bersticker (2),(3),(4)
Chairman and Chief Executive Officer,
Ferro Corporation
Charles F. Brush, III (1), (4)
Personal Investments
David L. Burner (1), (4)
Chairman and Chief Executive Officer,
BF Goodrich Co.
Gordon D. Harnett (2)
Chairman of the Board
President and Chief Executive Officer
Brush Wellman Inc.
Joseph P. Keithley (3), (4)
Chairman, President and CEO
Keithley Instruments, Inc.
William P. Madar (1), (2), (3), (4)
Chairman of the Board,
Nordson Corporation
Robert M. McInnes (2), (3), (4)
Retired President and Chief Executive Officer,
Pickands Mather & Co.
William R. Robertson (1), (4)
Managing Partner
Kirtland Capital Partners
John Sherwin, Jr. (1), (2), (4)
President, Mid-Continent Ventures, Inc.
1 Audit Committee
2 Executive Committee
3 Governance Committee
4 Organization and Compensation Committee
OFFICERS
Gordon D. Harnett (1), (2)
Chairman of the Board
President and Chief Executive Officer
Carl Cramer (1), (2)
Vice President Finance
Chief Financial Officer
Brian J. Derry (1), (2)
Vice President, Operations
Stephen Freeman (1), (2)
Vice President, Alloy Products
Craig B. Harlan (1), (2)
Vice President, International
Andrew J. Sandor (1), (2)
Vice President, Alloy Technology
Daniel A. Skoch (1), (2)
Vice President
Administration and Human Resources
Michael D. Anderson (2)
Vice President, Beryllium Products
Jordan P. Frazier (2)
General Manager, Ceramic Products
Alfonso T. Lubrano (2)
President, Technical Materials, Inc.
John J. Paschall (2)
President, Williams Advanced Materials Inc.
John J. Pallam (1)
Vice President, General Counsel
Michael C. Hasychak (1)
Treasurer and Secretary
James P. Marrotte (1)
Controller
William M. Christoff (1)
Assistant Treasurer - Taxes,
Assistant Secretary
1 Corporate Officers
2 Executive Officers
OFFICES AND FACILITIES
MANUFACTURING FACILITIES
Delta, Utah
Elmore, Ohio
Lorain, 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
Singapore
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
28
<PAGE> 31
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 5, 1998
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.
Brush Wellman maintains 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 out
transfer agent, National City Bank, at 1-800-622-6757.
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 - Facsimile: (216) 383-4091
29
<PAGE> 32
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 27, 1998, included in the 1997
Annual Report to Shareholders of Brush Wellman Inc.
Our audits 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 27, 1998,
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, 1997:
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, 1998
<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, 1997,
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 3rd day of March, 1998.
/s/ Gordon D. Harnett /s/ William P. Madar
- --------------------------------------- --------------------------
Gordon D. Harnett, Chairman, President, William P. Madar, 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, III /s/ William R. Robertson
- --------------------------------------- --------------------------
Charles F. Brush, III, Director William R. Robertson, Director
/s/ David L. Burner /s/ John Sherwin, Jr.
