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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
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. [ ]
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 8, 1999 was approximately $239,664,445.
.
As of March 8, 1999, there were 16,322,886 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, 1998 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 4, 1999 are incorporated by reference into Part III.
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PART I
Portions of the narrative set forth in this document that are not
historical in nature are forward-looking statements. Brush Wellman Inc.'s (the
"Company") actual future performance may differ from that contemplated by the
forward-looking statements as a result of a variety of factors. These factors
include, in addition to those mentioned elsewhere herein, the condition of the
markets which the Company serves (especially as impacted by events in particular
markets including telecommunications, automotive, and computer, or in particular
geographic regions, such as Asia), the success of the Company's strategic plans,
the timely and successful completion of pending capital expansions and Year 2000
remediation projects, and the conclusion of pending litigation matters in
accordance with the Company's expectation that there will be no materially
adverse effects.
ITEM 1. BUSINESS
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Brush Wellman Inc. is a leading international producer and
supplier of high-performance engineered materials and is the only
fully-integrated producer of beryllium, beryllium-containing alloys and beryllia
ceramic in the world. In addition the Company produces Engineered Material
Systems and precious metal and specialty alloy products. As of December 31, 1998
the Company had 2,187 employees.
The Company operates two primary business segments, the Metal
Systems Group and the Microelectronics Group. Corporate and certain unallocated
costs, non-operating items of other income and expense, and the revenues and
related costs from one manufacturing facility are included in All Other. As of
December 31, 1998 the All Other group had 183 employees.
METAL SYSTEMS GROUP
- -------------------
The Metals Systems Group is comprised of Alloy Products
(primarily copper beryllium), Beryllium Products and Engineered Materials
Systems (produced by the Company's wholly-owned subsidiary, Technical Materials,
Inc. (TMI)). In 1998, 72% of the Company's sales were from this segment (70% in
1997 and 78% in 1996). As of December 31, 1998 the Metal Systems Group had 1,492
employees.
Alloy Products are metallurgically tailored to meet 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
alloys, sold in strip and bulk form, are ideal choices for demanding
applications in computers, telecommunications, automotive electronics, energy
systems and plastic molds.
Beryllium Products include beryllium, AlBeMet(R), AlBeCast(R) and
E-materials. Beryllium is a lightweight metal possessing unique mechanical and
thermal properties. Its specific stiffness is much greater than other engineered
structured materials such as aluminum, titanium and steel. Beryllium is
extracted from both bertrandite and imported beryl ore. The Company holds
extensive mineral rights and mines the bertrandite in central Utah. Beryllium
products are
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used in a variety of high-performance applications, primarily, but not
exclusively, in defense and aerospace markets.
Beryllium-containing products are sold in competitive markets
throughout the world through a direct sales organization and through company
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. 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.
Engineered Materials Systems, manufactured by TMI, 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. Divisions of Cookson, Metallon and several
European manufacturers are competitors for the sale of inlaid strip. Strip with
selective electroplating is a competitive alternative as are other design
approaches. TMI's products are sold directly and through its sales
representatives.
Metal Systems Group - Sales and Backlog
- ---------------------------------------
The backlog of unshipped orders as of December 31, 1998, 1997 and
1996 was $81,199,000, $78,662,000 and $83,353,000, 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 for this segment at December 31, 1998 will be
filled during 1999.
Sales are made to approximately 3,600 customers. Government
sales, principally subcontracts, accounted for about 2.4% of Metal Systems Group
sales in 1998 as compared to 1.6% in 1997 and 1.6% in 1996. Sales outside the
United States, principally to Western Europe, Canada and Asia, accounted for
approximately 35% of Metal Systems Group sales in 1998, 34% in 1997 and 31% in
1996. Other segment reporting and geographic information set forth on page 25
in Note N to the consolidated financial statements in the annual report to
shareholders for the year ended December 31, 1998 is incorporated herein by
reference.
Metal Systems Group - Research and Development
- ----------------------------------------------
Active research and development programs seek new product
compositions and designs as well as process innovations. Expenditures for
research and development amounted to $6,628,000 in 1998, $5,531,000 in 1997 and
$6,383,000 in 1996. A staff of 39 scientists, engineers and technicians was
employed in this effort during 1998. Some research and development projects were
externally sponsored and expenditures related to those projects (approximately
$128,000 in 1998, $170,000 in 1997 and $166,000 in 1996) are excluded from the
above totals.
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MICROELECTRONICS GROUP
- ----------------------
The Microelectronics Group is comprised of Williams Advanced
Materials Inc. (WAM), a wholly-owned subsidiary of the Company, Ceramic
Products, and Circuits Processing Technology Inc. (CPT), a wholly-owned
subsidiary of the Company. In 1998, 26% of the Company's sales were from this
segment (29% in 1997 and 20% in 1996). As of December 31, 1998 the
Microelectronics Group had 512 employees.
WAM manufactures and fabricates precious metal and specialty
metal products for the hybrid microelectronics, semiconductors, optical media,
electron tube, magnetic head including MR and GMR materials, crystal, aerospace,
and performance film industries. 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 includes companies such as Sumitomo
Metals, Tanaka Metals, Johnson Matthey, Engelhard, and a number of smaller
regional or national suppliers. WAM's products are sold directly from WAM's
facilities in Buffalo, New York and Singapore as well as through direct sales
offices and independent sales representatives throughout the world.
Ceramic Products manufactures beryllium ceramics, powder
metallurgy and component assemblies. Ceramic Products also produces thick film
metalization through CPT. These products are used in wireless communications,
automotive, medical and aerospace applications. General Ceramics Inc. is a
domestic competitor in beryllia ceramic. Other competitive materials include
alumina, aluminum nitride and composites.
Microelectronics Group - Sales and Backlog
- ------------------------------------------
The backlog of unshipped orders as of December 31, 1998, 1997 and
1996 was $11,606,000, $15,292,000 and $11,075,000, 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 for this segment at December 31, 1998 will be
filled during 1999.
Sales are made to approximately 1,200 customers. Government
sales, principally subcontracts, accounted for less than 0.1% of
Microelectronics Group sales in 1998, 1997 and 1996. Sales outside the United
States, principally to Western Europe, Canada and Asia, accounted for
approximately 25% of Microelectronics Group sales in 1998, 32% in 1997 and 24%
in 1996. Other segment reporting and geographic information set forth on page 25
in Note N to the consolidated financial statements in the annual report to
shareholders for the year ended December 31, 1998 is incorporated herein by
reference.
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Microelectronics Group - Research and Development
- -------------------------------------------------
Active research and development programs seek new product
compositions and designs as well as process innovations. Expenditures for
research and development amounted to $2,037,000 in 1998, $2,176,000 in 1997 and
$1,926,000 in 1996. A staff of 14 scientists, engineers and technicians was
employed in this effort during 1998.
GENERAL
Availability of Raw Materials
- -----------------------------
The more important raw materials used by the Company are
beryllium (extracted from both imported beryl ore and bertrandite mined from the
Company's Utah properties), copper, gold, silver, nickel, platinum and
palladium. The availability of these raw materials, as well as other materials
used by the Company, is adequate and generally not dependent on any one
supplier. Certain items are supplied by a preferred single source, but
alternatives are believed readily available.
Patents and Licenses
- --------------------
The Company owns patents, patent applications and licenses
relating to certain of its products and processes. While the Company's rights
under the patents and licenses are of some importance to its operations, the
Company's businesses are not materially dependent on any one patent or license
or on the patents and licenses as a group.
Regulatory Matters
- ------------------
The Company is subject to a variety of laws including those which
regulate the use, handling, treatment, storage, discharge and disposal of
substances and hazardous wastes used or generated in the Company's manufacturing
processes. 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, substantially adopted by the
United States Environmental Protection Agency (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. The Department of Energy has proposed chronic beryllium
disease preventive regulation for occupational exposure to beryllium at
Department of Energy facilities. The Company currently is the subject of
newspaper articles concerning the beryllium industry and chronic beryllium
disease. These articles, and others similar to them, may exacerbate the
regulatory environment in which the Company operates.
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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:
MANUFACTURING FACILITIES
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.
CARMEL, NEW YORK - A 9,000 square foot facility on a 2.0 acre
site for manufacturing services relating to non-precious metals.
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.
ELMORE, OHIO - A complex containing approximately 856,000 square
feet of building space on a 439 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.
FREMONT, CALIFORNIA - A 16,800 square foot leased facility for
the fabrication of precision electron beam welded, brazed and diffusion bonded
beryllium structures.
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 33 in the annual report to shareholders for
the year ended December 31, 1998 is incorporated herein by reference.
LINCOLN, RHODE ISLAND - A manufacturing facility consisting of
124,000 square feet located on seven and one-half acres. This facility produces
reel-to-reel strip metal products which combine precious and non-precious metals
in continuous strip form and related metal systems products.
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.
NEWBURYPORT, MASSACHUSETTS - A 30,000 square foot manufacturing
facility on a four acre site that produces alumina, beryllia ceramic and direct
bond copper products.
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.
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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.
TUCSON, ARIZONA - A 63,000 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 and for the manufacture of metal matrix
composites.
WHEATFIELD, NEW YORK - A 29,000 square foot facility on a 10.2
acre site for manufacturing services relating to braze material and specialty
alloys.
RESEARCH FACILITIES AND ADMINISTRATIVE OFFICES
- ----------------------------------------------
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.
SERVICE AND DISTRIBUTION CENTERS
- --------------------------------
ELMHURST, ILLINOIS - A 28,500 square foot leased facility
principally for distribution of beryllium alloys.
FAIRFIELD, NEW JERSEY - A 24,500 square foot leased facility
principally for distribution of beryllium alloys.
FUKAYA, JAPAN - A 35,500 square foot facility on 1.8 acres
of land in Saitama Prefecture principally for distribution of beryllium alloys.
SINGAPORE - A 4,500 square foot leased facility for
the assembly and sale of precious metal hermetic sealing lids.
STUTTGART, WEST GERMANY - A 24,750 square foot leased facility
principally for distribution of beryllium alloys.
THEALE (READING), ENGLAND - A 19,700 square foot leased facility
principally for distribution of beryllium alloys.
TORRANCE, CALIFORNIA - A 20,000 square foot leased facility
principally for distribution of beryllium alloys.
WARREN, MICHIGAN - A 34,500 square foot leased facility
principally for distribution of beryllium alloys.
Production capacity, except in the case of Alloy Products, is
believed to be adequate to fill the Company's backlog of orders and to meet the
current level of demand. In May 1996, the Board of Directors approved a plan for
a major expansion and upgrading of alloy casting and strip capabilities
involving the investment of $117 million at the Company's Elmore, Ohio facility.
The plant is expected to be fully operational in the third quarter of 1999. The
goal of this investment is to increase strip production capacity, reduce
production costs, improve quality, reduce delivery lead times, and improve
working capital utilization.
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ITEM 3. LEGAL PROCEEDINGS
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(A) ENVIRONMENTAL PROCEEDINGS.
--------------------------
PENDING CLAIMS. By letter dated October 14, 1998, the U.S. EPA
notified the Company that it was a potentially responsible party under the
Comprehensive, Environmental, Response, Compensation and Liability Act
("CERCLA") for the remediation of the Casmalia Resources Hazardous Waste
Management Facility (the "Casmalia Disposal Site") in Santa Barbara, California.
The alleged basis for the U.S. EPA's letter is that the Company was named as a
waste generator "on one or more manifests for hazardous wastes sent to the
Casmalia Disposal Site." In a subsequent letter, the U.S. EPA offered the
Company a de minimis settlement to resolve its liability for $122,650. The
Company has joined with approximately 150 other de minimis parties to review the
data and assumption underlying the U.S. EPA's offer and to negotiate changes to
that offer.
By letter dated March 6, 1998, the U.S. EPA notified Egbert
Corp., a subsidiary of the Company ("Egbert"), that it was a potentially
responsible party under CERCLA for the remediation of the PCB Treatment Site in
Kansas City, Kansas, and Kansas City, Missouri. The basis for the U.S. EPA's
letter was the removal from the Egbert's facility in 1985 of 10 drums of oil, 22
drums of solids and 3 transformers manufactured by High Voltage Maintenance,
which allegedly were shipped, at least in part, to the PCB Treatment Site.
Egbert has requested High Voltage Maintenance to hold it harmless from any
liability arising from this proceeding. To date, the U.S. EPA has identified
approximately 1,800 PRPs for the PCB Treatment Site and has initiated the
process of trying to allocate liability, including consideration of the issuance
of de micromis and/or de minimis settlements to eligible parties. Egbert's
expenses at the PCB Treatment Site will be affected by a number of
uncertainties, including the method and extent of remediation, the percentage of
waste disposed of at the PCB Treatment Site attributable to Egbert relative to
that attributable to other parties, and the financial capabilities of the other
PRPs, including High Voltage Maintenance.
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
initial plaintiffs are five companies that, pursuant to orders issued by the
U.S. EPA under 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. As a result of six
amended complaints, this case now has 14 plaintiffs and approximately 140
defendants, consisting of the former owners or operators of the Berks Site and
some of the transporters and/or generators of waste disposed of at the Berks
Site. 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. A voluntary allocation process is proceeding
pursuant to a case management order. On March 31, 1998, the U.S. EPA issued an
administrative order to 18 entities, but not to the Company, directing them to
implement the remedy selected in the July 1997 Record of Decision. The
Plaintiffs are negotiating with the U.S. EPA to implement the remedial action,
which the U.S. EPA estimates to cost $6.1 million. The Company has been advised
by the U.S. EPA that it is considered by the agency to be a candidate for a de
minimis settlement. The Company's expenses at the Berks Site will be affected by
a
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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 PRPs.
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 participated
in court-ordered settlement proceedings, which resulted in a de minimis
settlement offer by the United States. The settlement obligates the Company to
pay approximately $15,000 in consideration for a release of liability from the
U.S. EPA's past and future costs to clean up the Douglassville Site. A reopener
clause in the settlement agreement may, if certain contingencies are met,
require the Company to pay an additional $10,000.
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. In
the fall, the Company received information from the group of PRPs negotiating
the terms of the de minimis settlement with the U.S. EPA that the U.S. EPA is in
the process of reviewing the allocation information underpinning the terms of
the proposed settlement. Originally the U.S. EPA expected to complete its review
in a relatively short amount of time and consummate the settlement before the
1998 year end. The Company has received no new information concerning when the
U.S. EPA expects to complete its review and finalize the settlement.
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. In 1998, the U.S. EPA issued an administrative order setting
a revised deadline to install the solvent degreaser. Subsequently Brush Wellman
determined that the degreaser could not meet quality requirements, and advised
the U.S. EPA
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that the degreaser project was being abandoned and that compliance would be
achieved by alternative methods.
(B) BERYLLIUM EXPOSURE CLAIMS.
--------------------------
PENDING CLAIMS. The Company is currently a defendant in the
following six 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, 1997 or in the Company's
quarterly report on Form 10-Q for the quarters ended July 3, 1998 and October 2,
1998, respectively. 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
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NAME OF PLAINTIFF LAWSUIT FORUM RELIEF REQUESTED
- ----------------- ------- ----- ----------------
INSTITUTED
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<S> <C> <C> <C>
Troy Murphy Morgan, June 1994 United States District The Company is one of several defendants,
Corky Dean McCarter and Court, Eastern District together with the United States. In the
wife, Karen Denise Smith of Tennessee Fourth Amended Complaint (served in April
McCarter, Richard Emory 1997), plaintiffs' aggregate claims against
Myers, Sr. and wife, the corporate defendants, including
Wilma Dean Kennedy compensatory and punitive damages, are $44
Myers, and Kathlene million.
Beatty
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George F. Faccio and July 1995 United States District The Company is the only defendant.
Spouse Court, District of Plaintiffs seek compensatory and punitive
Arizona damages of an unspecified amount.
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Ballinger et al. November 1996 United States District The Company is the only defendant.
Court, Colorado Plaintiffs seek compensatory and punitive
damages of an unspecified amount.
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Foster et al. February 1997 United States District The Company is one of several defendants.
Court, Eastern District Gary Foster seeks compensatory damages from
of Tennessee 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.
- ------------------------------------------------------------------------------------------------------------------
Grant et al. August 1997 United States District The Company is one of several defendants.
Court, Eastern District Mr. Grant seeks compensatory damages of $5
of Tennessee 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.
- ------------------------------------------------------------------------------------------------------------------
McClaren et al. September 1998 Superior Court of The Company is one of several defendants.
California, Orange The plaintiffs seek compensatory and punitive
County damages in an unspecified amount.
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</TABLE>
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Discovery is continuing in three of the six cases reported
above: 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. (USDC, Ariz.), discovery is
also ongoing, and several discovery motions, some of which sought sanctions
against the Company, have been 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' discovery motions, denying sanctions (it
also denied the Company's request for sanctions against the plaintiffs). Several
additional discovery 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, and in October 1998 filed a motion arguing that the Company
should be required to produce certain documents because the "crime-fraud"
exception to the attorney-client privilege is applicable. The Company moved to
strike the latter motion on the ground that plaintiffs had not complied with
prefiling requirements for a motion of this kind; the motion to strike remains
pending. To date, no trial date has been established.
Ballinger et al. v. Brush Wellman Inc. et al. (USDC, Colo.)
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. On June 25, 1998, the Court denied the Company's
motion to dismiss. The Company has now answered the second amended complaint and
each of the parties has filed and served its initial disclosure statement. There
are now a total of 55 plaintiffs: those who allegedly have CBD, their spouses
and one representative of a spouse who allegedly died from CBD. Discovery has
now commenced.
The Company is a defendant in a case filed on March 18, 1997
by a former employee and his spouse: Thomas Markham et al. v. Brush Wellman Inc.
et al. (USDC, Ohio). The complaint alleged wrongful termination of employment
and lack of consortium and included claims based upon exposure to hazardous
materials. The Company filed an answer in May, 1997. Discovery is continuing.
The case is scheduled for trial in November, 1999.
Nine Company employees and their spouses had filed lawsuits
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
-10-
<PAGE> 12
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. These cases were initially dismissed by the trial court following a summary
judgment order entered in favor of the Company. The plaintiffs appealed and on
March 31, 1998, the Court of Appeals filed its decision, affirming in part and
reversing in part the summary judgment entered by the trial court in favor of
the Company. The Court of Appeals held that all of plaintiffs' common law claims
- -- breach of contract, breach of implied covenant of good faith and fair dealing
and fraud -- were barred by the exclusivity of workers' compensation under
Arizona statutory law. Thus, this portion of the summary judgment was affirmed.
The Court of Appeals further held that, under Arizona law, a constitutionally
protected claim for willful misconduct existed which was not waived by
plaintiffs' acceptance of workers compensation benefits and that a question of
fact existed as to whether that claim was barred by the statute of limitations.
The Court made no ruling on whether there was any merit to any such claim by the
plaintiffs. On April 15, 1998, the Company filed a motion for reconsideration
with respect to that portion of the ruling that reversed the trial court. The
Court of Appeals denied this motion. On April 15, 1998, the plaintiffs filed a
motion for reconsideration with respect to their breach of contract and breach
of implied covenant of good faith and fair dealing. The Court of Appeals denied
this motion. On July 22 and 24, 1998, respectively, plaintiffs and the Company
filed petitions with the Arizona Supreme Court for its review of the decision of
the Court of Appeals. On February 25, 1999 the Arizona Supreme Court denied the
Company's petition for review and granted the plaintiffs' cross-petition. A
motion to reconsider the denial of the petition for review was filed on behalf
of the Company on March 12, 1999. It remains pending. The Supreme Court has not
yet scheduled oral argument of plaintiffs' cross-petition and plaintiffs'
appeal remains pending before the Arizona Supreme Court.
On July 5, 1996, Rudy Gamez, an employee of the Company, also
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
as in the previously described nine cases. On November 9, 1998, the Company
moved for partial summary judgment with respect to the willful misconduct claim,
and on December 9, 1998, the Company moved for dismissal or partial summary
judgment with respect to the remaining claims for breach of contract and bad
faith. On December 30, 1998, the Company also renewed an earlier motion for
summary judgment with respect to all claims on the ground that plaintiff had
accepted workers' compensation benefits. Oral argument on these motions took
place on January 25, 1999; the court took the motions under advisement and they
remain pending. The Court granted plaintiffs' motion to continue the trial,
which had been set for March 2, 1999; no new date has been set.
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,
-11-
<PAGE> 13
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 final disposition of the
employees' appeals from the dismissal of their lawsuits by the Superior Court of
Pima County, Arizona, in the underlying cases noted above.
In September 1995 and January 1996, the Company notified the
Argonaut Insurance Company that it was requesting the defense of two of the
aforementioned employee lawsuits. Argonaut denied coverage, and, in April 1996,
it filed a declaratory judgment action against the Company and certain of its
employees in the Superior Court of Pima County, Arizona: Argonaut Insurance
Companies v. Brush Wellman Inc. et al. Subsequently, in September 1996, Argonaut
and the Company agreed that Argonaut would dismiss its declaratory judgment
action (with the right to refile it later), that they would not litigate any
coverage issues between themselves until the State Compensation Fund's
declaratory judgment action has been completely resolved and that both parties
would be bound by the resolution of the coverage issues in the State
Compensation Fund's declaratory judgment action.
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. A draft
settlement agreement and release have been circulated in this case and are
currently under review by the parties.
CLAIMS INITIATED SINCE THE END OF THIRD QUARTER 1998. A
complaint was filed in the United States District Court for the Eastern District
of Tennessee by Jerry Lynn Hall and his wife Rose Mary Hall on February 24,
1999, against the Company and five other defendants: Ceradyne, Inc., General
Ceramics, Inc., Cabot Corporation, NGK Metals Corporation and Cercom Quality
Products, Inc. Also on February 24, 1999, the plaintiffs filed an amended
complaint to include eight more defendants: SSG, Inc., Speedring, Inc., Spire
Corporation, Lockheed Martin Beryllium Corporation, Manufacturing Sciences
Corporation, Microtechnologies Inc., The Perkin-Elmer Corporation and Starmet
Corp. Plaintiff Jerry Lynn Hall alleges injury from exposure to beryllium and/or
beryllium containing products sold by the Company. The claims against the
corporate defendants include theories of products liability (under the Tennessee
Products Liability Act), strict liability, failure to warn (both intentionally
and negligently), breach of implied warranty; plaintiff Rose Mary Hall alleges
loss of consortium. Plaintiff Jerry Lynn Hall is suing each defendant for
compensatory damages in the amount of $5 million; his wife is seeking
compensatory damages from each defendant in the amount of $1 million. Both
plaintiffs seek $10 million in punitive damages from each corporate defendant.