- --------------------------------------- --------------------------
David L. Burner, Director John Sherwin, Jr., Director
/s/ Joseph P. Keithley
- ---------------------------------------
Joseph P. Keithley, Director
/s/ Carl Cramer
- ---------------------------------------
Carl Cramer, Vice President
Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,170
<SECURITIES> 0
<RECEIVABLES> 62,812
<ALLOWANCES> 1,058
<INVENTORY> 90,714
<CURRENT-ASSETS> 178,911
<PP&E> 463,689
<DEPRECIATION> 290,067
<TOTAL-ASSETS> 383,852
<CURRENT-LIABILITIES> 78,312
<BONDS> 17,905
0
0
<COMMON> 22,227
<OTHER-SE> 214,586
<TOTAL-LIABILITY-AND-EQUITY> 383,852
<SALES> 433,801
<TOTAL-REVENUES> 433,801
<CGS> 320,792
<TOTAL-COSTS> 397,452
<OTHER-EXPENSES> 172
<LOSS-PROVISION> 153
<INTEREST-EXPENSE> 553
<INCOME-PRETAX> 35,471
<INCOME-TAX> 9,874
<INCOME-CONTINUING> 25,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,597
<EPS-PRIMARY> 1.58
<EPS-DILUTED> 1.56
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 31,749 29,553
<SECURITIES> 0 0
<RECEIVABLES> 52,211 52,532
<ALLOWANCES> 954 1,015
<INVENTORY> 96,324 92,727
<CURRENT-ASSETS> 197,233 191,747
<PP&E> 404,127 374,367
<DEPRECIATION> 273,907 253,173
<TOTAL-ASSETS> 355,779 331,853
<CURRENT-LIABILITIES> 69,061 66,591
<BONDS> 18,860 16,996
0 0
0 0
<COMMON> 21,909 21,330
<OTHER-SE> 197,348 178,972
<TOTAL-LIABILITY-AND-EQUITY> 355,779 331,853
<SALES> 376,279 369,618
<TOTAL-REVENUES> 376,279 369,618
<CGS> 267,713 268,732
<TOTAL-COSTS> 341,013 339,282
<OTHER-EXPENSES> 896 1,047
<LOSS-PROVISION> 65 203
<INTEREST-EXPENSE> 1,128 1,653
<INCOME-PRETAX> 33,177 27,433
<INCOME-TAX> 8,686 6,744
<INCOME-CONTINUING> 24,491 20,689
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 24,491 20,689
<EPS-PRIMARY> 1.55 1.28
<EPS-DILUTED> 1.53 1.27
</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, 1997
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, 1997 and December 31, 1996 2-3
3. Statements of Income and Changes in Plan
Equity - Plan years ended December 31, 1997,
December 31, 1996 and December 31, 1995. 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 ____ day of March, 1998.
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, 1997 and 1996 and 1995. 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, 1997
and 1996, the results of its operations and changes in its plan equity for the
years ended December 31, 1997 and 1996 and 1995 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, 1997 and
reportable transactions for the year ended December 31, 1997 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
March 11, 1998
<PAGE> 4
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997
<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 $22,143,106)
Janus Fund
(cost $12,892,394) $13,986,318
Templeton Foreign Fund
(cost $6,678,891) $6,897,662
PFAMCO Equity Income Fund
(cost $8,273,176) $9,583,620
Northern Trust Collective Stock Index Fund
(cost $10,773,413) $14,505,606
Vanguard Asset Allocation Fund
(cost $7,760,450) $8,873,272
PIMCO Total Return Fund
(cost $6,900,971) $7,202,491
Northern Trust Short-Term Investment Fund
(cost $6,422,214)
Participant Promissory Notes
(cost $3,498,440)
Employee Benefits Money Market Fund
(cost $134,905)
------------ ------------- ------------- ------------ ------------- -------------
13,986,318 6,897,662 9,583,620 14,505,606 8,873,272 7,202,491
Dividends Receivable
Interest Receivable 37,250
Other
------------ ------------- ------------- ------------ ------------- -------------
37,250
------------ ------------- ------------- ------------ ------------- -------------
TOTAL ASSETS $13,986,318 $6,897,662 $9,583,620 $14,505,606 $8,873,272 $7,239,741
============ ============= ============= ============ ============= =============
LIABILITIES & PLAN EQUITY
- -------------------------------------
Plan Equity 13,986,318 6,897,662 9,583,620 14,505,606 8,873,272 7,239,741
------------ ------------- ------------- ------------ -------------- -------------
TOTAL LIABILITIES & PLAN EQUITY $13,986,318 $6,897,662 $9,583,620 $14,505,606 $8,873,272 $7,239,741
============ ============ ============ ============ ============= =============
<CAPTION>
MONEY STOCK PAYSOP LOAN
ASSETS MARKET FUND FUND FUND TOTAL
- ------------------------------------------- ----------- ------------ --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Brush Wellman Inc. Common Stock
(cost $22,143,106) $27,483,732 $321,612 $27,805,344
Janus Fund
(cost $12,892,394) 13,986,318
Templeton Foreign Fund
(cost $6,678,891) 6,897,662
PFAMCO Equity Income Fund
(cost $8,273,176) 9,583,620
Northern Trust Collective Stock Index Fund
(cost $10,773,413) 14,505,606
Vanguard Asset Allocation Fund
(cost $7,760,450) 8,873,272
PIMCO Total Return Fund
(cost $6,900,971) 7,202,491
Northern Trust Short-Term Investment Fund
(cost $6,422,214) $6,422,214 6,422,214
Participant Promissory Notes
(cost $3,498,440) $3,498,440 3,498,440
Employee Benefits Money Market Fund
(cost $134,905) 133,782 1,123 134,905
------------- -------------- --------- ------------- --------------
6,422,214 27,617,514 322,735 3,498,440 98,909,872
Dividends Receivable 134,127 1,575 135,702
Interest Receivable 30,647 751 5 68,653
Other
------------- -------------- --------- ------------- --------------
30,647 134,878 1,580 204,355
------------- -------------- --------- ------------- --------------
TOTAL ASSETS $6,452,861 $27,752,392 $324,315 $3,498,440 $99,114,227
============= ============== ========= ============= ==============
LIABILITIES & PLAN EQUITY
- -------------------------------------
Plan Equity 6,452,861 27,752,392 324,315 3,498,440 99,114,227
------------- -------------- --------- ------------ -------------
TOTAL LIABILITIES & PLAN EQUITY $6,452,861 $27,752,392 $324,315 $3,498,440 $99,114,227
============ ============== ======== ============ =============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 5
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)
Participant 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
Participant 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.