-12-
<PAGE> 14
A complaint was filed in the United States District Court for
the Eastern District of Tennessee by Mack Orick and his wife Ann Orick on
October 21, 1998, against the Company and eight other defendants: Ceradyne,
Inc., General Ceramics, Inc., Cabot Corporation, NGK Metals Corporation,
Lockheed Martin Beryllium Corporation, Cercom Quality Products, Inc., Starmet
Corp., and the United States of America. On December 16, 1998, plaintiffs filed
a motion to amend the complaint to include five more defendants: SSG, Inc.,
Speedring, Inc., Spire Corporation, Manufacturing Sciences Corporation, and The
Perkin-Elmer Corporation. Plaintiff Mack Orick alleges injury from exposure to
beryllium and/or beryllium containing products sold by the Company. The claims
against the corporate defendants include theories of products liability (under
the Tennessee Products Liability Act), strict liability, failure to warn (both
intentionally and negligently), breach of implied warranty; plaintiff Ann Orick
alleges loss of consortium. Plaintiff Mack Orick is suing each defendant for
compensatory damages in the amount of $5 million; his wife is seeking
compensatory damages from each defendant in the amount of $1 million. Both
plaintiffs seek $10 million in punitive damages from each corporate defendant.
The United States filed a motion to dismiss on December 28, 1998 that remains
pending. The Company filed an answer to the complaint on January 12, 1999.
CLAIMS CONCLUDED SINCE THE END OF THIRD QUARTER 1998. Wallace
et al. v. Brush Wellman Inc. et al.: This action has been settled. The insurance
company has paid the settlement amount, however, the workers' compensation
carriers have not yet signed their releases and, therefore, the case remains
pending.
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 alleged 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
alleged that he suffered injury as a result of exposure to beryllium supplied to
his employers. The complaint included claims for negligence, product liability
and loss of consortium. The court dismissed the complaint based on preliminary
objections but permitted plaintiffs to file an amended complaint. The amended
complaint was filed on August 31, 1998. The Company and Cabot each filed
cross-claims against each other. Since that time, the parties have agreed to
settle the action, but the settlement amount has not yet been paid and dismissal
has not yet been effected. The dismissal is expected to include dismissal of the
cross-claims.
(C) ASBESTOS EXPOSURE CLAIMS.
-------------------------
Egbert is a co-defendant in fifteen cases making claims for
asbestos-induced illness allegedly relating to the former operations of Egbert,
then known as The S.K. Wellman Corp. Egbert 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 fifty-three
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.
-13-
<PAGE> 15
Egbert 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 Egbert, Pneumo Abex Corporation and
the insurers share payment of settlements and/or judgments. In the pending
cases, both expenses of defense and payment of settlements and/or judgments are
subject to a separate reimbursement agreement under which a successor of the
company that purchased Egbert's operating assets in 1986 has certain limited
obligations to Egbert.
(D) OTHER MISCELLANEOUS PENDING CLAIMS.
-----------------------------------
The Company and Abtrex Industries ("Abtrex") are defendants in
a personal injury case filed in the Court of Common Pleas for Cuyahoga County,
Ohio, in September, 1998, by three employees of Abtrex and their spouses:
Janisse et al. v. Brush Wellman Inc. et al. Each of the plaintiffs seeks
compensatory damages in excess of $25,000 and punitive damages in excess of
$25,000 relating to an alleged acid spill at one of the Company's facilities.
The Company filed an answer and cross claim to the complaint in October, 1998.
The case is scheduled for trial in November, 1999.
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 alleged that TMI tortuously 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.
14
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
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 56 Chairman of the Board, President, Chief Executive Officer
and Director
Michael D. Anderson 47 Vice President, Beryllium Products
Brian J. Derry 53 Vice President, Operations
Stephen Freeman 52 Vice President, Alloy Products
Jordan P. Frazier 41 General Manager, Ceramic Products
John D. Grampa 51 Vice President, Finance
Michael C. Hasychak 45 Treasurer and Secretary
Alfonso T. Lubrano 49 President, Technical Materials, Inc.
John J. Paschall 61 President, Williams Advanced Materials Inc.
Andrew J. Sandor 59 Vice President, Alloy Technology
William R. Seelbach 50 President, Alloy Products
Daniel A. Skoch 49 Vice President, Administration and Human Resources
</TABLE>
15
<PAGE> 17
MR. HARNETT was elected Chairman of the Board, President, Chief
Executive Officer and Director of the Company effective January, 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, 1996. He had served as Director of Sales and Marketing -
Beryllium Products since November, 1994, Director of Marketing - Ceramics since
February, 1994 and Director of Marketing since April, 1989.
MR. DERRY was elected Vice President, Operations in May, 1997.
Prior to that time, he served as Director of Global Manufacturing for Ethyl
Corporation.
MR. FRAZIER was appointed General Manager, Ceramic Products in
December, 1997. He had served as Director, Ceramic Operations since
September, 1996. He had served as Director of Sales and Marketing - Ceramic
Products since February, 1996. Prior to that time, he had served as Plant
Manager of the Tucson manufacturing facility from 1992.
MR. FREEMAN was elected Vice President, Alloy Products effective
February, 1995. He had served as Vice President of Sales and Marketing since
August, 1993. He had served as Vice President of Sales and Marketing - Alloy
Products since July, 1992. Prior to that time, he had served as Management
Consultant for Adastra, Inc.
MR. GRAMPA was elected Vice President, Finance in October, 1998.
He had served as Vice President, Finance for the worldwide Materials Business of
Avery Dennison Corporation since March, 1994 and prior to that time he held
other various financial positions at Avery Dennison Corporation from 1984.
MR. HASYCHAK was elected Treasurer and Secretary in May, 1994.
Prior to that time, he served as Treasurer and Assistant Secretary from 1990 and
as Assistant Treasurer from 1988.
MR. LUBRANO was elected President, Technical Materials, Inc.
effective April, 1995 and Vice President and General Manager effective March,
1992. Prior to that time, he served as Vice President and Business Director of
Engelhard Corporation from 1987.
MR. PASCHALL was elected President, Williams Advanced Materials
Inc. effective November, 1991. He had served as Vice President, Operations -
Williams Advanced Materials Inc. since April, 1989.
MR. SANDOR was elected Vice President, Alloy Technology effective
March, 1996. He had served as Vice President, Operations since October, 1991. He
had served as Senior Vice President since September, 1989.
16
<PAGE> 18
MR. SEELBACH was elected President, Alloy Products in June, 1998.
Prior to that time, he had been Chairman and CEO of Inverness Partners since
October, 1987. Prior to Inverness Partners, he was a partner with McKinsey &
Company.
MR. SKOCH was elected Vice President, Administration and Human
Resources effective March, 1996. He had served as Vice President, Human
Resources since July, 1991. Prior to that time, he was Corporate Director -
Personnel.
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 8, 1999 there were 2,327 shareholders of record.
Information as to stock price and dividends declared set forth on page 26 in
Note O to the consolidated financial statements in the annual report to
shareholders for the year ended December 31, 1998 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 and a lease agreement.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
Selected Financial Data on page 10 of the annual report to
shareholders for the year ended December 31, 1998 is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The management's discussion and analysis of financial condition
and results of operations on pages 28 through 34 of the annual report to
shareholders for the year ended December 31, 1998 is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- ----------------------------------------------------------
The market risk disclosures on page 34 of the annual report to
shareholders for the year ended December 31, 1998 are incorporated herein by
reference.
17
<PAGE> 19
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, 1998 are incorporated herein by
reference:
Consolidated Balance Sheets - December 31, 1998 and 1997.
Consolidated Statements of Income - Years ended December 31, 1998, 1997
and 1996.
Consolidated Statements of Shareholders' Equity - Years ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows - Years ended December 31, 1998,
1997 and 1996.
Notes to Consolidated Financial Statements.
Quarterly Data on page 26 of the annual report to shareholders for the years
ended December 31, 1998 and December 31, 1997 is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------- ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
18
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The information under Election of Directors on pages 2 through 6
of the Proxy Statement dated March 15, 1999 is incorporated herein by reference.
Information with respect to Executive Officers of the Company is set forth
earlier on pages 15 through 17 of this Form 10-K annual report.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information under Executive Officer Compensation on pages 9
through 14 of the Proxy Statement dated March 15, 1999 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 7 and 8 of the Proxy
Statement dated March 15, 1999 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
19
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT 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, 1998 are the following
consolidated financial statements:
Consolidated Balance Sheets - December 31, 1998 and 1997.
Consolidated Statements of Income - Years ended December
31, 1998, 1997 and 1996.
Consolidated Statements of Shareholders' Equity - Years
ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows - Years ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
(A) 2. FINANCIAL STATEMENT SCHEDULES
-----------------------------
The following consolidated financial information for the
years ended December 31, 1998, 1997 and 1996 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.
20
<PAGE> 22
(A) 3. EXHIBITS
--------
(3a) Second Amended and Restated Articles of Incorporation
of the Company dated January 27, 1998 (filed as
Exhibit 3a to the Company's Form 10-K Annual Report
for the year ended December 31, 1997), incorporated
herein by reference.
(3b) Regulations of the Company as amended April 27, 1993
(filed as Exhibit 3b to the Company's Form 10-K
Annual Report for the year ended December 31, 1994),
incorporated herein by reference.
(4a) Credit Agreement dated as of December 13, 1994
between the Company and National City Bank acting for
itself and as agent for three other banking
institutions (filed as Exhibit 4a to the Company's
Form 10-K Annual Report for the year ended December
31, 1994), incorporated herein by reference.
(4b) First Amendment to Amended and Restated Credit
Agreement dated December 30, 1996 between Brush
Wellman Inc. and National City Bank acting for itself
and as agent for three other banking institutions
(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 (filed as Exhibit 4c to the Company's
Form 10-K Annual Report for the year ended December
31, 1997), incorporated herein by reference.
(4d) Third Amendment to Amended and Restated Credit
Agreement dated January 26, 1999 between Brush
Wellman Inc. and National City Bank acting for
itself and as agent for certain other banking
institutions.
(4e) Rights Agreement between the Company and National
City Bank N.A. dated January 27, 1998 (filed as
Exhibit 4d to the Company's Form 10-K Annual Report
for the year ended December 31, 1997), incorporated
herein by reference.
(4f) 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.
<PAGE> 23
(4g) 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 Mr. Sandor on February 20, 1989 (filed
as Exhibit 10b to the Company's Form 10-K Annual
Report for the year ended December 31, 1994),
incorporated herein by reference.
(10c)* Form of Employment Agreement entered into by the
Company and Messrs. Anderson, Frazier, Grampa,
Hasychak, Lubrano and Paschall on March 2, 1999.
(10d)* Form of Amendment to the Employment Agreement (dated
February 20, 1989) entered into by the Company and
Mr. 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.
(10e)* Form of Employment Agreement entered into by the
Company and Mr. Daniel A. Skoch on January 28, 1992,
Mr. Stephen Freeman dated August 3, 1993 and Mr.
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.
(10f)* Form of Employment Agreement entered into by the
Company and Mr. William R. Seelbach dated June 29,
1998 (filed as Exhibit 10a to the Company's Form
10-Q Quarterly Report for the quarter ended July 3,
1998), incorporated herein by reference.
(10g)* Employment Arrangement between the Company and
Mr. William R. Seelbach dated June 3, 1998 (filed as
Exhibit 10b to the Company's Form 10-Q Quarterly
Report for the quarter ended July 3, 1998),
incorporated herein by reference.
(10h)* Addendum to Employment Arrangement between the
Company and Mr. William R. Seelbach dated June 24,
1998 (filed as Exhibit 10c to the Company's Form
10-Q Quarterly Report for the quarter ended July 3,
1998), incorporated herein by reference.
(10i) Form of Indemnification Agreement entered into by the
Company and Mr. William R. Seelbach dated June 29,
1998 (filed as Exhibit 10d to the Company's Form
10-Q Quarterly Report for the quarter ended July 3,
1998), incorporated herein by reference.
<PAGE> 24
(10j)* Form of Trust Agreement between the Company and Key
Trust Company of Ohio, N.A. (formerly Ameritrust
Company National Association) on behalf of the
Company's executive officers (filed as Exhibit 10e
to the Company's Form 10-K Annual Report for the
year ended December 31, 1994), incorporated herein
by reference.
(10k) Form of Indemnification Agreement entered into by the
Company and its executive officers (filed as Exhibit
10g to the Company's Form 10-K Annual Report for the
year ended December 31, 1994), incorporated herein
by reference.
(10l) Form of Indemnification Agreement entered into by the
Company and its directors (filed as Exhibit 10h to
the Company's Form 10-K Annual Report for the year
ended December 31, 1994), incorporated herein by
reference.
(10m)* 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.
(10n)* 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.
(10o)* 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.
(10p)* 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.
(10q)* 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.
(10r)* 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.
<PAGE> 25
(10s)* Amendment Number 3, adopted May 5, 1998, to
Supplemental Retirement Benefit Plan as amended and
restated December 1, 1992.
(10t)* Amendment Number 4, adopted December 1, 1998, to
Supplemental Retirement Benefit Plan as amended and
restated December 1, 1992.
(10u)* Amendment Number 5, adopted December 31, 1998, to
Supplemental Retirement Benefit Plan as amended and
restated December 1, 1992.
(10v)* 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.
(10w)* Key Employee Share Option Plan (filed on Form S-8 on
May 5, 1998), incorporated herein by reference.
(10x)* 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.
(10y)* 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.
(10z)* 1989 Stock Option Plan (filed as Exhibit 4.5 to
Registration Statement No. 33-28605), incorporated
herein by reference.
(10aa)* 1990 Stock Option Plan for Nonemployee Directors
(filed as Exhibit 4.6 to Registration Statement No.
33-35979), incorporated herein by reference.
(10bb)* 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.
(10cc) 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.
<PAGE> 26
(10dd) 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.
(10ee) First Amendment to Master Lease Agreement dated
September 2, 1997 between Brush Wellman Inc. and
National City Bank acting for itself and as agent
for certain participants.
(10ff) Second Amendment to Master Lease Agreement and
Amendment to Disbursement Schedules dated January
26, 1999 between Brush Wellman Inc. and National
City Bank acting for itself and as agent for certain
participants.
(10gg)* 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, 1998.
(21) Subsidiaries of the registrant.
(23) Consent of Ernst & Young LLP.
(24) Power of Attorney.
(27.1) Financial Data Schedule 1998.
(27.2) Financial Data Schedule 1997 Restated.
(27.3) Financial Data Schedule 1996 Restated.
-------
* Reflects management contract or other compensatory
arrangement required to be filed as an Exhibit pursuant to
Item 14(c) of this Report.
(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, 1998.
<PAGE> 27
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 31, 1999
BRUSH WELLMAN INC.
By: /s/Gordon D. Harnett By: /s/John D. Grampa
------------------------------------- -----------------------
Gordon D. Harnett John D. Grampa
Chairman of the Board, Vice President, Finance
President and Chief Executive 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.
GORDON D. HARNETT* Chairman of the Board,
- ----------------------- President, Chief Executive March 31, 1999
Gordon D. Harnett* Officer and Director
(Principal Executive Officer)
JOHN D. GRAMPA Vice President, Finance March 31, 1999
- ----------------------- (Principal Financial and
John D. Grampa Accounting Officer)
ALBERT C. BERSTICKER* Director March 31, 1999
- ----------------------
Albert C. Bersticker*
CHARLES F. BRUSH, III* Director March 31, 1999
- ----------------------
Charles F. Brush, III*
DAVID L. BURNER* Director March 31, 1999
- ----------------------
David L. Burner*
DAVID H. HOAG * Director March 31, 1999
- ----------------------
David H. Hoag*
JOSEPH P. KEITHLEY * Director March 31, 1999
- ----------------------
Joseph P. Keithley*
WILLIAM P. MADAR* Director March 31, 1999
- ----------------------
William P. Madar*
ROBERT M. McINNES* Director March 31, 1999
- ----------------------
Robert M. McInnes*
WILLIAM R. ROBERTSON * Director March 31, 1999
- ----------------------
William R. Robertson*
JOHN SHERWIN, JR.* Director March 31, 1999
- ----------------------
John Sherwin, Jr.*
*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/JOHN D. GRAMPA March 31, 1999
---------------------------
John D. Grampa
Attorney-in-Fact
<PAGE> 28
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BRUSH WELLMAN INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ------------------------------------------------------------------------------------------------------------------------------------
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, 1998
Deducted from assets accounts:
Allowance for doubtful
accounts receivable $1,058,663 $1,090,170 $0 $ 21,833 (A) $2,127,000
Inventory reserves and
obsolescence $2,054,938 $ 907,438 $0 $1,222,283 (B) $1,740,093
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
</TABLE>
Note A - Bad debts written-off, net of recoveries.
Note B - Inventory write-off.
<PAGE> 1
Exhibit 4(d)
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT,
dated as of January 26, 1999 ("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 dated December 30,
1996 and as amended by a Second Amendment to Amended and Restated Credit
Agreement dated September 2, 1997 (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 $55,000,000 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:
<TABLE>
<S> <C> <C>
$15,000,000 27.28% National City Bank
$10,000,000 18.18% Fifth Third Bank, Northeastern Ohio
$10,000,000 18.18% NBD Bank
$10,000,000 18.18% Bank One, NA
$10,000,000 18.18% Harris Trust and Savings Bank
----------- -----------------------------
$55,000,000 Total"
</TABLE>
(B) Subsections 2A.02 and 2A.05 of the Credit Agreement shall
be amended by deleting the references therein to "April 30, 2000" and inserting
in lieu thereof "January 25, 2002."
- --------------------------------------------------------------------------------
Page 1
<PAGE> 2
(C) Subsection 2A.04(b) of the Credit Agreement shall be
amended by deleting the same and substituting in lieu thereof the following:
"(b) computed (in accordance with subsection 8.10) at the
Applicable Rate set forth below that corresponds to the ratio
set forth below (the "Applicable Rate"). As used herein,
"Applicable Rate" means the following per annum percentage:
<TABLE>
<S> <C>
If the Ratio of the Companies' Funded The Applicable Rate is:
Indebtedness to the Companies' EBITDA is:
Greater than or equal to 4.50 to 1.00 0.50%
Less than 4.50 to 1.00, but greater
than or equal to 4.00 to 1.00 0.45%
Less than 4.00 to 1.00, but greater
than or equal to 3.50 to 1.00 0.375%
Less than 3.50 to 1.00, but greater
than or equal to 3.00 to 1.00 0.275%
Less than 3.00 to 1.00, but greater
than or equal to 2.50 to 1.00 0.20%
Less than 2.50 to 1.00, but greater
than or equal to 2.00 to 1.00 0.175%
Less than 2.00 to 1.00 0.15%
</TABLE>
(i) Initially, from January 26, 1999, until changed hereunder
in accordance with the following provisions, the Applicable
Rate will be 0.50% per annum. Commencing with the fiscal
quarter of Borrower ending on or nearest to March 31, 1999,
and continuing with each fiscal quarter thereafter, NCB-Agent
will determine the Applicable Rate in accordance with the
foregoing pricing grid table, based on the ratio of (x) the
Funded Indebtedness of the Companies as of the end of the
fiscal quarter, to (y) the EBITDA of the Companies for the
four consecutive fiscal quarters ended on the last day of the
fiscal quarter, as identified in the pricing grid table.
Changes in the Applicable Rate based upon changes in such
ratio shall become effective on the first day of the month
following the receipt by NCB-Agent pursuant to subsection
3A.01(a) or (b) of the financial statements of Borrower and it
Subsidiaries, accompanied by the certificate and calculations
referred to in subsection 3A.02(c), demonstrating the
computation of such ratio, based upon the ratio in effect at
the end of the applicable period covered (in whole or in part)
by such financial statements.
(ii) Notwithstanding the above provisions, during any period
when an Event of Default has occurred and is continuing, the
Applicable Rate shall be the highest rate per annum indicated
therefor in the foregoing pricing grid table, regardless of
the ratio of Funded Indebtedness to EBITDA at such time.
Notwithstanding the above provisions, but subject to the
preceding sentence, during any period when Borrower has failed
to timely deliver its consolidated financial statements
referred to in subsection 3A.01(a) or (b), accompanied by the
certificate and calculations referred to in subsection
3A.01(c), the Applicable Rate shall be the rate per annum
indicated for the level in the foregoing pricing
- --------------------------------------------------------------------------------
Page 2
<PAGE> 3
grid table that is one level higher than the level that is
otherwise then currently in effect, regardless of the ratio of
Funded Indebtedness to EBITDA at such time.
(iii) Any changes in the Applicable Rate shall be determined
by NCB-Agent in accordance with the above provisions and
NCB-Agent will promptly provide notice of such determinations
to Borrower and the Banks. Any such determination by NCB-Agent
pursuant to the above provisions shall be conclusive and
binding absent manifest error. The Applicable Rate is subject
in all respects to compliance by Borrower with subsection
3B.02 of this Agreement, and this schedule of levels for the
Applicable Rate is not intended to waive or otherwise excuse a
violation of subsection 3B.02 of this Agreement."
(D) Subsection 2B.09 of the Credit Agreement shall be amended
by deleting the same and substituting in lieu thereof the following:
"2B.09 INTEREST: FIXED-RATE LOANS. The principal of and overdue interest on each
Fixed-Rate Loan shall bear interest computed (in accordance with subsection
8.10) and payable as follows:
(a) Prior to Maturity, each LIBOR Loan shall bear interest
with respect to any Contract Period commencing on or after
January 26, 1999, at a rate equal to the LIBOR Rate in effect
at the start of the applicable Contract Period plus the
Applicable Margin indicated below (the "Applicable Margin") in
effect at the start of the applicable Contract Period. As used
herein, "Applicable Margin" means the following per annum
percentage:
<TABLE>
<S> <C>
If the Ratio of the Companies' Funded The Applicable Margin is:
Indebtedness to the Companies' EBITDA is:
Greater than or equal to 4.50 to 1.00 1.50%
Less than 4.50 to 1.00, but greater
than or equal to 4.00 to 1.00 1.375%
Less than 4.00 to 1.00, but greater
than or equal to 3.50 to 1.00 1.00%
Less than 3.50 to 1.00, but greater
than or equal to 3.00 to 1.00 0.75%
Less than 3.00 to 1.00, but greater
than or equal to 2.50 to 1.00 0.55%
Less than 2.50 to 1.00, but greater
than or equal to 2.00 to 1.00 0.50%
Less than 2.00 to 1.00 0.40%
</TABLE>
(i) Initially, from January 26, 1999, until changed hereunder
in accordance with the following provisions, the Applicable
Margin will be 1.50% per annum. Commencing with the fiscal
quarter of Borrower ending on or nearest to March 31, 1999,
and continuing with each fiscal quarter thereafter, NCB-Agent
will determine the Applicable Margin in accordance with the
foregoing pricing grid table, based on the ratio of (x) the
Funded Indebtedness of the Companies as of the end of the
fiscal quarter, to (y) the EBITDA of the Companies for the
four consecutive fiscal quarters ended on the last day of the
fiscal quarter, as
- --------------------------------------------------------------------------------
Page 3
<PAGE> 4
identified in the pricing grid table. Changes in the
Applicable Margin based upon changes in such ratio shall
become effective on the first day of the month following the
receipt by NCB-Agent pursuant to subsection 3A.01(a) or (b) of
the financial statements of Borrower and it Subsidiaries,
accompanied by the certificate and calculations referred to in
subsection 3A.02(c), demonstrating the computation of such
ratio, based upon the ratio in effect at the end of the
applicable period covered (in whole or in part) by such
financial statements.
(ii) Notwithstanding the above provisions, during any period
when an Event of Default has occurred and is continuing, the
Applicable Margin shall be the highest rate per annum
indicated therefor in the foregoing pricing grid table,
regardless of the ratio of Funded Indebtedness to EBITDA at
such time. Notwithstanding the above provisions, but subject
to the preceding sentence, during any period when Borrower has
failed to timely deliver its consolidated financial statements
referred to in subsection 3A.01(a) or (b), accompanied by the
certificate and calculations referred to in subsection
3A.01(c), the Applicable Margin shall be the rate per annum
indicated for the level in the foregoing pricing grid table
that is one level higher than the level that is otherwise then
currently in effect, regardless of the ratio of Funded
Indebtedness to EBITDA at such time.
(iii) Any changes in the Applicable Margin shall be
determined by NCB-Agent in accordance with the above
provisions and NCB-Agent will promptly provide notice of such
determinations to Borrower and the Banks. Any such
determination by NCB-Agent pursuant to the above provisions
shall be conclusive and binding absent manifest error. The
Applicable Margin is subject in all respects to compliance by
Borrower with subsection 3B.02 of this Agreement, and this
schedule of levels for the Applicable Margin is not intended
to waive or otherwise excuse a violation of subsection 3B.02
of this Agreement.
(b) Prior to Maturity, each Competitive Loan shall bear
interest at a rate equal to the Competitive Bid Rate.
(c) After Maturity (whether occurring by lapse of time or by
acceleration), each Fixed-Rate Loan shall bear interest
computed and payable in the same manner as set forth in
subsection 2B.08(b) for Prime Rate Loans, EXCEPT that in no
event shall any Fixed-Rate Loan bear interest after Maturity
at a lesser rate than that applicable thereto immediately
before Maturity.
(d) Interest on each Fixed-Rate Loan shall be payable in
arrears on the last day of the Contract Period applicable
thereto and at Maturity and, in the case of any Contract
Period having a term longer than ninety (90) days or three (3)
months, as the case may be, shall also be payable every ninety
(90) days (in the case of Competitive Loans) and every three
(3) months (in the case of LIBOR Loans) after the first day of
the Contract Period."
(E) 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 March 31, 1999, inclusive, 4.75, (ii) from April 1,
1999, to June 30, 1999, inclusive, 4.50, (iii) from July 1, 1999, to September
30, 1999, inclusive, 4.00, (iv) from October 1, 1999, to December
- --------------------------------------------------------------------------------
Page 4
<PAGE> 5
31, 1999, inclusive, 3.75, (v) from January 1, 2000, to March 31, 2000,
inclusive, 3.25, and (vi) on and after April 1, 2000, 3.00."
(F) Exhibits A and E to the Credit Agreement are hereby
deleted and Exhibits A and E 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) KeyBank National Association will
no longer be a Bank that is a party to the Credit Agreement, and (b) Fifth Third
Bank, Northeastern Ohio will become a Bank that is a party 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 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 to the Banks at the time this Amendment
is executed and delivered by the Banks an amendment fee in an aggregate amount
equal to $27,500, to be allocated pro rata among the Banks on the basis of their
respective Subject Commitments immediately after this Amendment is executed and
delivered by the Banks, and 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.
- --------------------------------------------------------------------------------
Page 5
<PAGE> 6
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: /s/ M.C. Hasychak
--------------------------------
Title: Treasurer & Secretary
-----------------------------
Address: NATIONAL CITY BANK,
Deliveries: for itself and as Agent
Large Corporate Division
1900 East Ninth Street
Cleveland, Ohio 44114-3484 By: /s/ Jeffery C. Douglas
Fax: (216) 575-9396 --------------------------------
Title: Vice President and Senior
Lending Officer
-----------------------------
Mail:
Large Corporate Division
P.O. Box 5756
Cleveland, Ohio 44101
Address: FIFTH THIRD BANK, NORTHEASTERN
OHIO
1404 East Ninth Street
Cleveland, Ohio 44114 By: /s/ James P. Byrnes
--------------------------------
Title: Vice President
-----------------------------
Address: BANK ONE, NA
611 Woodward
Detroit, Michigan 48226 By:
--------------------------------
Title:
-----------------------------
Address: HARRIS TRUST AND SAVINGS BANK
P.O. Box 755 (111/10W)
Chicago, Illinois 60690-0755 By: /s/ Peter Krawchuk
--------------------------------
Title: Vice President
-----------------------------
- --------------------------------------------------------------------------------
Page 6
<PAGE> 7
Address: NBD BANK
611 Woodward
Detroit, Michigan 48226 By: /s/ Patrick E. Dunphy
--------------------------------
Title: Vice President
-----------------------------
- --------------------------------------------------------------------------------
Page 7
<PAGE> 8
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 Bank One, NA
By: By:
--------------------------------- --------------------------------------
Printed Name: Printed Name:
----------------------- ----------------------------
Title: Title:
------------------------------ -----------------------------------
- --------------------------------------------------------------------------------
Page 1
<PAGE> 9
Fifth Third Bank, Northeastern Ohio Harris Trust and Savings Bank
By: By:
--------------------------------- --------------------------------------
Printed Name: Printed Name:
----------------------- ----------------------------
Title: Title:
------------------------------ -----------------------------------
- --------------------------------------------------------------------------------
Page 2
<PAGE> 10
EXHIBIT E
COMPLIANCE REPORT
-----------------
___________, 19__
To: National City Bank
-----------------
-----------------
-----------------
-----------------
Subject: Amended and Restated Credit Agreement dated as of December 13, 1994,
as amended, with the Banks that are parties thereto and National
City Bank as agent (the "Credit Agreement")
Greetings:
Pursuant to subsection 3A.01 of the subject Credit Agreement and in my capacity
as the chief financial officer of Brush Wellman Inc., I hereby certify that to
the best of my knowledge and belief
(a) the financial statements of the Companies accompanying this letter
are true and complete and fairly present in all Material respects their
consolidated financial condition as of _____________________, _____
(the "Closing Date") and the consolidated results of their operations
for the fiscal period then ending,
(b) no Default under the Credit Agreement exists *[except for those
which, together with our intentions in respect thereof, are set forth
in Exhibit One to this letter] and
(c) as indicated by the calculations below, the Companies are *[not] in
full compliance with subsections 3B.01 through 3B.04, both inclusive.
[* - In (b) and (c), delete the bracketed language if inapplicable.]
3B.01 The actual amount of the Companies' TANGIBLE NET WORTH at the Closing Date
is equal to or is greater than the required amount.
<TABLE>
<S> <C> <C>
$155,000,000
plus $__________ 40% of $_________ annual earnings accumulated from
December 31, 1994 to the end of the
preceding fiscal year (see Section
3B.01)
sum $__________ required amount
$__________ actual Tangible Net Worth
</TABLE>
3B.02 The FUNDED INDEBTEDNESS of the Companies does not exceed an amount equal
to the LEVERAGE MULTIPLIER times the Companies' EBITDA for the four consecutive
fiscal quarters most recently ended -- the LEVERAGE MULTIPLIER being (i) from
the date of this Agreement to March 31, 1999, inclusive, 4.75, (ii) from April
1, 1999, to June 30, 1999, inclusive, 4.50, (iii) from July 1, 1999, to
September 30, 1999,
- --------------------------------------------------------------------------------
Page 1
<PAGE> 11
inclusive, 4.00, (iv) from October 1, 1999, to December 31, 1999, inclusive,
3.75, (v) from January 1, 2000, to March 31, 2000, inclusive, 3.25, and (vi) on
and after April 1, 2000, 3.00.
<TABLE>
<S> <C> <C>
$______________ Funded Indebtedness
divided by $______________ EBITDA
$______________ EBIT
$______________ Depreciation
$______________ Amortization
quotient _______________
</TABLE>
3B.03 [Intentionally Omitted]
3B.04 The actual INTEREST COVERAGE RATIO is greater than the minimum factor
(5:00 to 1:00) required, the Interest Coverage being a factor equal to the
quotient of the sum of items (a), (b) and (c) below divided by item (b).
<TABLE>
<S> <C>
(a) $__________ Net Income
plus (b) $__________ interest expense (including any required capitalized interest)
plus (c) $__________ income taxes
sum (d) $__________ total
quotient (e) __________ Actual Interest Coverage--(d)/(b)
</TABLE>
3B.05 The actual FUNDED DEBT of the Companies is equal to or less than the
maximum factor permitted, namely, 0.5 through December 31, 2000, and 0.45 on and
after January 1, 2001-- the Funded Debt being a factor equal to the quotient of
Funded Indebtedness divided by Funded Indebtedness plus Tangible Net Worth.
<TABLE>
<S> <C>
$_________ Funded Indebtedness
divided by $_________ Funded Indebtedness plus Tangible Net Worth
quotient _________ Actual Funded Indebtedness
</TABLE>
BRUSH WELLMAN INC.
By:
------------------------------------
Title:
---------------------------------
- --------------------------------------------------------------------------------
Page 2
<PAGE> 1
Exhibit 10(c)
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement"), entered into
this ____ day of ____________, 1999, by BRUSH WELLMAN INC., an Ohio corporation
(the "Company"), and ______________________________ (the "Executive").
WITNESSETH:
WHEREAS, the Board of Directors of the Company (the "Board") has made
the following determinations:
A. The Executive is a senior executive of the Company and is
expected to make major contributions to the growth, profitability, and financial
strength of the Company;
B. The Board wishes to assure the Company's continuity of
management;
C. The Board recognizes that, as is the case with many
publicly held companies, the possibility of a Change in Control (as defined in
Section IV) may exist and wishes to ensure that the Company's senior executives
are not practically disabled from discharging their duties upon the occurrence
of any actual or threatened Change in Control; and
D. This Agreement shall not alter materially the remuneration
and benefits which the Executive could reasonably expect to receive from the
Company in the absence of a Change in Control and, accordingly, although
effective as of the date hereof, this Agreement shall become operative only upon
the occurrence of a Change in Control during the Term (as defined in Section
II).
NOW, THEREFORE, the Company and the Executive agree as follows:
<PAGE> 2
2
I. Employment; Position and Responsibilities
(A) Subject to the terms and conditions of this Agreement, upon the
occurrence of a Change in Control during the Term, the Company, if the Executive
is then an employee of the Company, shall continue the Executive in its employ
(and the Executive shall remain in the employ of the Company) for the Window
Period (as defined in Section III), whether or not the Term ends before the end
of the Window Period, in the position which he holds at the time of such Change
in Control (or such enhanced position to which he may from time to time
thereafter be elected by the Board) and with substantially the same duties,
responsibilities, and reporting relationships as he has at the time of such
Change in Control (or such enhanced duties, responsibilities, and reporting
relationships as the Board may from time to time thereafter designate in writing
or to which the Company and the Executive may from time to time thereafter agree
in writing).
(B) During the Window Period, the Executive shall, while he is an
employee of the Company, devote substantially all of his time during normal
business hours to the business and affairs of the Company, but nothing in this
Agreement shall preclude the Executive during the Window Period from devoting
reasonable periods of time during normal business hours to serving as a
director, trustee, or member of any committee of any organization or business so
long as such activity would not constitute Competitive Activity (as defined in
Section XIII) if conducted by the Executive after any termination of the
Executive's employment with the Company pursuant to Section VII(A).
<PAGE> 3
3
II. Effectiveness of this Agreement; Term
In determining whether the Window Period commences, this Agreement
shall be effective immediately upon execution and shall continue in force for a
period of five years (the "Term") from the date of such execution; provided,
however, that on the date five years after this Agreement is executed, and on
each second anniversary of such date thereafter, the Term shall be automatically
extended for two additional years unless either the Company or the Executive has
given written notice to the other, as provided in Section X, prior to the date
which is two years before the date on which the Term would end if not
automatically extended.
III. Operation of this Agreement; Window Period
This Agreement shall become operative only upon the occurrence of a
Change in Control and then only if such Change in Control occurs prior to the
end of the Term while the Executive is an employee of the Company. If the
Executive is employed by the Company at the time of any such Change in Control,
this Agreement shall remain operative for a period (the "Window Period") of
three years after the occurrence of such Change in Control or, if shorter, until
the Executive reaches age 65.
IV. Definition of Change in Control
A "Change in Control" of the Company shall have occurred if at any time
during the Term any of the following events shall occur:
(A) The Board at any time shall fail to include a majority of Directors
who are either "Original Directors" or "Approved Directors". An Original
Director is a Director who is serving on March 2, 1999. An Approved Director is
a Director who, after such date, is elected,
<PAGE> 4
4
or is nominated for election by the shareholders, by a vote of at least
two-thirds of the Original Directors and the previously elected Approved
Directors, if any.
(B) Any person (as the term "person" is defined in Section 1701.01(G)
of the Ohio Revised Code) shall have made a "control share acquisition" (as the
term "control share acquisition" is defined in Section 1701.01(Z) of the Ohio
Revised Code) of shares of the Company without having first complied with
Section 1701.831 of the Ohio Revised Code (dealing with control share
acquisitions).
(C) The Board shall at any time during the Term determine in the good
faith exercise of its judgment that (1) any particular actual or proposed
accumulation of shares of the Company, tender offer for shares of the Company,
merger, consolidation, sale of assets, proxy contest, or other transaction or
event or series of transactions or events will, or is likely to, if carried out,
result in a Change in Control falling within Section IV(A) or IV(B) and (2) it
is in the best interests of the Company and its shareholders, and will serve the
intended purposes of this Agreement, if this Agreement shall thereupon become
immediately operative.
V. Compensation While Employed During Window Period
(A) No compensation shall be payable under this Section V unless and
until there shall have been a Change in Control while the Executive is an
employee of the Company during the Term (at which time the Window Period shall
begin).
(B) If such a Change in Control so occurs (at which time the Window
Period shall begin), the Executive, while an employee of the Company, will be
entitled to receive compensation, for the Window Period, in the following forms,
rates, and amounts:
(1) Base Salary: salary payments (semi-monthly in arrears) at an annual
rate which will be the highest of:
<PAGE> 5
5
(a) the annual rate in effect at the time of the Change in
Control;
(b) the annual rate in effect at any time during the 24 months
prior to the Change in Control; or
(c) the annual rate approved by the Board from time to time
after the Change in Control.
(2) Annual Bonus: annual bonus amounts (payable on February 10, or, if
February 10 is not a business day in any year, then on the business day next
preceding such February 10) with respect to the previous calendar year equal to
the higher of:
(a) the highest annual bonus awarded to the Executive in the
36 months prior to the Change in Control; or
(b) the highest annual bonus approved by the Board from time
to time after the Change in Control.
(3) Benefit Plans - The Executive shall continue, as if there had been
no Change in Control, to participate, throughout the Window Period, in all
benefit plans, policies, or arrangements of the Company in which the Executive
participates immediately prior to the Change in Control, including, without
limitation, any incentive, retirement income, savings or thrift, stock option,
stock purchase, stock appreciation, stock grant, group insurance (health, life,
and others, if any), disability, salary continuation, and other employee benefit
plans, policies, or arrangements, or any successor plans, policies, or
arrangements that may thereafter be adopted by the Company and provide the
Executive at least the same reward opportunities that were provided to him
immediately prior to the Change in Control as if there had been no Change in
Control.
<PAGE> 6
6
(4) Executive Perquisites - The Executive shall continue to receive,
throughout the Window Period, all executive perquisites (including, without
limitation, a Company automobile, club dues, and secretarial services) provided
by the Company immediately prior to the Change in Control and any improvements
therein which are thereafter approved by the Board from time to time.
(5) Nothing in this Agreement shall preclude improvement of the plans,
policies, or arrangements contemplated by the foregoing paragraphs (1)-(4) of
this Section V(B), but no such improvements shall in any way diminish any other
obligation of the Company under this Agreement. If the Company shall change or
terminate any such plans, policies, or arrangements during the Window Period, it
shall nevertheless continue to provide to the Executive other arrangements which
are substantially comparable thereto.
VI. Termination While Employed During Window Period
(A) If a Change in Control shall occur while the Executive is an
employee of the Company during the Term (and the Window Period therefore
commences), the Executive shall be entitled to the compensation provided in
Section VII if his employment with the Company is thereafter terminated during
the Window Period unless such termination results from the Executive's
(1) death;
(2) disability (on the terms described in Section VI(B));
(3) retirement (as defined in Section VI(C));
(4) termination by the Company for Cause (as defined in Section VI(D);
or
(5) decision to terminate his employment other than for Good Reason (as
defined in Section VI(E)).
<PAGE> 7
7
(B) If, as a result of the Executive's incapacity due to physical or
mental illness, the Executive shall qualify for benefits under the long-term
disability plan, policy, or arrangement (if any) of the Company in effect at the
time when the Change in Control occurs and shall have been absent from his
duties with the Company on a full-time basis during the Window Period for a
continuous period of one year, then the Company may terminate the Executive's
employment for disability without the Executive being entitled to the
compensation provided in Section VII.
(C) "Retirement" means the attainment by the Executive of age 65 or his
earlier voluntary retirement in accordance with any applicable retirement plan
of the Company. Voluntary retirement for this purpose does not include any
retirement decision made by the Executive as a consequence of a termination by
the Executive of his employment for Good Reason.
(D) "Cause" means commission by the Executive of an act which
constitutes a felony.
(E) The Executive may terminate his employment for Good Reason during
the Window Period and, if he does so, he shall be entitled to the compensation
provided in Section VII. "Good Reason" shall mean any of the following:
(1) any reduction in the Executive's base salary provided in Section
V(B)(1) or his annual bonus provided in Section V(B)(2);
(2) any significant reduction in the Executive's benefits provided in
Section V(B)(3) or his perquisites provided in Section V(B)(4);
(3) any significant reduction in the Executive's title, status,
position, responsibilities, duties, or reporting relationships as herein
provided;
(4) any determination made by the Executive in good faith that, as a
consequence of the circumstances giving rise to a Change in Control or resulting
therefrom, he is unable
<PAGE> 8
8
to carry out the responsibilities, duties, or reporting relationships associated
with his title, status, or position as herein provided;
(5) the Company shall require the Executive to have as his principal
location of work any location which is in excess of 50 miles from the
Executive's principal residence as of the date immediately prior to the Change
in Control; or
(6) any failure of any successor of or to the Company following a
Change in Control to comply with Section IX(A).
VII. Compensation Upon Termination During Window Period
(A) If the Executive's employment by the Company is terminated during
the Window Period:
(1) by the Company other than by reason of death, disability, or Cause,
or
(2) by the Executive for Good Reason,
then the Company shall pay to the Executive, within the time specified in
Section VII(D), a lump sum in cash equal to the present value (determined as
provided in Section VII(B)) of his base salary and annual bonus at the rates
provided in Sections V(B)(1) and V(B)(2), respectively, for the remainder of the
Window Period.
(B) In determining present value for purposes of Section VII(A), there
shall be applied a discount factor equal to the coupon rate on general
full-faith-and-credit obligations of the U.S. Treasury having a maturity of five
years and issued on the date of such termination (or, if no such obligations are
issued on that date, then on such obligations issued on the most recent day
prior to that date); provided, however, that if the Executive should die on or
after the date of such termination but before full payment is made to him
pursuant to Section VII(D), such payment shall be made to such person(s) as the
Executive shall have designated in a writing filed
<PAGE> 9
9
with the Secretary of the Company or, if he shall not have filed such a
designation, then to his executor or administrator within ten days after
appointment of the same.