3
<PAGE> 6
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
S&P 500 ASSET FIXED
GROWTH INTERNATIONAL INCOME INDEX ALLOCATION INCOME
------------- ----------------- ------------- ------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends $589,960 $322,339 $244,109 $196,820 $285,646
Interest 506 293 342 542 319 $426,821
Other Income (Expense)
------------- ----------------- ------------- ------------- --------------- -----------
590,466 322,632 244,451 197,362 285,965 426,821
Realized Gain (Loss) on
Investments--Note E 2,015,682 580,554 1,269,377 1,504,561 545,573 266,798
Unrealized Appreciation (Depreciation)
on Investments--Note F (133,969) (476,424) 696,051 1,655,317 1,073,388 (25,567)
Contributions--Note B
Company
401(k) 1,495,850 881,985 768,668 1,073,326 702,802 569,428
------------- ----------------- ------------- ------------- --------------- -----------
1,495,850 881,985 768,668 1,073,326 702,802 569,428
Investment Election Change (100,358) (104,166) 509,790 898,543 140,557 (347,350)
Loan Transfers 32,148 62,807 6,952 (93,106) 743 (32,498)
Unallocated Loan Payments
Withdrawals and
Terminations--Note C 282,152 399,028 426,305 355,993 766,569 284,751
------------- ----------------- ------------- ------------- --------------- -----------
Income and Changes in Plan Equity 3,617,667 868,360 3,068,984 4,880,010 1,982,459 572,881
Plan Equity at Beginning of the Year 10,368,651 6,029,302 6,514,636 9,625,596 6,890,813 6,666,860
------------- ----------------- ------------- ------------- --------------- -----------
PLAN EQUITY AT END OF THE YEAR $13,986,318 $6,897,662 $9,583,620 $14,505,606 $8,873,272 $7,239,741
============= ================= ============= ============= =============== ===========
<CAPTION>
MONEY STOCK PAYSOP LOAN
MARKET FUND FUND FUND TOTAL
--------------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Dividends $512,954 $6,170 $2,157,998
Interest $376,814 16,269 397 $253,118 1,075,421
Other Income (Expense) 23,624 (1,557) 22,067
--------------- -------------- ------------ ------------- --------------
376,814 552,847 5,010 253,118 3,255,486
Realized Gain (Loss) on
Investments--Note E 129,878 (52,977) 6,259,446
Unrealized Appreciation (Depreciation)
on Investments--Note F 8,830,479 163,010 11,782,285
Contributions--Note B
Company 2,113,241 2,113,241
401(k) 384,661 440,310 6,317,030
--------------- -------------- ------------ ------------- --------------
384,661 2,553,551 8,430,271
Investment Election Change 151,572 (1,134,258) (14,330)
Loan Transfers (41,032) (37,296) 67,743 (33,539)
Unallocated Loan Payments 33,539 33,539
Withdrawals and
Terminations--Note C 1,206,927 1,114,922 14,202 112,842 4,963,691
--------------- -------------- ------------ ------------- --------------
Income and Changes in Plan Equity (334,912) 9,780,279 86,511 241,558 24,763,797
Plan Equity at Beginning of the Year 6,787,773 17,972,113 237,804 3,256,882 74,350,430
--------------- -------------- ------------ ------------- --------------
PLAN EQUITY AT END OF THE YEAR $6,452,861 $27,752,392 $324,315 $3,498,440 $99,114,227
=============== ============== ============ ============= ==============
</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, 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 $442,822 $7,080 $1,302,027
Interest $429,974 $346,350 6,117 1,118 $251,904 1,035,503
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.