(C) To secure, fund, or otherwise assure to the maximum practicable
extent the payment to be made by the Company to the Executive pursuant to
Sections VII(A) and VII(B), the Company will enter into a trust agreement in
substantially the form attached hereto as Exhibit A. Should a Change in Control
occur during the Term while the Executive is an employee of the Company, the
Company shall, at or prior to the time of such Change in Control, cause there to
be on deposit with the trustee under such trust agreement an amount of funds
equal to one-twelfth of the sum of the amounts referred to in Section V(B)(1)
and Section V(B)(2) (disregarding the application of the discount factor
provided in Section VII(B)) multiplied by the lesser of 48 or the number of
months (rounded to the next higher number) between the date of such Change in
Control and the date the Executive reaches age 65. Should the Executive's
employment by the Company be terminated (i) for any reason prior to the
occurrence of a Change in Control or (ii) by reason by death, disability (on the
terms described in Section VI(B)), retirement, by the Company for Cause, or by
the Executive's decision to terminate it other than for Good Reason after the
occurrence of a Change in Control, the Executive will consent to the revocation
of the trust under the trust agreement and the payment to the Company of all the
assets then held in such trust.
(D) The compensation provided for in Sections VII(A) and VII(B) shall
be paid not later than the 40th day following the date of any such termination
of employment pursuant to Section VII(A).
(E) The Company shall arrange to provide the Executive, following the
date of any termination of employment of the type described in Section VII(A),
for the remainder of the
<PAGE> 10
10
Window Period, with continued coverage and participation in the benefit plans,
policies, arrangements, and perquisites referred to in Sections V(B)(3) and
V(B)(4) as if there had been no such termination of employment (or with such
improved coverage and participation, if any, as may be implemented during the
Window Period), except that participation will not continue in any stock option,
stock purchase, stock appreciation, or stock grant plans and except that no
benefits shall accrue for any period after such termination of employment
pursuant to any benefit plan qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or any supplemental retirement
benefit plan created for the benefit of the Executive subsequent to the date of
this Agreement (the "Supplemental Retirement Benefit Plan") by reason of any
provision included in this Agreement. For purposes of applying the immediately
preceding sentence with respect to any benefit plan, policy, or arrangement the
level of benefits under which depends in whole or in part on years of service,
the Executive shall be treated as having continued in the employment of the
Company for the remainder of the Window Period. To the extent that the
Executive's coverage or participation in any such plan, policy, or arrangement
is terminated by reason of the Executive's no longer being an employee of the
Company during the Window Period, the Company shall (i) pay from time to time to
the Executive cash in amounts equal to what would have been provided pursuant to
such plan, policy, or arrangement at any such time had the Executive's coverage
or participation not been terminated and as if the Executive's employment with
the Company continued for the remainder of the Window Period or (ii) arrange,
with the Executive's prior written consent, to provide him with coverage and
participation in a substantially similar plan, policy, or arrangement. If, under
any plan, policy, or arrangement in effect immediately prior to the Change in
Control, the Executive would have been eligible for post-retirement health or
medical benefits with respect to
<PAGE> 11
11
himself or others if his retirement had occurred on the last day of the Window
Period, the Company shall provide him with post-retirement health or medical
benefits that are substantially similar to those provided under such plan,
policy, or arrangement (or with such improved benefits, if any, as may be
implemented during the Window Period). In addition, the Company shall pay to the
Executive, within the time specified in Section VII(D), a lump sum (calculated
as provided in Section VII(B)) in cash equal to (i) the number of months
(rounded to the next higher number) between the date of termination of the
Executive's employment with the Company pursuant to Section VII(A) and the last
day of the Window Period multiplied by (ii) one-twelfth of the annual benefit
(expressed as a single life annuity commencing at age 65) that the Executive
would have accrued under the Brush Wellman Inc. Pension Plan for Salaried
Employees (the "Pension Plan") during the calendar year ending prior to the date
of such termination of employment if the Pension Plan did not contain the
limitations on benefits imposed by the Code, including, without limitation,
Sections 415 and 401(a)(17) of the Code (the "Constructive Supplemental
Amount"). The Company and the Executive intend that the benefits payable under
this Section VII(E) shall not constitute a "supplemental retirement or other
similar benefit" for purposes of the Supplemental Retirement Benefit Plan. The
obligation of the Company to make any payments under this Section VII(E)
constitutes the unsecured promise of the Company to make such payments from its
general assets, and the Executive shall have no interest in, or lien or prior
claim upon, any property of the Company in connection therewith.
(F) If the compensation and other payments under this Section VII,
either alone or together with other receipts of the Executive from the Company
that would be considered "contingent on a change in ownership or control" (as
defined in Section 280G of the Code) of the
<PAGE> 12
12
Company, would, after taking into account Section VIII, equal or exceed an
amount equal to two times the "base amount" (as defined in Section 280G of the
Code) of the Executive, such compensation, other payments, and other receipts
shall be reduced to the largest amount as will result in no portion of such
compensation, other payments, or other receipts being equal to or exceeding an
amount equal to two times the "base amount" (as defined in Section 280G of the
Code) of the Executive. The determination of any reduction under this Section
VII(F) in such compensation, other payments, and other receipts (including the
section of the specific types of such compensation, other payments, or other
receipts to be reduced) shall be made by the Executive in good faith (and upon
the advice of a nationally recognized expert in compensation matters engaged and
paid for by the Executive) after consultation with the Company. The Executive
shall deliver such determination to the Company by the 25th day following any
termination of the Executive pursuant to Section VII(A). His duty to consult
with the Company under this Section VII(F) shall expire on the 30th day
following such termination. Such determination shall be conclusive and binding
on the Company. The Company shall cooperate in good faith with the Executive in
making such determination and in providing the necessary information for this
purpose.
(G) The Company shall have no right of set-off or counterclaim in
respect of any of its obligations to the Executive under this Agreement.
VIII. Mitigation
If the Executive's employment by the Company is terminated during the
Window Period pursuant to Section VII(A), the Company shall acknowledge by
written notice to the Executive that the Executive offered to continue
employment with the Company in accordance
<PAGE> 13
13
with the terms of this Agreement but that such offer was rejected. Thereafter,
the Executive shall, for a period of two years (or, if less, for the remainder
of the Window Period), use reasonable efforts to mitigate damages by seeking
other employment; provided, however, that the Executive shall not be required to
accept a position (i) of less importance or of a substantially different
character than the position he held immediately prior to the date of such
termination, (ii) that would call upon him to engage in any Competitive
Activity, or (iii) other than in a location within 50 miles of his principal
residence immediately prior to the date of such termination. The Executive shall
pay over to the Company 50% of all employment income earned and received by him
from other employers pursuant to the foregoing during such two year (or lesser)
period (up to the amount received by him from the Company pursuant to Section
VII(A)), and any employee benefits received from such other employers during
such period shall reduce pro tanto the Company's obligation to furnish benefits
or perquisites pursuant to Section VII(E).
IX. Successors and Binding Agreement
(A) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business or assets of the Company by agreement in form
and substance satisfactory to the Executive to assume and agree to perform this
Agreement in the same manner and to the same extent the Company would be
required to perform if no such succession had taken place. If, at any time
during the Window Period following a Change in Control, there shall not be in
full force and effect an agreement between any such successor and the Executive
to the effect contemplated by the preceding sentence, the absence of such
agreement shall constitute a material breach of this Agreement by such successor
and shall entitle the Executive to terminate his employment for Good Reason.
<PAGE> 14
14
This Agreement shall be binding upon and inure to the benefit of the Company and
any successor of or to the Company, including, without limitation, any persons
acquiring directly or indirectly all or substantially all of the assets of the
Company whether by merger, consolidation, sale, or otherwise (and such successor
shall thereafter be deemed the "Company" for the purpose of this Agreement), but
shall not otherwise be assignable or delegable by the Company.
(B) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
assigns, heirs, distributees and legatees.
(C) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer, or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Section IX(A). Without limiting the generality of the forgoing, the
Executive's right to receive payments hereunder shall not be assignable or
transferable, whether by pledge, creation of a security interest, or otherwise,
other than by a transfer by his will (or other testamentary instrument) or by
the laws of descent and distribution and, in the event of any attempted
assignment or transfer contrary to this Section IX(C), the Company shall have no
liability to pay any amount so attempted to be assigned or transferred.
X. Notices
All communications provided for herein or pursuant hereto shall be in
writing and shall be deemed to have been duly given when delivered:
If to the Company to:
Brush Wellman Inc.
17876 St. Clair Avenue
Cleveland, Ohio 44110
Attention: Secretary
If to the Executive to:
----------------------
----------------------
Brush Wellman Inc.
17876 St. Clair Avenue
Cleveland, Ohio 44110
or to such other address as either party may have furnished to the other in
writing in accordance herewith.
<PAGE> 15
15
XI. Employment Rights
Nothing expressed or implied in this Agreement shall create any right
or duty on the part of the Company or the Executive to have the Executive remain
in the employment of the Company prior to a Change in Control; provided,
however, that any termination of employment of the Executive following the
commencement of any discussions with a third party that ultimately result in a
Change in Control shall (unless such termination is wholly unrelated to such
discussions) be deemed to be a termination by the Executive for Good Reason
after a Change in Control.
XII. Withholding of Taxes
The Company may withhold from any amounts payable under this Agreement
all federal, state, city, or other taxes as shall be required to be withheld
pursuant to any law or governmental regulation or ruling.
<PAGE> 16
16
XIII. Competitive Activity
Following the Executive's termination of employment pursuant to Section
VII(A) and for the duration of the Window Period, if the Company shall have
complied and be complying with this Agreement, the Executive shall not engage in
any Competitive Activity. The term "Competitive Activity" means the Executive's
participation, without the written consent of an officer of the Company, in the
management of any business enterprise if such enterprise engages in substantial
and direct competition with the Company. Competitive Activity shall not include
the mere ownership of securities in any enterprise and exercise of rights
appurtenant thereto.
XIV. Legal Fees and Expenses
The Company shall pay and be solely responsible for any and all
attorneys' and related fees and expenses incurred by the Executive as a result
of (A) the Company's failure to perform this Agreement or any provision hereof;
(B) the Company, any shareholder of the Company, or any other person contesting
the validity or enforceability of this Agreement or any provision hereof; or (C)
the Company, any shareholder of the Company, or any other person contesting the
performance by the Executive of his obligations under this Agreement.
Performance of the Company's obligations under this Section XIV shall be secured
by one or more policies of insurance or as the Board may otherwise determine.
<PAGE> 17
17
XV. Governing Law
The validity, interpretation, construction, and performance of this
Agreement shall be governed by the internal substantive laws of the State of
Ohio, disregarding principle of conflicts of law and the like.
XVI. Miscellaneous
No provision of this Agreement may be modified, waived, or discharged
unless such modification, waiver or, discharge is agreed to in a writing signed
by the Executive and the Company. No waiver by either party hereto at any time
of any breach by the other party hereto or compliance with any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.
XVII. Validity
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
XVIII. Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered on the date set forth above.
BRUSH WELLMAN INC.
By:
Title:
THE EXECUTIVE
[Name of Executive]
<PAGE> 1
EXHIBIT 10(s)
AMENDMENT NO. 3
TO
BRUSH WELLMAN INC. SUPPLEMENTAL RETIREMENT BENEFIT PLAN
(December 1, 1992 Restatement)
Brush Wellman Inc., an Ohio corporation, hereby adopts this Amendment
No. 3 to the Brush Wellman Inc. Supplemental Retirement Benefit Plan (December
1, 1992 Restatement) (the "Plan").
I.
Sections 4.1 and 4.2 of the Plan are amended by adding to such sections
immediately following the phrase "did not exist" in each place such phrase
appears therein the following: "and the Brush Wellman Inc. Key Employee Share
Option Plan did not exist".
II.
Section 6.2 of the Plan is amended by adding at the end thereof the
following: Notwithstanding the foregoing provisions of this Section 6.2: No
compensation reduction elections or credits to any Supplemental Savings Plan
Account pursuant to the first paragraph of this Section 6.2 shall occur with
respect to any Limitation Measuring Period beginning after December 31, 1998.
III.
Article VI of the Plan is amended by adding at the end thereof the
following:
Section 6.6 -- Special Election
Notwithstanding any other provision of the Plan to the contrary, except
Section 9.5 (as contemplated in this Section 6.6), each of Carl Cramer, Brian
Derry, Stephen Freeman, Hugh Hanes, Craig Harlan, Gordon Harnett, Alphonso
Lubrano, John Paschall, Andrew Sandor, and Daniel Skoch, may elect to forego all
rights and benefits under the Plan with respect to his Supplemental Savings Plan
Account in consideration of an award of "Options", as defined in the Brush
Wellman Inc. Key Employee Share Option Plan (the "KESOP"), in accordance with
the following and such rules and procedures as may be established by the
Committee consistent with the following:
(i) Such election may be made only by delivery during a period occurring in
1998, which period shall begin and shall end prior to the effective date of the
election, by the Participant to the Company of a written election on a form
prescribed therefor by the Committee, which form shall be substantially in the
form of Exhibit I attached hereto and made a part hereof;
(ii) In the case of a Participant who makes the election provided for under this
Section 6.6, neither the Participant, the Participant's Beneficiary, nor any
other person claiming through or under the Participant shall thereafter have any
rights under or with respect to Article VI of the Plan and all provisions of the
Plan shall be construed, interpreted, and applied accordingly;
(iii) In the case of a Participant who makes the election provided for under
this Section 6.6 and who would have credits to his Supplemental Savings Plan
Account occur under Section 6.2 after the effective date of such election
without regard to this Section 6.6, such credits shall not occur but such
Participant's Excess Credited Compensation shall be reduced without regard to
the election under this Section 6.6;
(iv) The provisions of this Section 6.6 shall not result in any right of a
Participant to receive Excess Credited Compensation that such Participant has
elected to reduce;
(v) The terms and conditions of Options awarded under the KESOP in respect of
any election under this Section 6.6 shall be determined under the KESOP;
(vi) Such election shall include a consent to Amendment No. 3 to the Plan in
accordance with Section 9.5 of the Plan and a consent under the Trust Agreement
for Brush Wellman Inc. Supplemental Retirement Benefit Plan dated January 8,
1993 (the "Trust Agreement"), to Amendment No. 1 to the Trust Agreement,
<PAGE> 2
which Amendment No. 1 to the Trust Agreement provides for return to the Company
of any assets of the Participant's separate account(s) under the Trust
Agreement;
(vii) Such election shall be irrevocable after delivery thereof to the Company,
and such election shall (except as otherwise provided in clause (viii) below)
become effective upon delivery thereof to the Company; and
(viii) Notwithstanding the foregoing provisions of this Section 6.6, if the
employment with the Controlled Group of any Participant described in this
Section 6.6 shall terminate prior to the effective date of his election made
pursuant to this Section 6.6 the provision of this Section 6.6 shall not apply
with respect to such Participant and any election of such Participant made
pursuant to this Section 6.6 shall be void ab initio.
IV.
Sections 4.1 and 4.2 of Schedule I of the Plan are amended by adding to
such sections immediately following the phrase "did not exist" in each place
such phrase appears therein the following: "and the Brush Wellman Inc. Key
Employee Share Option Plan did not exist".
V.
The changes to the Plan made by Section I of this Amendment No. 3 shall
be effective beginning May 5, 1998. The changes to the Plan made by Section II
of this Amendment No. 3 shall be effective for Limitation Measuring Periods
beginning after December 31, 1998. The changes to the Plan made by Section III
of this Amendment No. 3 shall be effective beginning May 5, 1998. The changes to
the Plan made by Section IV of this Amendment No. 3 shall be effective beginning
May 5, 1998.
Executed at Cleveland, Ohio this _____ day of ______________, 1998.
BRUSH WELLMAN INC.
By:___________________________________
Title:
<PAGE> 3
Exhibit I
ELECTION AND CONSENT FORM REGARDING BRUSH WELLMAN INC.
KEY EMPLOYEE SHARE OPTION PLAN, SUPPLEMENTAL RETIREMENT BENEFIT PLAN,
AND TRUST AGREEMENT FOR SUPPLEMENTAL RETIREMENT BENEFIT PLAN
ELECTION AND CONSENTS
I hereby irrevocably elect, in accordance with Section 6.6 of the Brush Wellman
Inc. Supplemental Retirement Benefit Plan (December 1, 1992 Restatement), as
amended (the "Supplemental Plan") to forego all rights that I have or otherwise
would have under Article VI of the Supplemental Plan with respect to my
"Supplemental Savings Plan Account" (as defined in the Supplemental Plan) in
consideration of the award of Option(s) under the Brush Wellman Inc. Key
Employee Share Option Plan (the "KESOP") as described in Section III of this
form below.
I hereby irrevocably consent to Amendment No. 3 to the Supplemental Plan, which
amendment provides for the extinguishment of my Supplemental Savings Plan
Account in connection with this election.
I hereby irrevocably consent to Amendment No. 1 to the Trust Agreement for Brush
Wellman Inc. Supplemental Retirement Benefit Plan, which amendment provides for
return to Brush Wellman Inc. of any assets of my separate account(s) under said
Trust Agreement, attributable to contributions made prior to July 3, 1998.
KESOP INVESTMENT SELECTION (in whole percentages)
I hereby irrevocably elect the following Designated Property for the KESOP
Options I am to receive under this election:
[Fund 1] __________%
[Fund 2] __________%
[Fund 3] __________%
<PAGE> 4
III. ACKNOWLEDGMENTS BY PARTICIPANT
I understand that the amount of KESOP Options I will receive under this election
in regard to my Supplemental Savings Plan Account as of _________, 1998 will be
determined as follows: My Supplemental Savings Plan Account balance as of
__________, 1998 (including credits thereto in respect of compensation
reductions for the pay period ending on __________, 1998) has been projected to
be $________. Such projected amount, and not the actual amount of the account
balance, will be used to determine the KESOP Option(s) that I will receive. The
Grant Date for the Option(s) will be __________, 1998. The Exercise Price for
the Option(s) will be 25% of the Fair Market Value on the Grant Date of the
Designated Property purchasable under the Option(s). The formula that will be
used to determine the number of shares of Designated Property purchasable under
the Option(s) is: $_______/.75=the Fair Market Value on the Grant Date of the
total number of shares of Designated Property purchasable under the Option(s).
The Options will be written in such increments as the Committee shall determine.
I understand that I will receive an Option Agreement covering each such Option
substantially in the form attached hereto as soon as practicable after the Grant
Date.
I understand that the amount of KESOP Options I will receive under this election
in regard to compensation reductions for the period __________, 1998 through
December 25, 1998 that I previously elected under the Supplemental Plan will be
determined as follows: The total of such compensation
<PAGE> 5
reductions that occur plus an amount equal to the "matching credits" that would
have been credited to my Supplemental Savings Plan Account under the
Supplemental Plan in respect of those compensation reductions in the absence of
this election ("Matching Credits") will be used to determine the KESOP Option(s)
I will receive. There will be two Grant Dates for the Option(s): ___________,
1998, which will be for compensation reductions and Matching Credits for the
period ____________, 1998 through ____________, 1998; and ____________, 1998,
which will be for compensation reductions and Matching Credits for the period
_____________, 1998 through December 25, 1998. The Exercise Price for the
Option(s) will be 25% of the Fair Market Value on the Grant Date of the
Designated Property purchasable under the Option(s). The formula that will be
used to determine the number of shares purchasable under the Option(s) is: the
aggregate dollar amount of compensation reductions plus Matching Credits for the
applicable period/(.75)=the Fair Market Value on the Grant Date of the total
number of shares of Designated Property purchasable under the Option(s). The
Options will be written in such increments as the Committee shall determine. I
understand that I will receive an Option Agreement covering each such Option
substantially in the form attached hereto as soon as practicable after the Grant
Date(s).
I acknowledge that for this election to be effective, it must be properly
completed and delivered to Brush Wellman Inc. at 17876 St. Clair Avenue,
Cleveland, Ohio 44110-2697 to the attention of _______________________ prior to
5:00 p.m. Eastern standard time on ___________, 1998.
I acknowledge that this election is irrevocable and that after delivery of this
election to Brush Wellman Inc. I will not have any rights or benefits under the
Supplemental Plan with respect to my Supplemental Savings Plan Account, except
that if my employment with Brush Wellman Inc., and/or its affiliates, if
applicable, terminates prior to ____________, 1998, this election will be void.
I acknowledge that I have received from Brush Wellman Inc. the following: (1) a
copy of Amendment No. 3 to the Supplemental Plan; (2) a copy of Amendment No. 1
to the Trust Agreement for Brush Wellman Inc. Supplemental Retirement Benefit
Plan; (3) a copy of the Brush Wellman Inc. Key Employee Share Option Plan; (4) a
copy of the Trust Agreement for Brush Wellman Inc. Key Employee Share Option
Plan; and (5) a copy of the Prospectus dated _____________, 1998 for the Brush
Wellman Inc. Key Employee Share Option Plan.
I acknowledge that capitalized terms used in this election form that are not
defined in this election form have the meanings given them in the Brush Wellman
Inc. Key Employee Share Option Plan.
I acknowledge that in making this election I am not relying upon any advice
provided by Brush Wellman Inc., the Committee under the Supplemental Plan, the
Committee under the KESOP, or their affiliates, and that I am not relying upon
any representation or information provided by Brush Wellman Inc., the Committee
under the Supplemental Plan, the Committee under the KESOP, or their affiliates,
except the documentation the receipt of which I have acknowledged above and the
information contained in the first two paragraphs of this Section III of this
election form.
[Name of Participant]
Date: , 1998
Receipt acknowledged by
Brush Wellman Inc.:
By
Title:
Date: , 1998
<PAGE> 6
BRUSH WELLMAN INC.
KEY EMPLOYEE SHARE OPTION PLAN
Option Agreement
1. Pursuant to the Brush Wellman Inc. Key Employee Share Option Plan,
as amended from time to time (the "Plan"), the terms of which are incorporated
by reference into this Agreement, an Option is hereby granted to the Participant
to purchase from Brush Wellman Inc. (the "Corporation") the Designated Property
identified below at the Exercise Price set forth below:
Name of Participant: [PARTICIPANT NAME]
KESOP Option Number: [ADMINISTRATIVE IDENTIFYING NO.]
Designated Property: [NAME OF MUTUAL FUND]
Number of Shares of
Designated Property: [NUMBER OF SHARES]
Exercise Price: $______ [25% of FMV AT GRANT DATE]
Grant Date: [GRANT DATE]
2. The rights of the Participant or any other person entitled to
exercise the Option are governed by the terms and provisions of the Plan. All
initial capitalized terms used herein and not otherwise defined herein have the
meaning set forth in the Plan.
3. The Option may be exercised only by the Participant, the
Participant's Beneficiary, or the Participant's permitted assignee pursuant to
the Plan. The Option cannot otherwise be transferred, assigned, pledged or
hypothecated for any purpose whatsoever and is not subject, in whole or in part,
to execution, attachment, or similar process, and any such attempted action is
void.
4. Written notice of an election to exercise the Option, enclosing this
Agreement, shall be (a) delivered to the Committee at the following address, or
(b) mailed (by certified mail, postage prepaid) to the Committee at the
following address:
[CONTACT PERSON]
[ADDRESS]
5. Payment of the Exercise Price shall be made by certified check (or
other form of payment acceptable to the Corporation) concurrent with
notification to the Committee of exercise of the Option, and the Participant
must satisfy all federal, state, local, foreign, and other withholding tax
requirements in any manner permitted under the Plan.
<PAGE> 7
6. Except as otherwise provided in the Plan, the Option may be
exercised at any time during the period beginning on the 184th day after the
Grant Date and ending on the earliest of: (a) the third anniversary of the date
of the Participant's Termination of Employment, (b) the first anniversary of the
date of the Participant's death, or (c) the fifteenth anniversary of the Grant
Date. To the extent, however, that exercise of the Option would or may result in
compensation that would not be deductible to the Corporation because of the
limitations of Internal Revenue Code Section 162(m) and as hereafter amended or
otherwise modified, as determined by the Committee, exercise of the Option shall
be limited in such manner as the Committee shall determine or shall be
conditioned upon such agreement by the Participant as Committee shall determine.
7. Neither the Participant, a Beneficiary, nor any permitted assignee
shall be, or shall have any of the rights and privileges of, a stockholder with
respect to any Designated Property purchasable or issuable upon the exercise of
this Option, unless and until this Option is exercised and the purchase price
for the Designated Property has been paid in full.
8. The Option is conditioned upon the acceptance of this Agreement by
the Participant as evidenced by the return of an executed copy to the Committee
no later than ten days after the Grant Date.
9. Except to the extent governed by federal law, the Option and this
Agreement shall be construed and interpreted according to and governed in all
respects by the laws of the State of Ohio without regard to the choice of law
principles of such state.
BRUSH WELLMAN INC.
By: Date:
[NAME, TITLE]
I, the undersigned Participant, hereby acknowledges that I have received from
Brush Wellman Inc. the following: (1) a copy of the Brush Wellman Inc. Key
Employee Share Option Plan; (2) a copy of the Trust Agreement for Brush Wellman
Inc. Key Employee Share Option Plan; and (3) a copy of the Prospectus dated
_____________, 1998 for the Brush Wellman Inc. Key Employee Share Option Plan.
I, the undersigned Participant, hereby acknowledge that in accepting this
Agreement I am not relying upon any advice or representation or information
provided by Brush Wellman Inc., the Committee, or their affiliates, except as
described in the KESOP Election Form to which this Agreement pertains.
Date:
[PARTICIPANT NAME], Participant
<PAGE> 1
EXHIBIT (10t)
AMENDMENT NO. 4
TO
BRUSH WELLMAN INC.
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
(December 1, 1992 Restatement)
Brush Wellman Inc., an Ohio corporation, hereby adopts this Amendment
No. 4 to the Brush Wellman Inc. Supplemental Retirement Benefit Plan (December
1, 1992 Restatement) (the "Plan").
I.
Article VI of the Plan is amended by adding at the end thereof the
following:
Section 6.7 -- 1999 Special Election
Notwithstanding any other provision of the Plan to the
contrary, except Section 9.5 (as contemplated in this Section 6.7),
each of David C. Deubner and John J. Pallam, may elect to forego all
rights and benefits under the Plan with respect to his Supplemental
Savings Plan Account in consideration of an award of "Options", as
defined in the Brush Wellman Inc. Key Employee Share Option Plan (the
"KESOP"), in accordance with the following and such rules and
procedures as may be established by the Committee consistent with the
following:
(i) Such election may be made only by delivery during a
period occurring in 1998, which period shall begin
and shall end prior to the effective date of the
election, by the Participant to the Company of a
written election on a form prescribed therefor by the
Committee, which form shall be substantially in the
form of Exhibit II attached hereto and made a part
hereof;
(ii) In the case of a Participant who makes the election
provided for under this Section 6.7, neither the
Participant, the Participant's Beneficiary, nor any
other person claiming through or under the
Participant shall thereafter have any rights under or
with respect to Article VI of the Plan and all
provisions of the Plan shall be construed,
interpreted, and applied accordingly;
(iii) In the case of Participant who makes the election
provided for under this Section 6.7 and who would
have credits to his Supplemental Savings Plan Account
occur under Section 6.2 after
<PAGE> 2
the effective date of such election without regard to
this Section 6.7, such credits shall not occur but
such Participant's Excess Credited Compensation shall
be reduced without regard to the election under this
Section 6.7;
(iv) The provisions of this Section 6.7 shall not result
in any right of a Participant to receive Excess
Credited Compensation that such Participant has
elected to reduce;
(v) The terms and conditions of Options awarded under the
KESOP in respect of any election under this Section
6.7 shall be determined under the KESOP;
(vi) Such election shall include a consent to Amendment
No. 4 to the Plan in accordance with Section 9.5 of
the Plan and a consent under the Trust Agreement for
Brush Wellman Inc. Supplemental Retirement Benefit
Plan dated January 8, 1993 (the "Trust Agreement"),
to Amendment No. 2 to the Trust Agreement, which
Amendment No. 2 to the Trust Agreement provides for
return to the Company of any assets of the
Participant's separate account(s) under the Trust
Agreement;
(vii) Such election shall be irrevocable after delivery
thereof to the Company, and such election shall
(except as otherwise provided in clause (viii) below)
become effective upon delivery thereof to the
Company; and
(viii) Notwithstanding the foregoing provisions of this
Section 6.7, if the employment with the Controlled
Group of any Participant described in this Section
6.7 shall terminate prior to the effective date of
his election made pursuant to this Section 6.7 the
provision of this Section 6.7 shall not apply with
respect to such Participant and any election of such
Participant made pursuant to this Section 6.7 shall
be void ab initio.
II.
The changes to the Plan made by Section I of this Amendment No. 4 shall
be effective beginning December 1, 1998.
Executed at Cleveland, Ohio this _____ day of _______________, 1998.
BRUSH WELLMAN INC.
By:
Title:____________________________
<PAGE> 1
EXHIBIT 10(u)
AMENDMENT NO. 5
TO
BRUSH WELLMAN INC.
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
(December 1, 1992 Restatement)
Brush Wellman Inc., an Ohio corporation, hereby adopts this Amendment
No. 5 to the Brush Wellman Inc. Supplemental Retirement Benefit Plan (December
1, 1992 Restatement) (the "Plan").
I.
Section 3.1 of the Plan is amended to provide as follows:
Section 3.1 - Retirement Benefit
If a Participant whose employment with the Company and all
Related Companies terminates for any reason other than his death after
he has 5 or more Years of Vesting Service and either the first day of
the calendar month following his attainment of age 55 shall have
occurred on or before the date his employment terminated or he survives
until the first day of the calendar month following his attainment of
age 55, such Participant shall be eligible for a retirement benefit
under the Plan in the amount, if any, provided in Section 4.1.
II.
Section 3.2 of the Plan is amended to provide as follows:
Section 3.2 - Spouse Death Benefit
If either (i) a Participant who has 5 or more Years of Vesting
Service dies while employed by the Company or Related Company, or (ii)
the employment of a Participant who has 5 or more Years of Vesting
Service with the Company and all Related Companies has terminated for
any reason other than his death and the Participant dies prior to the
first day of the calendar month following the calendar month in which
either he attains or would have attained age 55, and, in either case,
the Participant's death occurs under circumstances that entitle the
Participant's Spouse to a pre-retirement surviving spouse pension under
the Brush Pension Plan, the TMI Pension Plan, and/or the WAM Pension
Plan, such Participant's Spouse shall be eligible for a death benefit
under the Plan in the amount, if any, provided in Section 4.2.
<PAGE> 2
III.
Section 5.2 is amended to provide as follows:
Section 5.2 - Time of Payment
Payment of a Retired Participant's retirement benefit under
the Plan shall commence as of the first day of the calendar month next
following the later of the Participant's Retirement or attainment of
age 55. (Payment thereof shall, however, be subject to Section 3.4).
Any Spouse death benefit under the Plan shall commence as of the first
day of the calendar month next following the later of the calendar
month in which the Participant's death occurs or the calendar month in
which the Participant would have attained age 55.
IV.
The changes to the Plan made by this Amendment No. 5 shall be effective
with respect to Participants whose employment covered under the Plan terminates
after December 31, 1998.
Executed at Cleveland, Ohio, this ____ day of ____________, 1998.
BRUSH WELLMAN INC.
By:________________________________
Title:__________________________
<PAGE> 1
Exhibit 10(ee)
FIRST AMENDMENT TO MASTER LEASE AGREEMENT
-----------------------------------------
THIS FIRST AMENDMENT TO MASTER LEASE AGREEMENT, dated as of
September 2, 1997 ("Amendment"), by and between Brush Wellman Inc., an Ohio
corporation ("Lessee"), and National City Bank, for itself and as agent for
certain participants ("Lessor"),
WITNESSETH THAT:
----------------
WHEREAS, Lessee and Lessor entered into a Master Lease
Agreement, dated as of December 30, 1996 (together with all Exhibits and
Schedules thereto, the "Lease Agreement"), under which Lessor agreed to lease to
Lessee certain equipment to be used by Lessee at its Elmore, Ohio facility,
subject to certain conditions and in accordance with the terms thereof; and
WHEREAS, the parties desire to amend the Lease 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 Lease Agreement shall be and hereby is amended as provided
in Section 2 hereof. Except as expressly amended in Section 2 hereof, the Lease
Agreement shall continue in full force and effect in accordance with its
respective provisions on the date hereof. As used in the Lease Agreement, the
terms "Master Lease Agreement", "Lease Agreement", "Agreement", "this
Agreement", "herein", "hereinafter", "hereto", "hereof", and words of similar
import shall, unless the context otherwise requires, mean the Lease Agreement as
amended and modified by this Amendment.
2. Amendments.
-----------
Section XXV of the Lease Agreement shall be amended as
follows:
(1) The definition of "Port Authority Bonds" is amended by
deleting the same and inserting the following in lieu thereof:
"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,
<PAGE> 2
sold and delivered by the Toledo-Lucas County Port Authority
to The Prudential Insurance Company of America;"
(2) 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 Port
Authority, as lessor, and Lessee, 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;"
3. Representations and Warranties.
-------------------------------
(A) Lessee hereby represents and warrants to Lessor that all
representations and warranties set forth in the Lease Agreement, as amended
hereby, are true and correct in all material respects, and that this Amendment
has been executed and delivered by a duly authorized officer of Lessee and
constitute the legal, valid and binding obligation of Lessee, enforceable
against Lessee in accordance with their respective terms.
(B) The execution, delivery and performance by Lessee of this
Amendment and its performance of the Lease Agreement 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 Lessee, or (c) any provision of any indenture, agreement
or other instrument to which Lessee is a party, or by which Lessee or any of its
properties or assets are or may be bound; (2) be in conflict with, result in a
breach of or constitute, alone or with due notice or lapse of time or both, a
default under any indenture, agreement or other instrument referred to in (1)(c)
above; or (3) result in the creation or imposition of any lien, charge or
encumbrance of any nature whatsoever.
4. Miscellaneous.
--------------
(A) This Amendment shall be construed in accordance with and
governed by the laws of the State of Ohio, without reference to principles of
conflict of laws. Lessee agrees to pay on demand all costs and expenses of
Lessor, including reasonable attorneys' fees and expenses, in connection with
the preparation, execution and delivery of this Amendment.
-2-
<PAGE> 3
(B) The execution, delivery and performance by Lessor of this
Amendment shall not constitute, or be deemed to be or construed as, a waiver of
any right, power or remedy of Lessor, or a waiver of any provision of the Lease
Agreement. None of the provisions of this Amendment shall constitute, or be
deemed to be or construed as, a waiver of any "Default" or "Potential Default,"
as those terms are defined in the Lease Agreement.
(C) This Amendment may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to
be duly executed as of the day and year first above written.
LESSOR: LESSEE:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR
CERTAIN PARTICIPANTS
By: /s/ Robert E. Little By: /s/ M. C. Hasychak
--------------------------- ----------------------------
Name: Robert E. Little Name: M. C. Hasychak
--------------------------- ----------------------------
Title: Vice President Title: Treasurer and Secretary
--------------------------- ----------------------------
-3-
<PAGE> 4
THE FOREGOING FIRST AMENDMENT TO MASTER LEASE AGREEMENT is
hereby acknowledged, consented and agreed to by each of the undersigned by their
respective duly authorized officers as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
Address: KEYBANK NATIONAL ASSOCIATION
127 Public Square
Cleveland, Ohio 44114 By: /s/ Matthew P. Tuohey
---------------------------
Title: AVP
---------------------------
Address: NBD BANK
611 Woodward
Detroit, Michigan 48226 By:
---------------------------
Title:
---------------------------
Address: BANK ONE, NA
600 Superior Avenue
Cleveland, Ohio 44114 By: /s/ Babette Casey Coerdt
---------------------------
Title: Vice President and Group Manager
---------------------------
Address: HARRIS TRUST AND SAVINGS BANK
P.O. Box 755 (111/2W)
Chicago, Illinois 60690-0755 By: /s/ W.A. McDonnell
---------------------------
Title: Vice President
---------------------------
</TABLE>
-4-
<PAGE> 1
Exhibit 10(ff)
SECOND AMENDMENT TO MASTER LEASE AGREEMENT AND AMENDMENT TO
-----------------------------------------------------------
DISBURSEMENT SCHEDULES
----------------------
THIS SECOND AMENDMENT TO MASTER LEASE AGREEMENT AND AMENDMENT
TO DISBURSEMENT SCHEDULES, dated as of January 26, 1999 ("Amendment"), by and
between Brush Wellman Inc., an Ohio corporation ("Lessee"), and National City
Bank, for itself and as agent for certain participants ("Lessor"),
WITNESSETH THAT:
----------------
WHEREAS, Lessee and Lessor entered into a Master Lease
Agreement, dated as of December 30, 1996, as amended by the First Amendment to
Master Lease Agreement, dated as of September 2, 1997 (together with all
Exhibits and Schedules thereto, the "Lease Agreement"), under which Lessor
agreed to lease to Lessee certain equipment to be used by Lessee at its Elmore,
Ohio facility, subject to certain conditions and in accordance with the terms
thereof; and
WHEREAS, the parties desire to amend the Lease 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 Lease Agreement shall be and hereby is amended as provided
in Section 2 hereof. Except as expressly amended in Section 2 hereof, the Lease
Agreement shall continue in full force and effect in accordance with its
respective provisions on the date hereof. As used in the Lease Agreement, the
terms "Master Lease Agreement", "Lease Agreement", "Agreement", "this
Agreement", "herein", "hereinafter", "hereto", "hereof", and words of similar
import shall, unless the context otherwise requires, mean the Lease Agreement as
amended and modified by this Amendment.
2. Amendments.
-----------
(A) Section XIX(j) of the Lease Agreement shall be amended by
deleting the same and inserting the following in lieu thereof:
"(j) Any Rent, Interim Rent or other amount not paid
to Lessor when due hereunder (after any applicable grace period
therefor) shall bear interest, both before and after any judgment or
termination hereof, at the lesser of the Daily Lease Rate Factor then
in effect plus two percent (2%) per annum or the maximum rate allowed
by law. In addition, after the occurrence and during the continuance of
a Default, the Daily Lease Rate Factor shall be increased by an amount
equal to two percent (2%) per annum."
(B) Section XXIII(b) of the Lease Agreement shall be amended
by deleting the same and inserting the following in lieu thereof:
"(b) Lessee will not suffer or permit the Companies'
Funded Indebtedness at any time to exceed an amount equal to the
Leverage Multiplier (as hereinafter defined) times the Companies'
EBITDA for the four consecutive fiscal quarters most recently ended,
all as determined on a consolidated basis. As used herein, "LEVERAGE
MULTIPLIER" means (i) from the date of this Agreement to March 31,
1999, inclusive, 4.75, (ii) from April 1, 1999, to June 30, 1999,
inclusive, 4.50, (iii) from July 1, 1999, to September 30, 1999,
inclusive, 4.00, (iv) from October 1, 1999, to December 31, 1999,
inclusive, 3.75, (v) from January 1, 2000, to March 31, 2000,
inclusive, 3.25, and (vi) on and after April 1, 2000, 3.00."
<PAGE> 2
(C) Section XXV of the Lease Agreement shall be amended by
deleting the definition of "MAXIMUM ACQUISITION COST" set forth therein and
inserting the following in lieu thereof:
"MAXIMUM ACQUISITION COST means with respect to the aggregate
Acquisition Cost of the Equipment under all of the Schedules,
$55,500,000;"
(D) Exhibit No. 1, Exhibit No. 2, Exhibit No. 3 and Exhibit
No. 4 to the Lease Agreement are deleted and Exhibit No. 1, Exhibit No. 2,
Exhibit No. 3 and Exhibit No. 4 attached to this Amendment are inserted in lieu
thereof.
(E) Each Disbursement Schedule executed and delivered by
Lessee on or prior to the date hereof shall be amended by deleting Paragraphs
B.2., B.3, B.4 and B.8 and inserting the following in lieu thereof:
"2. Daily Lease Rate Factor: From the date of this Schedule to
January 25, 1999, LIBOR Rate plus sixty (60) basis points
per annum, and on and after January 26, 1999, LIBOR Rate
plus the Applicable Margin per annum
3. Basic Term: The thirty-three month period commencing on
the Basic Term Commencement Date.
4. Basic Term Commencement Date: March 15, 1999.
8. Last Delivery Date: February 15, 1999."
(F) Each Disbursement Schedule executed and delivered by
Lessee on or prior to the date hereof shall be amended by inserting in Paragraph
C the following definition in alphabetical order:
"`Applicable Margin' shall mean the particular rate per annum
determined by Lessor in accordance with the pricing grid table which
appears below, based on the ratio of the Companies' Funded Indebtedness
to the Companies' EBITDA, as computed in accordance with the pricing
grid table and the following provisions:
<TABLE>
<CAPTION>
If the Ratio of the Companies' Funded The Applicable Margin is:
Indebtedness to the Companies' EBITDA is:
<S> <C>
Greater than or equal to 4.50 to 1.00 2.00%
Less than 4.50 to 1.00, but greater
than or equal to 4.00 to 1.00 1.75%
Less than 4.00 to 1.00, but greater
than or equal to 3.50 to 1.00 1.375%
Less than 3.50 to 1.00, but greater
than or equal to 3.00 to 1.00 1.00%
Less than 3.00 to 1.00, but greater
than or equal to 2.50 to 1.00 0.80%
Less than 2.50 to 1.00, but greater
than or equal to 2.00 to 1.00 0.70%
Less than 2.00 to 1.00 0.65%
</TABLE>
-2-
<PAGE> 3
(A) Initially, from January 26, 1999, until changed hereunder
in accordance with the following provisions, the Applicable Margin will be 2.00%
per annum. Commencing with the fiscal quarter of Lessee ending on or nearest to
March 31, 1999, and continuing with each fiscal quarter thereafter, Lessor will
determine the Applicable Margin in accordance with the foregoing pricing grid
table, based on the ratio of (x) the Funded Indebtedness of the Companies as of
the end of the fiscal quarter, to (y) the EBITDA of the Companies for the four
consecutive fiscal quarters ended on the last day of the fiscal quarter, as
identified in the pricing grid table. Changes in the Applicable Margin based
upon changes in such ratio shall become effective on the first day of the month
following the receipt by Lessor pursuant to Section IV(b)(i) or (ii) of the
financial statements of Lessee and it Subsidiaries, accompanied by the
certificate and calculations referred to in Section IV(b)(iii), demonstrating
the computation of such ratio, based upon the ratio in effect at the end of the
applicable period covered (in whole or in part) by such financial statements.
(B) Notwithstanding the above provisions, during any period
when an Event of Default has occurred and is continuing, the Applicable Margin
shall be the highest rate per annum indicated therefor in the foregoing pricing
grid table, regardless of the ratio of Funded Indebtedness to EBITDA at such
time. Notwithstanding the above provisions, but subject to the preceding
sentence, during any period when Borrower has failed to timely deliver its
consolidated financial statements referred to in subsection IV(b)(i) or (ii),
accompanied by the certificate and calculations referred to in subsection
IV(b)(iii), the Applicable Margin shall be the rate per annum indicated for the
level in the foregoing pricing grid table that is one level higher than the
level that is otherwise then currently in effect, regardless of the ratio of
Funded Indebtedness to EBITDA at such time.
(C) Any changes in the Applicable Margin shall be determined
by Lessor in accordance with the above provisions and Lessor will promptly
provide notice of such determinations to Lessee. Any such determination by
Lessor pursuant to the above provisions shall be conclusive and binding absent
manifest error. The Applicable Margin is subject in all respects to compliance
by Lessee with Section XXIII(b) of the Lease, and this schedule of levels for
the Applicable Margin is not intended to waive or otherwise excuse a violation
of Section XXIII(b) of the Lease; if that Section is violated, the Daily Lease
Rate Factor will increase as set forth in Section XIX(j) of the Lease."
3. Representations and Warranties.
-------------------------------
(A) Lessee hereby represents and warrants to Lessor that all
representations and warranties set forth in the Lease Agreement and the
Disbursement Schedules, as amended hereby, are true and correct in all material
respects, and that this Amendment has been executed and delivered by a duly
authorized officer of Lessee and constitute the legal, valid and binding
obligation of Lessee, enforceable against Lessee in accordance with their
respective terms.
(B) The execution, delivery and performance by Lessee of this
Amendment and its performance of the Lease Agreement and the Disbursement
Schedules, as amended hereby, 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 Lessee, or (c) any provision of any indenture, agreement or other
instrument to which Lessee is a party, or by which Lessee 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.