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>
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.
6
<PAGE> 9
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 PAYSOP
FUND FUND A FUND B FUND C FUND FUND
------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment Income:
Dividends $352,679 $3,568
Interest 10,744 1,291
Other Income (Expense) 192,317 3,647
------------- ----------- ----------- ----------- ------------- -----------
555,740 8,506
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) 1,385
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) (2,722)
Loan Transfers (121,062)
Unallocated Loan Payments
Withdrawals and
Terminations--Note C 721,484 11,547
------------- ----------- ----------- ----------- ------------- -----------
Income and Changes in Plan Equity (15,247,013) (6,176,411) (2,549,903) (5,327,841) 1,887,453 (4,378)
Plan Equity at Beginning of the Year 15,247,013 6,176,411 2,549,903 5,327,841 15,779,490 263,659
------------- ----------- ----------- ----------- ------------- -----------
PLAN EQUITY AT END OF THE YEAR $0 $0 $0 $0 $17,666,943 $259,281
============= =========== =========== =========== ============= ===========
<CAPTION>
LOAN
FUND TOTAL
----------- ------------
<S> <C> <C>
Investment Income:
Dividends $1,164,967
Interest $182,910 949,974
Other Income (Expense) 550,069
----------- ------------
182,910 2,665,010
Realized Gain (Loss) on
Investments--Note E 1,866,008
Unrealized Appreciation (Depreciation)
on Investments--Note F 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 22,372
Loan Transfers 391,532
Unallocated Loan Payments 154,810 154,810
Withdrawals and
Terminations--Note C 154,064 2,758,287
----------- ------------
Income and Changes in Plan Equity 730,262 16,166,669
Plan Equity at Beginning of the Year 2,371,796 47,716,113
----------- ------------
PLAN EQUITY AT END OF THE YEAR $3,102,058 $63,882,782
=========== ============
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
BRUSH WELLMAN INC.
SAVINGS AND INVESTMENT PLAN
DECEMBER 31, 1997, DECEMBER 31, 1996 AND DECEMBER 31, 1995
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.
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 are 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 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 1997,
$9,500 in 1996 and $9,240 in 1995. All employee and Company matching
contributions are fully vested at all times.
8
<PAGE> 11
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 1,253 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
903 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 884 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 Standard & 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 1,068 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 847 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 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 626 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 496 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 1,796 participants in the fund at the end of the Plan year.
On July 1, 1996 the Plan changed the investment choice for the Asset
Allocation Fund from the Phoenix Total Return Fund to the Vanguard Asset
Allocation Fund. All assets from the Phoenix Fund were transferred into the
Vanguard Fund effective this date.
9
<PAGE> 12
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 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 1997, 1996, and 1995 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.
10
<PAGE> 13
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, 1997 and December
31, 1996 are as follows:
<TABLE>
<CAPTION>
Shares By Investment
--------------------------------
Investment 1997 1996
---------- ---- ----
<S> <C> <C>
Janus Fund 561,700 424,076
Templeton Fund 693,232 581,979
PFAMCO Equity Income Fund 629,259 472,565
Northern Trust Collective Stock
Index Fund 767,899 617,421
Vanguard Asset Allocation Fund 421,533 384,103
PIMCO Total Return Fund 679,480 631,534
Northern Trust Short-Term
Investment Fund 6,422,213 6,757,471
Brush Wellman Inc. Common Stock 1,134,912 1,213,246
Employee Benefit Money Market Fund 134,905 68,776
</TABLE>
In addition, $3,498,440 and $3,256,882 were invested in Participant Promissory
Notes as of December 31, 1997 and December 31, 1996, 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, 1997 December 31, 1996 and December 31, 1995 is as follows:
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------
Investment Shares Cost Proceeds Gain(Loss)
---------- ------ ---- -------- ----------
<S> <C> <C> <C> <C>
Janus Fund 48,746 $1,735,953 $3,751,635 $2,015,682
Templeton Fund 92,636 764,231 1,344,785 580,554
PFAMCO Equity Income Fund 41,321 1,210,205 2,479,582 1,269,377
Northern Trust Collective Stock
Index Fund 87,600 1,720,132 3,224,693 1,504,561
Vanguard Asset Allocation Fund 72,313 363,499 909,072 545,573
PIMCO Total Return Fund 169,306 330,159 596,957 266,798
Brush Wellman Inc. Common Stock 61,873 1,003,412 1,080,313 76,901
--------------
$6,259,446
==============
</TABLE>
<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>
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, 1997 are as follows:
<TABLE>
<CAPTION>
Realized
Gain/(Loss)
------------------
<S> <C>
Brush Wellman Inc. Common Stock $125,135
Janus Fund 2,042,395
Templeton Fund 609,425
PFAMCO Equity Income Fund 1,283,234
Northern Trust Collective Stock Index Fund 1,564,425
Vanguard Asset Allocation Fund 555,302
PIMCO Total Return Fund 250,693
------------------
$6,430,609
==================
</TABLE>
13
<PAGE> 16
NOTE F - The unrealized appreciation (depreciation) of investments for the Plan
years ended December 31, 1997, December 31, 1996 and December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
Balance Balance
January 1 December 31
1997 Change 1997
-------------- ---------------- ----------------
<S> <C> <C> <C>
Janus Fund $1,227,892 ($133,969) $1,093,923
Templeton Fund 695,196 (476,424) 218,772
PFAMCO Equity Income Fund 614,393 696,051 1,310,444
Northern Trust Collective Stock Index Fund 2,076,876 1,655,317 3,732,193
Vanguard Asset Allocation Fund 39,434 1,073,388 1,112,822
PIMCO Total Return Fund 327,088 (25,567) 301,521
Brush Wellman Inc. Common Stock (3,331,250) 8,993,489 5,662,239
----------------
$11,782,285
================
</TABLE>
<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
================
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
Balance Balance
January 1 December 31
1995 Change 1995
---------------- ---------------- -----------------
<S> <C> <C> <C>
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>
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, 1997
are as follows:
<TABLE>
<CAPTION>
Change in
Unrealized Gain/(Loss)
---------------------------
<S> <C>
Janus Fund ($160,682)
Templeton Fund (505,295)
PFAMCO Equity Income Fund 682,194
Northern Trust Collective Stock Index Fund 1,595,453
Vanguard Asset Allocation Fund 1,063,659
PIMCO Total Return Fund (9,462)
Brush Wellman Inc. Common Stock 8,945,255
----------------
$11,611,122
================
</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, 1997
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 $22,143,106 $27,805,344
Janus Fund Mutual Fund $12,892,394 $13,986,318
Templeton Fund Mutual Fund $6,678,891 $6,897,662
PFAMCO Equity Income Fund Mutual Fund $8,273,176 $9,583,620
Northern Trust Collective Stock Index Fund Mutual Fund $10,773,413 $14,505,606
Vanguard Asset Allocation Fund Mutual Fund $7,760,450 $8,873,272
PIMCO Total Return Fund Mutual Fund $6,900,971 $7,202,491
Northern Trust Short-Term Investment Fund Bank Common/ $6,422,214 $6,422,214
Collective Trust
Participant Promissory Notes Participant Loans $3,498,440 $3,498,440
Employee Benefit Money Market Fund Bank Common/ $134,905 $134,905
Collective Trust
</TABLE>
17
<PAGE> 20
BRUSH WELLMAN INC.
SAVINGS & INVESTMENT PLAN
SCHEDULE OF REPORTABLE TRANSACTIONS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PURCHASES SALES
--------------------------- --------------------------------
TRANSACTION DESCRIPTION # TRANS COST # TRANS PROCEEDS GAIN/(LOSS)
<S> <C> <C> <C> <C> <C>
Brush Wellman Inc. Common Stock 31 $2,435,779.51 21 $1,420,909.45 $76,901.48
Janus Fund 107 9,477,705.19 89 1,077,406.69 281,311.75
Northern Trust Collective Stock Index Fund 126 4,445,557.80 69 1,130,876.67 485,402.99
PIMCO Total Return Fund 77 2,270,873.38 71 1,673,916.65 88,134.04
</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, 1997 of our report dated March 11, 1998,
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, 1997.
Wesley, Mills & Company
/s/ Wesley, Mills & Company
Cleveland, Ohio
March 11, 1998
19