-3-
<PAGE> 4
4. 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. Lessee agrees to pay to Lessor a fee in an amount equal to
$45,000 at the time this Amendment is executed and delivered by Lessor and to
pay on demand all costs and expenses of Lessor, including reasonable attorneys'
fees and expenses, in connection with the preparation, execution and delivery of
this Amendment.
(B) The execution, delivery and performance by Lessor of this
Amendment shall not constitute, or be deemed to be or construed as, a waiver of
any right, power or remedy of Lessor, or a waiver of any provision of the Lease
Agreement. None of the provisions of this Amendment shall constitute, or be
deemed to be or construed as, a waiver of any "Default" or "Potential Default,"
as those terms are defined in the Lease 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.
(D) Lessee hereby acknowledges and consents to the following
financial institution being a Participant in the Lease, in addition to the
financial institutions that have been Participants and that acknowledge, consent
and agree to this Amendment: Fifth Third Bank, Northeastern Ohio.
IN WITNESS WHEREOF, the parties have caused this Amendment to
be duly executed as of the day and year first above written.
LESSOR: LESSEE:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR
CERTAIN PARTICIPANTS
By: /s/ Jeffrey C. Douglas By: /s/ Michael C. Hasychak
----------------------- -----------------------
Name: Jeffrey C. Douglas Name: Michael C. Hasychak
----------------------- -----------------------
Title: Vice President and Senior Lending Officer Title: Treasurer and Secretary
----------------------------------------- -----------------------
THE FOREGOING WAIVER AGREEMENT is hereby acknowledged,
consented and agreed to by each of the undersigned by their respective duly
authorized officers as of the day and year first above written.
Address: FIFTH THIRD BANK, NORTHEASTERN
OHIO
1404 East Ninth Street
Cleveland, Ohio 44114 By:
-----------------------
Title:
-----------------------
-4-
<PAGE> 5
Address: BANK ONE, NA
611 Woodward
Detroit, Michigan 48226 By:
-----------------------
Title:
-----------------------
Address: HARRIS TRUST AND SAVINGS BANK
P.O. Box 755 (111/10W)
Chicago, Illinois 60690-0755 By: /s/ Peter Krawchuk
-----------------------
Title: Vice President
-----------------------
Address: NBD BANK
611 Woodward
Detroit, Michigan 48226 By: /s/ Patrick E. Dunphy
-----------------------
Title: Vice President
-----------------------
-5-
<PAGE> 6
EXHIBIT NO. 1
DISBURSEMENT SCHEDULE
SCHEDULE NO. ______
DATED THIS ________ DAY OF _____________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
Lessor & Mailing Address: Lessee & Mailing Address:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR 17876 St. Clair Avenue
CERTAIN PARTICIPANTS Cleveland, Ohio 44110
1900 East 9th Street
Cleveland, Ohio 44114
This Disbursement Schedule is executed pursuant to, and incorporates by
reference the terms and conditions of, and capitalized terms not defined herein
shall have the meanings assigned to them in, the Master Lease Agreement
identified above ("Agreement;" said Agreement and this Schedule being
collectively referred to as "Lease"). This Disbursement Schedule, incorporating
by reference the Agreement, constitutes a separate instrument of lease.
A. Disbursement Equipment.
-----------------------
Pursuant to the terms of the Lease, Lessor agrees to fund disbursements in
respect of the Disbursement Equipment listed on Annex A attached hereto and made
a part hereof.
B. Financial Terms.
----------------
1. Capitalized Lessor's Cost: $___________________________________
(on the date of this Schedule).
2. Daily Lease Rate Factor: LIBOR Rate plus the Applicable Margin per
annum.
3. Basic Term: The thirty-three month period commencing on the Basic
Term Commencement Date.
4. Basic Term Commencement Date: March 15, 1999.
5. Equipment Location: Lessee's plant at 14710 W. Portage River
South Road, Harris Township, Ottawa County, Ohio 43416.
6. Lessee Federal Tax ID No.: 34-0119320
7. Maximum Lease Term: The Term shall not exceed twelve (12) years.
8. Last Delivery Date: February 15, 1999.
<PAGE> 7
C. Interim Term and Interim Rent.
------------------------------
1. Interim Rent. For the period from and including the Disbursement
Commencement Date to the Basic Term Commencement Date ("Interim Lease Term"),
rent ("Interim Rent") shall accrue on the Capitalized Lessor's Cost in an amount
equal to the product of the Daily Lease Rate Factor times the Capitalized
Lessor's Cost of the Disbursement Equipment times the number of days in the
Interim Interest Period. Interest shall be calculated on the basis of a 360 day
year for the actual number of days elapsed. Interim Rent shall accrue during
each Interim Interest Period and, at the end of each Interim Interest Period,
shall be added to and become part of the Lessor's Capitalized Cost outstanding
under this Disbursement Schedule, unless otherwise paid as provided in the
Agreement.
2. Disbursement Equipment. Lessee represents, warrants and covenants as
follows with respect to the Disbursement Equipment listed on Annex A attached
hereto:
(i) To the best of its knowledge, the Disbursement Equipment will be
completed, shipped and delivered to Lessee, and installed at the
Equipment Location on or prior to the Last Delivery Date;
(ii) Each item of Disbursement Equipment constitutes a portion or
unit of the Equipment described on Annex A attached hereto; and
(iii) The Purchase Order or Purchase Orders relating to that
Disbursement Equipment require the disbursement of funds in an
amount equal to the Capitalized Lessor's Cost, and Lessee has
received invoices for those funds.
As used in this Schedule, the following terms shall have the following
meanings:
"APPLICABLE MARGIN" shall mean the particular rate per annum determined
by Lessor in accordance with the pricing grid table which appears below, based
on the ratio of the Companies' Funded Indebtedness to the Companies' EBITDA, as
computed in accordance with the pricing grid table and the following provisions:
<TABLE>
<CAPTION>
If the Ratio of the Companies' Funded The Applicable Margin is:
Indebtedness to the Companies' EBITDA is:
<S> <C>
Greater than or equal to 4.50 to 1.00 2.00%
Less than 4.50 to 1.00, but greater
than or equal to 4.00 to 1.00 1.75%
Less than 4.00 to 1.00, but greater
than or equal to 3.50 to 1.00 1.375%
Less than 3.50 to 1.00, but greater
than or equal to 3.00 to 1.00 1.00%
Less than 3.00 to 1.00, but greater
than or equal to 2.50 to 1.00 0.80%
Less than 2.50 to 1.00, but greater
than or equal to 2.00 to 1.00 0.70%
Less than 2.00 to 1.00 0.65%
</TABLE>
-2-
<PAGE> 8
(A) Initially, from January 26, 1999, until changed hereunder in
accordance with the following provisions, the Applicable Margin will be 2.00%
per annum. Commencing with the fiscal quarter of Lessee ending on or nearest to
March 31, 1999, and continuing with each fiscal quarter thereafter, Lessor will
determine the Applicable Margin in accordance with the foregoing pricing grid
table, based on the ratio of (x) the Funded Indebtedness of the Companies as of
the end of the fiscal quarter, to (y) the EBITDA of the Companies for the four
consecutive fiscal quarters ended on the last day of the fiscal quarter, as
identified in the pricing grid table. Changes in the Applicable Margin based
upon changes in such ratio shall become effective on the first day of the month
following the receipt by Lessor pursuant to Section IV(b)(i) or (ii) of the
financial statements of Lessee and it Subsidiaries, accompanied by the
certificate and calculations referred to in Section IV(b)(iii), demonstrating
the computation of such ratio, based upon the ratio in effect at the end of the
applicable period covered (in whole or in part) by such financial statements.
(B) Notwithstanding the above provisions, during any period when an
Event of Default has occurred and is continuing, the Applicable Margin shall be
the highest rate per annum indicated therefor in the foregoing pricing grid
table, regardless of the ratio of Funded Indebtedness to EBITDA at such time.
Notwithstanding the above provisions, but subject to the preceding sentence,
during any period when Borrower has failed to timely deliver its consolidated
financial statements referred to in subsection IV(b)(i) or (ii), accompanied by
the certificate and calculations referred to in subsection IV(b)(iii), the
Applicable Margin shall be the rate per annum indicated for the level in the
foregoing pricing grid table that is one level higher than the level that is
otherwise then currently in effect, regardless of the ratio of Funded
Indebtedness to EBITDA at such time.
(C) Any changes in the Applicable Margin shall be determined by Lessor
in accordance with the above provisions and Lessor will promptly provide notice
of such determinations to Lessee. Any such determination by Lessor pursuant to
the above provisions shall be conclusive and binding absent manifest error. The
Applicable Margin is subject in all respects to compliance by Lessee with
Section XXIII(b) of the Lease, and this schedule of levels for the Applicable
Margin is not intended to waive or otherwise excuse a violation of Section
XXIII(b) of the Lease; if that Section is violated, the Daily Lease Rate Factor
will increase as set forth in Section XIX(j) of the Lease.
"INTERIM INTEREST PERIOD" or "INTEREST PERIOD" shall mean the period
beginning on the date of this Schedule and ending on the same day of each month
thereafter during the Interim Lease Term.
"INTEREST RATE" shall mean that percentage per annum calculated as the
sum of the LIBOR Rate redetermined monthly, plus sixty (60) basis points.
"LIBOR RATE" shall mean, with respect to any Interim Interest Period
occurring during the term of the Lease, an interest rate per annum equal at all
times during such Interim Interest Period to the quotient of (1) the rate per
annum as determined by Lessor at which deposits of U.S. Dollars in immediately
available and freely transferable funds are offered at 11:00 a.m. (London,
England time) two (2) Business Days before the commencement of such Interim
Interest Period to major banks in the London interbank market for a period of
one (1) month and in an amount equal or comparable to the Capitalized Lessor's
Cost, divided by (2) a number equal to 1.00 minus the aggregate (without
duplication) of the rates (expressed as a decimal fraction) of the LIBOR Reserve
Requirements current on the date three (3) Business Days prior to the first day
of the Interim Interest Period.
"LIBOR RESERVE REQUIREMENTS" shall mean the daily average for the
applicable Interest Period of the maximum rate applicable to Lessor or its
Participants at which reserves (including, without limitation, any supplemental,
marginal and emergency reserves) are imposed during such Interest Period by the
Board of Governors of the Federal Reserve System (or any successor) on
"Eurocurrency liabilities", as
-3-
<PAGE> 9
defined in such Board's Regulation D (or in respect of any other category of
liabilities that include deposits by reference to which the interest rates on
Eurodollar loans is determined or any category of extensions of credit or other
assets that include loans by non-United States offices of any lender to United
States residents), having a term equal to such Interest Period, subject to any
amendments of such reserve requirement by such Board or its successor, taking
into account any transitional adjustments thereto.
If at any time Lessor or any Participant (or, without duplication, the
bank holding company of which such Participant is a subsidiary) determines that
either adequate and reasonable means do not exist for ascertaining the LIBOR
Rate, or it becomes impractical for Lessor or any Participant to obtain funds to
make or maintain the financing hereunder with interest at the LIBOR Rate, or
Lessor or any Participant reasonably determines that, as a result of changes to
applicable law after the date of execution of the Agreement, or the adoption or
making after such date of any interpretations, directives or regulations
(whether or not having the force of law) by any court, governmental authority or
reserve bank charged with the interpretation or administration thereof, it shall
be or become unlawful or impossible to make, maintain, or fund the transaction
hereunder at the LIBOR Rate, then Lessor promptly shall give notice to Lessee of
such determination and Lessor and Lessee shall negotiate in good faith a
mutually acceptable alternative method of calculating the Interest Rate and
shall execute and deliver such documents as reasonably may be required to
incorporate such alternative method of calculating the Interest Rate in this
Schedule, within thirty (30) days after the date of Lessor's notice to Lessee.
If the parties are unable mutually to agree to such alternative method of
calculating the Interest Rate in a timely fashion, (a) effective on the
commencement of the next succeeding Interest Period or the date that it becomes
impractical for Lessor or any Participant to maintain the financing hereunder
with interest at the LIBOR Rate as aforesaid, as the case may be, the Interest
Rate shall become a floating rate equal to the Federal Funds Rate plus sixty
(60) basis points, and (b) on the Rent Payment Date next succeeding the
expiration of such thirty (30) day period Lessee shall purchase all (but not
less than all) of the Disbursement Equipment described on all Disbursement
Schedules executed pursuant to the Agreement and shall pay to Lessor, in cash,
the purchase price for the Disbursement Equipment so purchased, determined as
hereinafter provided. (As used herein, "Federal Funds Rate" means the rate of
interest, as reasonably determined by Lessor, paid by or available to Lessor for
the purchase of "federal funds" at the time or times in question on a daily
overnight basis.) The purchase price of the Disbursement Equipment shall be an
amount equal to all amounts disbursed by Lessor in respect of that Disbursement
Equipment, together with all rent and other sums then due on such date, plus all
taxes and charges upon sale and all other reasonable and documented expenses
incurred by Lessor in connection with such sale. Upon satisfaction of the
conditions specified in this Paragraph, Lessor will transfer, on an AS IS, WHERE
IS BASIS, all of Lessor's interest in and to the Disbursement Equipment. Lessor
shall not be required to make and may specifically disclaim any representation
or warranty as to the condition of the Disbursement Equipment and other matters
(except that Lessor shall warrant that it conveyed whatever interest it received
in such Disbursement Equipment free and clear of any Lien created by Lessor).
Lessor shall execute and deliver to Lessee such Uniform Commercial Code
statements of termination as reasonably may be required in order to terminate
any interest of Lessor in and to the Disbursement Equipment.
3. Lessee shall pay to Lessor, for the account of each Participant,
from time to time, the amounts as such Participant may determine to be necessary
to compensate it for any costs which such Participant determines are
attributable to its making or maintaining its interest in the Lease and the
Disbursement Equipment (the "Interest") or any reduction in any amount
receivable by such Participant in respect of any such Interest (such increases
in costs and reductions in amounts receivable being herein called "Additional
Costs"), resulting from any Regulatory Change (as defined below) which:
(i) changes the basis of taxation of any amounts payable to Lessor
for the account of such Participant in respect of such Interest
(other than taxes imposed on or measured by the overall net income
of such Participant in respect of the interest by the jurisdiction
in which such Participant has its principal office or its lending
office); or
-4-
<PAGE> 10
(ii) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets
of, or any deposits with or other liabilities of, such Participant;
or
(iii) imposes any other condition affecting this Lease or any
Interest.
For purposes hereof, "Regulatory Change" shall mean any change after the date of
this Lease in United States federal, state or foreign law or regulations
(including, without limitation, Regulation D of the Board of Governors of the
Federal Reserve System (or any successor), as amended or supplemented from time
to time) or the adoption or making after such date of any interpretation,
directive or request applying to a class of banks including any Participant or
under any United States federal, state or foreign law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof. In
addition, whenever Lessee shall revoke any Disbursement Funding Notice or shall
for any other reason fail to take a disbursement pursuant thereto or shall fail
otherwise to comply therewith, then, in each case on the demand of Lessor or any
Participant, Lessee shall pay that Person such amount as will compensate it for
any loss, cost or loss of profit incurred by it by reason of its liquidation or
reemployment of deposits or other funds.
Without limiting the effect of the foregoing Paragraph (but without
duplication), Lessee shall pay to Lessor, for the account of each Participant,
from time to time on request such amounts as such Participant may determine to
be necessary to compensate such Participant (or, without duplication, the bank
holding company of which such Participant is a subsidiary) for any costs which
it determines are attributable to the maintenance by such Participant (or any
lending office or such bank holding company), pursuant to any law or regulation
or any interpretation, directive or request (whether or not having the force of
law) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or
requirement (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) heretofore or hereafter issued by
any government or governmental or supervisory authority implementing at the
national level the Basle Accord (including, without limitation, the Final
Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the
Final Risk-Based Capital Guidelines of the Office of the Comptroller of the
Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of such
Participant's Interest (such compensation to include, without limitation, an
amount equal to any reduction of the rate of return on assets or equity of such
Participant (or any lending office or bank holding company) to a level below
that which such Participant (or any lending office or bank holding company)
could have achieved but for such law, regulation, interpretation, directive or
request). For purposes of this Paragraph, "Basle Accord" shall mean the
proposals for risk-based capital framework described by the Basle Committee on
Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.
Each Participant shall notify Lessee of any event occurring after the
date of this Lease that will entitle such Participant to compensation under the
preceding two Paragraphs as promptly as practicable, but in any event within
thirty (30) days, after such Participant obtains actual knowledge thereof;
provided, that (i) if such Participant fails to give such notice within thirty
(30) days after it obtains actual knowledge of such an event, such Participant
shall, with respect to compensation payable pursuant to the preceding two
Paragraphs in respect of any costs resulting from such event, only be entitled
to payment under the referenced Paragraphs for costs incurred from and after the
date thirty (30) days prior to the date that such Participant does give such
notice, and (ii) such Participant will designate a different lending office for
the Interest if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the sole opinion of such Participant, be
disadvantageous to such Participant. Each Participant will furnish to Lessee a
certificate setting forth the basis and amount of each request by such
Participant for
-5-
<PAGE> 11
compensation under the preceding two Paragraphs. Determinations and allocations
by each Participant for purposes of the preceding two Paragraphs shall be
conclusive, absent manifest error.
D. Insurance.
----------
1. Public Liability: $1,000,000 total liability per occurrence and
$2,000,000 in the aggregate, with excess liability in umbrella form of
$10,000,000 per occurrence and in the aggregate, with a maximum deductible
amount of (a) $1,500,000 per occurrence or (b) an amount equal to $1,500,000 per
occurrence plus the amount of any reserves specifically allocated by Lessee for
this type of liability that are satisfactory to Lessor, but in no event greater
than $2,500,000 per occurrence.
2. Casualty and Property Damage: An amount equal to the higher of the
full replacement cost of each unit of Disbursement Equipment or the amounts
disbursed by Lessor in respect of each unit of Disbursement Equipment, with a
maximum deductible amount of $1,000,000 per occurrence.
This Schedule is not binding or effective with respect to the Agreement
or Equipment until executed on behalf of Lessor and Lessee by an authorized
representative of Lessor and Lessee, respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR
CERTAIN PARTICIPANTS
By: By:
------------------------- -------------------------
Name: Name:
------------------------- -------------------------
Title: Title:
------------------------- -------------------------
-6-
<PAGE> 12
ANNEX A
TO
DISBURSEMENT SCHEDULE NO. ______
DATED THIS ______ DAY OF ______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
<TABLE>
<CAPTION>
DESCRIPTION OF DISBURSEMENT EQUIPMENT
Type and
Serial Model of Number Cost per
Vendor Numbers Equipment of Units Unit
- ------ -------- --------- -------- --------
<S> <C> <C> <C> <C>
</TABLE>
Initials: __________ __________
Lessor Lessee
<PAGE> 13
EXHIBIT NO. 2
EQUIPMENT SCHEDULE
SCHEDULE NO. ______
DATED THIS ________ DAY OF _____________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
Lessor & Mailing Address: Lessee & Mailing Address:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR 17876 St. Clair Avenue
CERTAIN PARTICIPANTS Cleveland, Ohio 44110
1900 East 9th Street
Cleveland, Ohio 44114
This Equipment Schedule is executed pursuant to, and incorporates by reference
the terms and conditions of, and capitalized terms not defined herein shall have
the meanings assigned to them in, the Master Lease Agreement identified above
("Agreement;" said Agreement and this Schedule being collectively referred to as
"Lease"). This Equipment Schedule, incorporating by reference the Agreement,
constitutes a separate instrument of lease.
A. Equipment.
----------
Pursuant to the terms of the Lease, Lessor agrees to acquire and lease
to Lessee the Equipment listed on Annex A attached hereto and made a part
hereof.
B. Financial Terms.
----------------
1. Capitalized Lessor's Cost: $__________________________________
(being an amount equal to funds disbursed and Interim Rent
accrued and unpaid in respect of the Equipment and its parts
and components during the Interim Lease Period).
2. Daily Lease Rate Factor: LIBOR Rate plus the Applicable Margin
per annum.
3. Basic Term: The thirty-three month period commencing on the
Basic Term Commencement Date.
4. Basic Term Commencement Date: March 15, 1999.
5. Equipment Location: Lessee's plant in 14710 W. Portage River
South Road, Harris Township, Ottawa County, Ohio 43416.
6. Lessee Federal Tax ID No.: 34-0119320
7. Lessee agrees and acknowledges that the Capitalized Lessor's
Cost of the Equipment as stated on the Schedule is equal to
the fair market value of the Equipment on the date hereof.
8. Renewal Term: Each Renewal Term will consist of a one-year
period, and subject to Section XVIII(b), Lessee may elect up
to seven (7) Renewal Terms.
9. Maximum Lease Term: The Term shall not exceed twelve (12)
years.
<PAGE> 14
10. Stipulated Loss Values: See Annex D.
11. Termination Values: See Annex D.
12. Assumed Interest Rate: __________% (which will be determined
three (3) Business Days before the date of execution of this
Schedule).
13. Last Delivery Date: February 15, 1999.
C. Term and Rent.
--------------
1. Basic Term and Renewal Term Rent. Commencing on the Basic Term
Commencement Date and payable, in arrears, on the same day of each quarter
thereafter (each, a "Rent Payment Date") during the Basic Term ("Basic Term
Rent") and any Renewal Term ("Renewal Term Rent"), Lessee shall pay as Rent
quarterly installments of (a) interest on the unamortized portion of the unpaid
Capitalized Lessor's Cost as of the immediately preceding Rent Payment Date
(after application of the Rent paid on such date) at the Interest Rate for the
Interest Period following such immediately preceding Rent Payment Date and (b)
of principal in the principal amounts described on the Amortization Schedule
attached as Annex E. Interest shall be calculated on the basis of a 360 day year
for the actual number of days elapsed. Said Rent consists of principal and
interest components, such principal components being as provided in the
Amortization Schedule attached hereto as Annex E.
As used herein, the following terms shall have the following meanings:
"APPLICABLE MARGIN" shall mean the particular rate per annum determined
by Lessor in accordance with the pricing grid table which appears below, based
on the ratio of the Companies' Funded Indebtedness to the Companies' EBITDA, as
computed in accordance with the pricing grid table and the following provisions:
<TABLE>
<CAPTION>
If the Ratio of the Companies' Funded The Applicable Margin is:
Indebtedness to the Companies' EBITDA is:
<S> <C>
Greater than or equal to 4.50 to 1.00 2.00%
Less than 4.50 to 1.00, but greater
than or equal to 4.00 to 1.00 1.75%
Less than 4.00 to 1.00, but greater
than or equal to 3.50 to 1.00 1.375%
Less than 3.50 to 1.00, but greater
than or equal to 3.00 to 1.00 1.00%
Less than 3.00 to 1.00, but greater
than or equal to 2.50 to 1.00 0.80%
Less than 2.50 to 1.00, but greater
than or equal to 2.00 to 1.00 0.70%
Less than 2.00 to 1.00 0.65%
</TABLE>
(A) Initially, from January 26, 1999, until changed hereunder in
accordance with the following provisions, the Applicable Margin will be 2.00%
per annum. Commencing with the fiscal
-2-
<PAGE> 15
quarter of Lessee ending on or nearest to March 31, 1999, and continuing with
each fiscal quarter thereafter, Lessor will determine the Applicable Margin in
accordance with the foregoing pricing grid table, based on the ratio of (x) the
Funded Indebtedness of the Companies as of the end of the fiscal quarter, to (y)
the EBITDA of the Companies for the four consecutive fiscal quarters ended on
the last day of the fiscal quarter, as identified in the pricing grid table.
Changes in the Applicable Margin based upon changes in such ratio shall become
effective on the first day of the month following the receipt by Lessor pursuant
to Section IV(b)(i) or (ii) of the financial statements of Lessee and it
Subsidiaries, accompanied by the certificate and calculations referred to in
Section IV(b)(iii), demonstrating the computation of such ratio, based upon the
ratio in effect at the end of the applicable period covered (in whole or in
part) by such financial statements.
(B) Notwithstanding the above provisions, during any period when an
Event of Default has occurred and is continuing, the Applicable Margin shall be
the highest rate per annum indicated therefor in the foregoing pricing grid
table, regardless of the ratio of Funded Indebtedness to EBITDA at such time.
Notwithstanding the above provisions, but subject to the preceding sentence,
during any period when Borrower has failed to timely deliver its consolidated
financial statements referred to in subsection IV(b)(i) or (ii), accompanied by
the certificate and calculations referred to in subsection IV(b)(iii), the
Applicable Margin shall be the rate per annum indicated for the level in the
foregoing pricing grid table that is one level higher than the level that is
otherwise then currently in effect, regardless of the ratio of Funded
Indebtedness to EBITDA at such time.
(C) Any changes in the Applicable Margin shall be determined by Lessor
in accordance with the above provisions and Lessor will promptly provide notice
of such determinations to Lessee. Any such determination by Lessor pursuant to
the above provisions shall be conclusive and binding absent manifest error. The
Applicable Margin is subject in all respects to compliance by Lessee with
Section XXIII(b) of the Lease, and this schedule of levels for the Applicable
Margin is not intended to waive or otherwise excuse a violation of Section
XXIII(b) of the Lease; if that Section is violated, the Daily Lease Rate Factor
will increase as set forth in Section XIX(j) of the Lease."
"INTEREST PERIOD" shall mean the period beginning on the Basic Term
Commencement Date and ending on the next Rent Payment Date, and each subsequent
quarterly period.
"INTEREST RATE" shall mean that percentage per annum calculated as the
sum of the LIBOR Rate redetermined quarterly, plus sixty (60) basis points.
"LIBOR RATE" shall mean, with respect to any Interest Period occurring
during the term of the Lease, an interest rate per annum equal at all times
during such Interest Period to the quotient of (1) the rate per annum as
determined by Lessor at which deposits of U.S. Dollars in immediately available
and freely transferable funds are offered at 11:00 a.m. (London, England time)
two (2) Business Days before the commencement of such Interest Period to major
banks in the London interbank market for a period of three (3) months and in an
amount equal or comparable to the Capitalized Lessor's Cost, divided by (2) a
number equal to 1.00 minus the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of the LIBOR Reserve Requirements current on
the date three (3) Business Days prior to the first day of the Interest Period.
"LIBOR RESERVE REQUIREMENTS" shall mean the daily average for the
applicable Interest Period of the maximum rate applicable to Lessor or its
Participants at which reserves (including, without limitation, any supplemental,
marginal and emergency reserves) are imposed during such Interest Period by the
Board of Governors of the Federal Reserve System (or any successor) on
"Eurocurrency liabilities", as defined in such Board's Regulation D (or in
respect of any other category of liabilities that include deposits by reference
to which the interest rates on Eurodollar loans is determined or any category of
extensions of credit or other assets that include loans by non-United States
offices of any lender to United
-3-
<PAGE> 16
States residents), having a term equal to such Interest Period, subject to any
amendments of such reserve requirement by such Board or its successor, taking
into account any transitional adjustments thereto.
If at any time Lessor or any Participant (or, without duplication, the
bank holding company of which such Participant is a subsidiary) determines that
either adequate and reasonable means do not exist for ascertaining the LIBOR
Rate, or it becomes impractical for Lessor or any Participant to obtain funds to
make or maintain the financing hereunder with interest at the LIBOR Rate, or
Lessor or any Participant reasonably determines that, as a result of changes to
applicable law after the date of execution of the Agreement, or the adoption or
making after such date of any interpretations, directives or regulations
(whether or not having the force of law) by any court, governmental authority or
reserve bank charged with the interpretation or administration thereof, it shall
be or become unlawful or impossible to make, maintain, or fund the transaction
hereunder at the LIBOR Rate, then Lessor promptly shall give notice to Lessee of
such determination and Lessor and Lessee shall negotiate in good faith a
mutually acceptable alternative method of calculating the Interest Rate and
shall execute and deliver such documents as reasonably may be required to
incorporate such alternative method of calculating the Interest Rate in this
Schedule, within thirty (30) days after the date of Lessor's notice to Lessee.
If the parties are unable mutually to agree to such alternative method of
calculating the Interest Rate in a timely fashion, (a) effective on the
commencement of the next succeeding Interest Period or the date that it becomes
impractical for Lessor or any Participant to maintain the financing hereunder
with interest at the LIBOR Rate as aforesaid, as case may be, the Interest Rate
shall become a floating rate equal to the Federal Funds Rate plus sixty (60)
basis points, and (b) on the Rent Payment Date next succeeding the expiration of
such thirty (30) day period Lessee shall purchase all (but not less than all) of
the Equipment described on all Schedules executed pursuant to the Agreement and
shall pay to Lessor, in cash, the purchase price for the Equipment so purchased,
determined as hereinafter provided. (As used herein, "Federal Funds Rate" means
the rate of interest, as reasonably determined by Lessor, paid by or available
to Lessor for the purchase of "federal funds" at the time or times in question
on a daily overnight basis.) The purchase price of the Equipment shall be an
amount equal to the Stipulated Loss Value of such Equipment calculated in
accordance with Annex D as of the date of payment, together with all rent and
other sums then due on such date, plus all taxes and charges upon sale and all
other reasonable and documented expenses incurred by Lessor in connection with
such sale. Upon satisfaction of the conditions specified in this Paragraph,
Lessor will transfer, on an AS IS, WHERE IS BASIS, all of Lessor's interest in
and to the Equipment. Lessor shall not be required to make and may specifically
disclaim any representation or warranty as to the condition of the Equipment and
other matters (except that Lessor shall warrant that it conveyed whatever
interest it received in such Equipment free and clear of any Lien created by
Lessor). Lessor shall execute and deliver to Lessee such Uniform Commercial Code
statements of termination as reasonably may be required in order to terminate
any interest of Lessor in and to the Equipment.
2. If the Rent Payment Date or any Rent Payment Date is not a Business
Day, the Rent otherwise due on such date shall be payable on the immediately
preceding Business Day.
3. Lessee shall pay to Lessor, for the account of each Participant,
from time to time the amounts as such Participant may determine to be necessary
to compensate it for any costs which such Participant determines are
attributable to its making or maintaining its interest in the Lease and the
Equipment (the "Interest") or any reduction in any amount receivable by such
Participant in respect of any such Interest (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"),
resulting from any Regulatory Change (as defined below) which:
(i) changes the basis of taxation of any amounts payable to Lessor
for the account of such Participant in respect of such Interest
(other than taxes imposed on or measured by the overall net income
of such Participant in respect of the interest by the jurisdiction
in which such Participant has its principal office or its lending
office); or
-4-
<PAGE> 17
(ii) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets
of, or any deposits with or other liabilities of, such Participant;
or
(iii) imposes any other condition affecting this Lease or any
Interest.
For purposes hereof, "Regulatory Change" shall mean any change after the date of
this Lease in United States federal, state or foreign law or regulations
(including, without limitation, Regulation D of the Board of Governors of the
Federal Reserve System (or any successor), as amended or supplemented from time
to time) or the adoption or making after such date of any interpretation,
directive or request applying to a class of banks including any Participant or
under any United States federal, state or foreign law and whether or not failure
to comply therewith would be unlawful) by any court or governmental or monetary
authority charged with the interpretation or administration thereof.
Without limiting the effect of the foregoing Paragraph (but without
duplication), Lessee shall pay to Lessor, for the account of each Participant,
from time to time on request such amounts as such Participant may determine to
be necessary to compensate such Participant (or, without duplication, the bank
holding company of which such Participant is a subsidiary) for any costs which
it determines are attributable to the maintenance by such Participant (or any
lending office or such bank holding company), pursuant to any law or regulation
or any interpretation, directive or request (whether or not having the force of
law) of any court or governmental or monetary authority (i) following any
Regulatory Change or (ii) implementing any risk-based capital guideline or
requirement (whether or not having the force of law and whether or not the
failure to comply therewith would be unlawful) heretofore or hereafter issued by
any government or governmental or supervisory authority implementing at the
national level the Basle Accord (including, without limitation, the Final
Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve
System (12 C.F.R. Part 208, Appendix A; 12 C.F.R. Part 225, Appendix A) and the
Final Risk-Based Capital Guidelines of the Office of the Comptroller of the
Currency (12 C.F.R. Part 3, Appendix A)), of capital in respect of such
Participant's Interest (such compensation to include, without limitation, an
amount equal to any reduction of the rate of return on assets or equity of such
Participant (or any lending office or bank holding company) to a level below
that which such Participant (or any lending office or bank holding company)
could have achieved but for such law, regulation, interpretation, directive or
request). For purposes of this Paragraph, "Basle Accord" shall mean the
proposals for risk-based capital framework described by the Basle Committee on
Banking Regulations and Supervisory Practices in its paper entitled
"International Convergence of Capital Measurement and Capital Standards" dated
July 1988, as amended, modified and supplemented and in effect from time to time
or any replacement thereof.
Each Participant shall notify Lessee of any event occurring after the
date of this Lease that will entitle such Participant to compensation under the
preceding two Paragraphs as promptly as practicable, but in any event within
thirty (30) days, after such Participant obtains actual knowledge thereof;
provided, that (i) if such Participant fails to give such notice within thirty
(30) days after it obtains actual knowledge of such an event, such Participant
shall, with respect to compensation payable pursuant to the preceding two
Paragraphs in respect of any costs resulting from such event, only be entitled
to payment under the referenced Paragraphs for costs incurred from and after the
date thirty (30) days prior to the date that such Participant does give such
notice, and (ii) such Participant will designate a different lending office for
the Interest if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the sole opinion of such Participant, be
disadvantageous to such Participant. Each Participant will furnish to Lessee a
certificate setting forth the basis and amount of each request by such
Participant for compensation under the preceding two Paragraphs. Determinations
and allocations by each Participant for purposes of the preceding two Paragraphs
shall be conclusive, absent manifest error.
-5-
<PAGE> 18
D. Insurance.
----------
1. Public Liability: $1,000,000 total liability per occurrence and
$2,000,000 in the aggregate, with excess liability in umbrella form of
$10,000,000 per occurrence and in the aggregate, with a maximum deductible
amount of (a) $1,500,000 per occurrence or (b) an amount equal to $1,500,000 per
occurrence plus the amount of any reserves specifically allocated by Lessee for
this type of liability that are satisfactory to Lessor, but in no event greater
than $2,500,000 per occurrence.
2. Casualty and Property Damage: An amount equal to the higher of the
Stipulated Loss Value or the full replacement cost of the Equipment, with a
maximum deductible amount of $1,000,000 per occurrence.
E. Fixed Purchase Price and Residual Risk Amount
---------------------------------------------
<TABLE>
<CAPTION>
Fixed Purchase Price Residual Risk Amount
(Percent of Capitalized (Percent of Capitalized
End of Lessor's Cost) Lessor's Cost)
- ------ ----------------------- -----------------------
<S> <C> <C>
Basic Term 100.0000% 13.2500%
Renewal Term 1 92.1681% 11.4000%
Renewal Term 2 83.7655% 10.5000%
Renewal Term 3 74.7508% 9.5000%
Renewal Term 4 64.8705% 8.6500%
Renewal Term 5 54.0542% 7.3000%
Renewal Term 6 42.4499% 6.2500%
Renewal Term 7 30.0000% 4.7000%
</TABLE>
The Fixed Purchase Price and Residual Risk Amount are each expressed as a
percentage of the Capitalized Lessor's Cost of the Equipment.
This Schedule is not binding or effective with respect to the Agreement
or Equipment until executed on behalf of Lessor and Lessee by an authorized
representative of Lessor and Lessee, respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
NATIONAL CITY BANK, BRUSH WELLMAN INC.
FOR ITSELF AND AS AGENT FOR
CERTAIN PARTICIPANTS
By: By:
--------------------------- ---------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
-6-
<PAGE> 19
ANNEX A
TO
SCHEDULE NO. ______
DATED THIS ______ DAY OF ______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
<TABLE>
<CAPTION>
DESCRIPTION OF EQUIPMENT
Type and
Serial Model of Number Cost per
Vendor Numbers Equipment of Units Unit
- ------ -------- --------- -------- --------
<S> <C> <C> <C> <C>
</TABLE>
Initials: __________ __________
Lessor Lessee
<PAGE> 20
ANNEX B
TO
SCHEDULE NO. ______
DATED THIS ______ DAY OF _______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
ASSIGNMENT OF PURCHASE ORDERS
[See Exhibit No. 6 to Master Lease Agreement]
<PAGE> 21
ANNEX C
TO
SCHEDULE NO. ______
DATED THIS _______ DAY OF __________________, 199___
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
CERTIFICATE OF ACCEPTANCE
To: National City Bank,
for Itself and as Agent for Certain Participants
Pursuant to the provisions of the above Schedule and Master Lease
Agreement (collectively, the "LEASE"; capitalized terms used but not defined
herein have the meanings ascribed thereto in the Lease), Lessee hereby certifies
and warrants that (a) all equipment listed in the attached invoice or invoices
(the "Equipment") is in good condition, installed (if applicable), and in
working order; and (b) Lessee accepts the Equipment for all purposes of the
Lease, each Purchase Order relating to the Equipment and all attendant
documents.
Lessee does further certify that as of the date hereof (i) no Default
or Potential Default has occurred; and (ii) the representations and warranties
made by Lessee pursuant to or under the Lease are true and correct on the date
hereof.
BRUSH WELLMAN INC.
By:
------------------------------
Name:
------------------------------
Authorized Representative
Dated: _________________, 199__
<PAGE> 22
ANNEX D
TO
SCHEDULE NO. _________
DATED THIS ______ DAY OF ______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
STIPULATED LOSS AND TERMINATION VALUE TABLE
<TABLE>
<CAPTION>
NO. OF RENT PAYMENT DATE STIPULATED LOSS AND
(after Basic Term Commencement Date) TERMINATION VALUE*
<S> <C>
1 100.0000%
2 100.0000%
3 100.0000%
4 100.0000%
5 100.0000%
6 100.0000%
7 100.0000%
8 100.0000%
9 100.0000%
10 100.0000%
11 100.0000%
12 98.0934%
13 96.1529%
14 94.1780%
15 92.1681%
16 90.1225%
17 88.0407%
18 85.9219%
19 83.7655%
20 81.5709%
21 79.3374%
22 77.0642%
23 74.7508%
24 72.3963%
25 70.0000%
26 67.4578%
27 64.8705%
28 62.2373%
29 59.5574%
30 56.8300%
31 54.0542%
32 51.2292%
33 48.3540%
34 45.4279%
35 42.4499%
36 39.4190%
37 36.3344%
38 33.1950%
39 30.0000%
</TABLE>
Initials: ________ _________
Lessor Lessee
- ------------------------
*The Stipulated Loss Value and Termination Value for any unit of
Equipment shall be equal to the Capitalized Lessor's Cost of such unit
multiplied by the appropriate percentage derived from the above table. In the
event that the Lease is for any reason extended, then the last percentage figure
shown above shall control throughout any such extended term.
<PAGE> 23
ANNEX E
TO
SCHEDULE NO. _________
DATED THIS _____ DAY OF ______________, 199__
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
AMORTIZATION SCHEDULE
<TABLE>
<CAPTION>
NO. OF RENT
PAYMENT DATE PERCENT OF PERCENT OF
(after Basic Term PRINCIPAL REMAINING PRINCIPAL
Commencement Date) PAYABLE* BALANCE*
<S> <C> <C>
1 0.0000% 100.0000%
2 0.0000% 100.0000%
3 0.0000% 100.0000%
4 0.0000% 100.0000%
5 0.0000% 100.0000%
6 0.0000% 100.0000%
7 0.0000% 100.0000%
8 0.0000% 100.0000%
9 0.0000% 100.0000%
10 0.0000% 100.0000%
11 0.0000% 100.0000%
12 1.9066% 98.0934%
13 1.9405% 96.1529%
14 1.9749% 94.1780%
15 2.0099% 92.1681%
16 2.0456% 90.1225%
17 2.0818% 88.0407%
18 2.1188% 85.9219%
19 2.1564% 83.7655%
20 2.1946% 81.5709%
21 2.2335% 79.3374%
22 2.2732% 77.0642%
23 2.3135% 74.7508%
24 2.3545% 72.3963%
25 2.3963% 70.0000%
26 2.5422% 67.4578%
27 2.5873% 64.8705%
28 2.6332% 62.2373%
29 2.6799% 59.5574%
30 2.7274% 56.8300%
31 2.7758% 54.0542%
32 2.8250% 51.2292%
33 2.8751% 48.3540%
34 2.9261% 45.4279%
35 2.9780% 42.4499%
36 3.0309% 39.4190%
37 3.0846% 36.3344%
38 3.1393% 33.1950%
39 3.1950% 30.0000%
</TABLE>
Initials: ________ _________
Lessor Lessee
- ------------------------
*The Principal, and the Outstanding Principal Balance as of any Rent
Payment Date payment (assuming the principal payments due on each Rental Payment
Date are paid when due), shall be equal to the Capitalized Lessor's Cost of the
Equipment multiplied by the appropriate percentage derived from the above table.
<PAGE> 24
ANNEX F
TO
SCHEDULE NO. _________
DATED THIS ______ DAY OF ______________, 199___
TO MASTER LEASE AGREEMENT DATED AS OF December 30, 1996
RETURN PROVISIONS: In addition to the provisions provided for in
Section X of this Lease, and provided that Lessee has elected not to exercise
its purchase option pursuant to Section XVIII(d) of the Lease, Lessee shall, at
its expense:
(a) at least one hundred eighty (180) days and not more than three
hundred sixty-five (365) days prior to expiration or earlier termination of the
Lease, provide to Lessor a detailed inventory of all components of the
Equipment. The inventory should include, but not be limited to, a listing of
models and serial numbers for all components comprising the Equipment;
(b) at least one hundred eighty (180) days prior to expiration or
earlier termination of the Lease, upon receiving reasonable notice from Lessor,
provide or cause the vendor(s) or manufacturer(s) to provide to Lessor the
following documents: (i) one set of service manuals, blueprints, process flow
diagrams and operating manuals including replacements and/or additions thereto,
such that all documentation is completely up-to-date; (ii) one set of documents,
detailing Equipment configuration, operating requirements, maintenance records,
and other mechanical data concerning the set-up and operation of the Equipment,
including replacements and/or additions thereto, such that all documentation is
completely up-to-date;
(c) at least one hundred eighty (180) days prior to expiration or
earlier termination of the Lease, upon receiving reasonable notice from Lessor,
make the Equipment available for on-site operational inspections by potential
purchasers, under power, and provide personnel, power and other requirements
necessary to demonstrate electrical and mechanical systems for each item of the
Equipment;
(d) at least ninety (90) days prior to expiration or earlier
termination of the Lease, cause the manufacturer's representative or qualified
equipment maintenance provider, acceptable to Lessor (the "Authorized
Inspector"), to perform a comprehensive physical inspection, including testing
all material and workmanship of the Equipment and if during such inspection,
examination and test, the Authorized Inspector finds any of the material or
workmanship to be defective or the Equipment not operating within the
manufacturer's specifications, then Lessee shall repair or replace such
defective material and, after corrective measures are completed, Lessee will
provide for a follow-up inspection of the Equipment by the Authorized Inspector
as outlined in the preceding Paragraph;
(e) have each item of Equipment returned with an in-depth field service
report detailing said inspection as outlined in Subsection (d) above. The report
shall certify that the Equipment has been properly inspected, examined and
tested and is operating within the manufacturer's specifications;
(f) permit Lessor to videotape the Equipment "under power" at Lessee's
or at any facility where any Equipment is located at a time during normal
working hours mutually agreeable to Lessor and Lessee prior to deinstallation;
(g) have any repairs made to the Equipment in a professional and
workmanlike manner. Any Equipment enhancements or additions will revert to
Lessor upon expiration or earlier termination of the Lease and shall not affect,
in an adverse manner, the Fair Market Value of the Equipment at Lease
expiration. Such additions or enhancements shall be made only with prior written
approval of Lessor (whose approval shall not unreasonably be withheld);
-1-
<PAGE> 25
(h) have the Equipment returned in good appearance with adequate
protective coatings over all surfaces as originally painted or coated, and the
Equipment shall be free from rust, and shall be in good, complete working order;
(i) have the Equipment cleaned (including the removal of all beryllium)
and approved by the necessary governmental agencies which regulate the use and
operation of such Equipment so as to be available for immediate use;
(j) properly remove all Lessee installed markings which are not
necessary for the operation, maintenance or repair of the Equipment; and
(k) provide for the deinstallation and packing of the Equipment to
include, but not be limited to, the following: (i) all process fluids shall be
removed from the Equipment and disposed of in accordance with the then current
waste disposal laws and regulations. At no time are materials which could be
considered hazardous waste by any regulatory authority to be shipped with
machinery; (ii) all internal fluids such as lube oil and hydraulic fluid are to
be filled to operating levels; filler caps are to be secured and disconnected
hoses are to be sealed to avoid spillage; (iii) the manufacturer's
representative shall deinstall and match mark all Equipment in accordance with
the specifications of the manufacturer; (iv) the Equipment shall be packed
properly and in accordance with the manufacturer's recommendations; (v) Lessee
shall provide for the transportation of the Equipment in a manner consistent
with the manufacturer's recommendations and practices to any locations within
the United States of America as Lessor shall direct; and shall have the
Equipment unloaded at such locations; and (vi) Lessee shall obtain and pay for a
policy of transit insurance for the redelivery period in an amount equal to the
replacement value of the Equipment, and Lessor shall be named as the loss payee
on all such policies of insurance.
-2-
<PAGE> 26
EXHIBIT NO. 3
COMPLIANCE CERTIFICATE
----------------------
-----------, ----
To: National City Bank, for itself and as
Agent for certain Participants
1900 East Ninth Street
Cleveland, Ohio 44114
Subject: Master Lease Agreement, dated as of December 30, 1996, as
amended, between National City Bank, for itself and as Agent
for certain Participants, as lessor, and Brush Wellman Inc.,
as lessee (the "Lease Agreement")
Greetings:
Pursuant to Section IV(b)(iii) of the Lease Agreement and in
my capacity as the chief financial officer of Brush Wellman Inc., I hereby
certify that to the best of my knowledge and belief (capitalized terms used, but
not defined herein shall have the meanings ascribed thereto in the Lease
Agreement):
1. The financial statements of the Companies accompanying this
letter are true and complete and fairly present in all Material
respects their consolidated financial condition as of ________________,
_____ (the "Closing Date") and the consolidated results of their
operations for the fiscal period then ending,
2. No Default or Potential Default under the Lease Agreement
exists *[except for those which, together with our intentions in
respect thereof, are set forth in Exhibit One to this Certificate], and
3. As indicated by the calculations below, the Companies are
*[not] in full compliance with Sections XXIII(a) through (d),
inclusive.
[* - In (b) and (c), delete the bracketed language if inapplicable.]
(a) The actual amount of the Companies' TANGIBLE NET WORTH at
the Closing Date is equal to or is greater than the required amount.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
$170,696,000
plus $__________ 40% of $_________ annual earnings accumulated from
December 31, 1996 to the end of the
preceding fiscal year (see Section
XXIII(a))
sum $__________ required amount
$__________ actual Tangible Net Worth as of the Closing Date
</TABLE>
(b) The FUNDED INDEBTEDNESS of the Companies does not exceed
an amount equal to the LEVERAGE MULTIPLIER times the Companies' EBITDA for the
four consecutive fiscal quarters most recently ended -- the LEVERAGE MULTIPLIER
being (i) from the date of this Agreement to March 31, 1999,
-1-
<PAGE> 27
inclusive, 4.75, (ii) from April 1, 1999, to June 30, 1999, inclusive, 4.50,
(iii) from July 1, 1999, to September 30, 1999, inclusive, 4.00, (iv) from
October 1, 1999, to December 31, 1999, inclusive, 3.75, (v) from January 1,
2000, to March 31, 2000, inclusive, 3.25, and (vi) on and after April 1, 2000,
3.00.
<TABLE>
<CAPTION>
<S> <C> <C>
$______________ Funded Indebtedness
divided by $______________ EBITDA
$______________ EBIT
$______________ Depreciation
$______________ Amortization
quotient _______________
</TABLE>
(c) The ratio of (i) the aggregate of the Companies' EBITDA
for the four consecutive fiscal quarters most recently ended, to (ii) the
aggregate Interest Expense of the Companies for that period, to be less 5.00 to
1:00, all as determined on a consolidated basis.
<TABLE>
<CAPTION>
<S> <C> <C>
ratio of $______________ EBITDA
$______________ EBIT
$______________ Depreciation
$______________ Amortization
to $______________ Interest Expense
ratio __________ to __________
</TABLE>
(d) The FUNDED INDEBTEDNESS of the Companies does not exceed
an amount equal to the REQUIRED MULTIPLIER times the sum of the Companies'
FUNDED INDEBTEDNESS plus the Companies' TANGIBLE NET WORTH -- the REQUIRED
MULTIPLIER being (i) from the date of the Lease Agreement to December 31, 2000,
inclusive, 0.50, and (ii) on and after January 1, 2001, 0.45.
<TABLE>
<CAPTION>
<S> <C> <C>
$______________ Funded Indebtedness
divided by $______________ Funded Indebtedness plus Tangible Net Worth
quotient _______________
</TABLE>
BRUSH WELLMAN INC.
By:
------------------------------
Title:
------------------------------
-2-
<PAGE> 28
<TABLE>
<CAPTION>
EXHIBIT NO. 4
LIST OF EQUIPMENT AND ACQUISITION COST
============= ================================ =========================================== =========================
TOTAL
PURCHASE ORDER NO. ACQUISITION
EQUIPMENT AND VENDOR COST
- ------------- -------------------------------- ------------------------------------------- =========================
<S> <C> <C> <C>
1. Walking Beam Furnace EX90006/Seco-Warwick $2,200,000.00
- ------------- -------------------------------- ------------------------------------------- -------------------------
2. Hot Mill EX90003/Griset Engineering $12,400,000.00
- ------------- -------------------------------- ------------------------------------------- -------------------------
3. Bell Aging Furnace EX90012/RAD-CON Inc. $1,550,000.00
- ------------- -------------------------------- ------------------------------------------- -------------------------
4. Slab Mill EX90007/Integrated Industrial Systems $7,350,000.00
- ------------- -------------------------------- ------------------------------------------- -------------------------
5. Finish Pickle Line EX90010/SMS Process Lines $7,100,000.00
- ------------- -------------------------------- ------------------------------------------- -------------------------
6. Four-High Rolling Mill EX90002/Griset Engineering $9,200,000.00
- ------------- -------------------------------- ------------------------------------------- -------------------------
7. Anneal/Pickle Line 1. EX90009/SMS Process $13,400,000.00
Lines
Anneal/Pickle Line
2. EX90008/Drever Company
Cont. Anneal Line
- ------------- -------------------------------- ------------------------------------------- -------------------------
8. Degreasing Line EX90011/SMS Process Lines $2,300,000.00
- ------------- -------------------------------- ------------------------------------------- -------------------------
TOTAL $55,500,000.00
============= ================================ =========================================== =========================
</TABLE>
<PAGE> 1
Brush Wellman Inc. 1998 Annual Report
A SOLID FOUNDATION. A STRONG FUTURE.
BRUSHWELLMAN(R)
ENGINEERED MATERIALS
<PAGE> 2
BUILDING a SOLID FOUNDATION
for a STRONG FUTURE.
[PHOTO]
Alloy Products
[PHOTO]
Beryllium Products
[PHOTO]
Advanced Packaging and Materials
Brush Wellman is a leading international producer and supplier of
high-performance engineered materials and is the only fully-integrated producer
of beryllium, beryllium-containing alloys, and beryllia ceramic in the world. In
addition, Brush Wellman produces Engineered Material Systems through Technical
Materials, Inc., and precious metal and specialty alloy products through
Williams Advanced Materials Inc., both wholly-owned subsidiaries.
Brush Wellman materials continue to find new applications in a widening array of
markets where superior performance and reliability are essential. Brush
Wellman's two primary business segments, Metal Systems Group and
Microelectronics Group, provide the products to meet these growing demands.
METAL SYSTEMS GROUP
Alloy Products are metallurgically tailored to meet 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 alloys, sold in
strip and bulk product form, are ideal choices for demanding applications in
computers,telecommunications, automotive electronics, energy systems, and
plastic molds.
Beryllium is a lightweight metal possessing unique mechanical and thermal
properties. Its specific stiffness is much greater than other engineered
structural materials such as aluminum, titanium, and steel. Beryllium Products,
including AlBeMet((R)), AlBeCast((R)), and E-materials are used in a variety of
high-performance applications, primarily, but not exclusively, in the defense
and aerospace markets.
Engineered Materials 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
Williams Advanced Materials Inc., (WAM) manufactures and markets materials of
unique value for the hybrid microelectronics, semiconductor, optical media,
electron tube, magnetic head including MR and GMR materials, crystal, aerospace,
and performance film industries. WAM's products consist primarily of pure metal
and specialty metal alloys fabricated to meet the exacting standards required in
high reliability applications.
Ceramic Products offer unique solutions for thermal and electrical problems that
exist in today's electronic marketplace. The combination of materials and
technologies in ceramics, powder metallurgy, thick film metalization, and
component assembly provides solutions to meet the cost and performance
requirements in the most demanding electronic applications. These products are
used in wireless communication, automotive, medical, and aerospace applications.
Brush Wellman Inc. is listed on the New York Stock Exchange under the symbol BW.
<PAGE> 3
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(Dollars in millions except per share amounts) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales .....................................................$ 409.9 $ 433.8 $ 376.3
Net Income (Loss) as reported ............................. (7.1) 25.6 24.5
Excluding special charge ............................... 9.3 25.6 24.5
Net Income (Loss) per share (diluted) as reported ......... (0.44) 1.56 1.53
Excluding special charge ............................... 0.57 1.56 1.53
Dividends per share ....................................... 0.48 0.46 0.42
Shareholders' equity per share ............................ 13.63 14.60 13.84
</TABLE>
<TABLE>
<CAPTION>
REVENUE
BY SEGMENT BY MARKET BY GEOGRAPHIC REGION
----------- ---------- ----------------------
<C> <C> <C>
72% Metal Systems Group 24% Telecommunications 69% Domestic
26% Microelectronics Group 19% Other 31% International
2% Other 16% Automotive
15% Computer
12% Industrial Components
6% Optical Media
5% Aerospace/Defense
3% Appliance
</TABLE>
1
<PAGE> 4
[Photo]
Gordon D. Harnett
Chairman of the Board,
President, and
Chief Executive Officer
TO OUR SHAREHOLDERS
If nothing else, 1998 served to remind me that good plans don't always produce
results exactly as expected, especially results which correspond to 12-month
cycles associated with fiscal years and annual reports. Our plans are focused on
long-term opportunities and strategies designed to provide the basis for
long-term earnings improvement and increased shareholder returns, sometimes at
the expense of current earnings.
The financial results achieved this past year were clearly disappointing and
certainly did not meet my expectations. Throughout the year a number of factors
contributed to the decline in operating profit. However, the poor results do not
dampen my enthusiasm for our future prospects and the potential for significant
earnings growth created by the over $165 million in investments made over the
last few years. These investments are creating a very solid foundation for
future earnings growth and positive returns to Brush Wellman shareholders.
1998 FINANCIAL RESULTS
For the year 1998, Brush Wellman reported a net loss of $7.1 million, or $0.44
per share, diluted. This compares with net income of $25.6 million or $1.56 per
share, diluted, for 1997. The 1998 results were reduced by a previously
announced charge of $22.6 million, pretax. This charge related to write-downs in
the carrying value of various assets and the establishment of reserves
principally relating to a voluntary environmental remediation of a former
manufacturing site. Absent these items, the Company achieved net income of $9.3
million, or earnings of $0.57 per share, diluted. Sales during 1998 totaled $410
million, a 5% decrease from 1997 sales of $434 million. However, the Company's
revenues were negatively affected by lower metal prices, precious metal mix, and
the strength of the dollar relative to various foreign currencies. Net of these
factors, the actual level of business was up slightly. During the year, earnings
were adversely affected by foreign currency exchange rates, capacity constraints
in Alloy Products, the slow down in Asia and U.S. electronics markets, the
General Motors strike, business and product mix shifts, and start-up costs
associated with our alloy expansion.
2
<PAGE> 5
Additional details of financial performance during 1998 are contained in the
Management's Discussion and Analysis beginning on page 28.
BUSINESS SEGMENT SUMMARY
Our various products are segmented into two major groups: the Metal Systems
Group and the Microelectronics Group.
METAL SYSTEMS GROUP
The Metal Systems Group represents approximately 72% of sales and includes Alloy
Products, Beryllium Products, and Engineered Material Systems produced by the
Company's subsidiary, Technical Materials, Inc. (TMI).
Alloy Products sales in 1998 declined due to lower copper prices, a shift in
product mix, and the strength of the dollar. Actual pounds shipped set a new
record with notable growth in bulk products and in Europe. Sales of Alloy
Products were also impacted in part by capacity constraints, which we expect to
have resolved upon the completion of our $117 million expansion and upgrading of
our alloy casting and strip capabilities in 1999. This Alloy Expansion Project
has taken longer than anticipated to bring on line and has resulted in added
expense and capacity constraints at a time of increasing demand for our Alloy
Products. Progress is being made and we expect the expansion to be fully
operational in the second half of 1999. The expansion will ultimately provide us
not only with increased capacity but also improved quality and reduced cost for
virtually all of our Alloy Products.
The opportunities for growth in Alloy Products remain very attractive and, in
the near term, upon completion of the Alloy Expansion Project, we expect to be
able to aggressively pursue them. In addition, new alloys have successfully been
developed that offer competitive advantages in targeted markets such as
automotive, telecommunications, computer, and appliance. In support of the
expansion of our Alloy manufacturing facilities and the introduction of
[Photo]
Coils entering the pickling and annealing line at the Alloy
Expansion Project.
3
<PAGE> 6
[Photo]
TMI specialty strip products,
ideal for complex electronic/electrical components.
our new products, we have also reorganized our sales and marketing functions to
provide separate dedicated resources to focus on key markets and product
opportunities.
Sales of Beryllium Products had a second consecutive year of growth in 1998.
This past year also saw significant growth in AlBeMet((R)) sales and profit
contribution. AlBeMet((R)) has the potential to grow dramatically in the years
ahead as it meets the need for lighter and stiffer materials in markets such as
satellite structures.
TMI's sales declined slightly in 1998 due primarily to the impact of lower metal
prices and the General Motors strike. During 1998, TMI continued to invest in
its precious metal electroplating capabilities. The expansion of the
electroplating product line enables TMI to offer the industry's widest range of
advanced metallurgical joining, coating, and shape altering technologies for
reel-to-reel strip metal products. The precious metal electroplating technology
can be combined with TMI's clad metals, electron beam welding, multigauge
profiling, and reflow solder coating technologies to provide single-source
solutions for specialty strip metal applications. TMI has positioned itself to
capitalize on the high-growth markets such as automotive electronics,
telecommunications, and computer.
MICROELECTRONICS GROUP
The Microelectronics Group, comprising about 26% of sales, includes
Williams Advanced Materials Inc. (WAM), Ceramics, and Circuits Processing
Technology Inc. (CPT).
In spite of a general slowdown in the worldwide microelectronics industry, WAM
had a very successful year, achieving record value-added (revenue less the cost
of the metal) while continuing to diversify its business. In 1998, WAM
established a new business unit, WAM Specialty Alloys, that will focus on high
temperature braze materials and structural alloys used to build high-voltage
vacuum tubes for microwave, telecommunications, medical, and various commercial
applications.
4
<PAGE> 7
During 1998, WAM continued to develop its Physical Vapor Deposition (PVD)
business with significant market growth in both optical media and the
performance films markets.
In July 1998, WAM acquired the assets of Pure Tech Inc., positioning itself as
the key fullyintegrated supplier of PVD materials supporting both precious and
non-precious materials and market applications.
While sales and earnings for Ceramic Products declined in 1998, the financial
results mask important progress in developing CuPack((R)) as a potential new
product line and the development of copper tungsten and related powder
metallurgy products as viable thermal management solutions in electronic
applications. CPT also made progress in qualifying its products in several new
high reliability military and commercial applications.
ORGANIZATION
A FOUNDATION OF GOOD PEOPLE
In 1998, Brush Wellman made a number of moves to strengthen our management team.
In June, William R. Seelbach was named President of Alloy Products, a newly
created position. As such, he is responsible for the growth and profitability of
our worldwide Alloy business. Bill had been Chairman and CEO of Inverness
Partners, an investment firm that acquired and grew several midwestern
manufacturing companies. Prior to his service with Inverness Partners, Bill was
a partner with McKinsey & Co., an international management consulting firm.
In October, John D. Grampa was named Vice President, Finance. His
responsibilities include achieving the desired improvements from our new
information systems, focusing our ongoing efforts to improve the financial
reporting process, and assisting in the implementation of our corporate
strategies.
[Photo]
WAM materials for hybrid microelectronics, semiconductor, and data-storage
applications.
[Photo]
Cupack((R)) Power RF Packages provide solutions for wireless
applications.
5
<PAGE> 8
<TABLE>
<CAPTION>
INTERNATIONAL SALES
(Dollars in millions)
`94 `95 `96 `97 `98
--- --- --- --- ---
<C> <C> <C> <C> <C>
114.9 127.3 108.4 142.4 129.1
</TABLE>
John had been Vice President, Finance for the worldwide Materials Business of
Avery Dennison Corporation. Prior to Avery Dennison, John held a number of
financial management positions at Diamond Shamrock, Inc.
In Alloy Products operations, Harold Wiegard was named the Plant Manager of the
Company's Elmore, Ohio facility. Harold was formerly the Plant Manager of the
Company's Reading, Pennsylvania facility. Greg Gregory was named Reading Plant
Manager. Greg had been the Plant Manager of Ethyl Corporation's Houston, Texas
Plant. In addition, Jim Feldhouse was named Lorain, Ohio Plant Manager. Jim
previously was Director of North American Operations for Crompton Modutec
Instruments, a division of British Tire and Rubber PLC.
Most recently, at the Board of Directors meeting in January 1999, Mr. David H.
Hoag was appointed as a Director. Mr. Hoag is the recently retired Chairman of
LTV Corporation and brings with him a wealth of experience in the metals
industry. I am looking forward to his future contributions as a Director of your
Company.
ENVIRONMENTAL HEALTH AND SAFETY
Brush Wellman continued to make progress in the area of beryllium health and
safety. In their most common solid form, beryllium and beryllium alloys pose no
special health risk. But, for fifty years, it has been known that the inhalation
of fine airborne particles of beryllium may cause a lung disorder known as
chronic beryllium disease (CBD). The risk of CBD is generally confined to work
places in which operations are performed that generate beryllium-containing dust
or fumes.
Brush Wellman has been, and remains, open and progressive in discussing the
hazards of beryllium and informing employees and customers of its dangers. We
also have aggressively led the way in reducing the health hazards associated
with the production and use of beryllium. This past year was no exception and
saw the Company make significant investments at our Elmore and Tucson plants to
further reduce and isolate areas of potential beryllium exposure. We also
continued to support and invest in testing and medical research into the
prevention and treatment of CBD.
6
<PAGE> 9
Brush Wellman has gone and will continue to go the extra mile in reducing the
risks of working with beryllium to give our employees a safe and healthy place
to work.
OUTLOOK
A SOLID FOUNDATION FOR A STRONG FUTURE
Over the past three years, since Brush Wellman made the decision to make
significant investments in order to capitalize on identified opportunities and
to ensure future earnings growth, there has been an unfailing commitment
throughout the organization to reach our goals.
That commitment, while tested this past year, has never wavered. We remain
committed to our strategic plan of continued improvement in the base business,
becoming the global leader in non-ferrous specialty alloys, and building a
microelectronics business. We are encouraged by the opportunities we see in our
core markets and by the progress made, particularly considering the number and
magnitude of projects and changes we have undertaken. Our newly developed alloys
and products are targeted to take advantage of these market opportunities.
The investments Brush Wellman has made are now opening exciting and substantial
opportunities for its shareholders and employees. The $165 million in
investments, while largely focused on the Alloy business, in reality, involves
over twelve growth initiatives and will benefit each of our business units and
should provide the basis for overall corporate earnings growth and increased
shareholder returns.
Although our Alloy Expansion Project hit a few snags in 1998, our expectations
about its benefits and long-term opportunities remain strong.As a result of our
expanded manufacturing capabilities, newly developed products, and
organizational changes, we believe that we have built a solid foundation for
measurable improvement in our future long-term performance. During 1999, the
stage should be set for expanded sales, improved productivity, and higher
earnings.
[Photo]
A copper beryllium coil is removed from the surface mill
at the Alloy Expansion Project.
[Photo]
Vertical casting of bronze alloys at the Brush Engineered Bronze
facility.
7
<PAGE> 10
<TABLE>
<CAPTION>
DIVIDENDS
PER COMMON SHARE
(Dollars)
`94 `95 `96 `97 `98
- --- --- --- --- ---
<S> <C> <C> <C> <C>
0.24 0.36 0.42 0.46 0.48
</TABLE>
While this past year was one that did not produce satisfactory financial
results, I am confident that we are on the path to achieving attractive returns
on the investments we have made.
A strong foundation, critical for long-termsuccess, is now in place at Brush
Wellman - a dedicated workforce, committed management team, high-quality,
high-demand product line, state-of-the-art facilities, and a growth-oriented
customer and prospect base.
It is now up to all of us at Brush Wellman to set the wheels in motion and build
upon that foundation to create a successful future for our Company and
satisfactory returns for our shareholders. I speak for all employees of Brush
Wellman when I say we are eagerly looking forward to the next few years and the
results that we expect to produce.
Sincerely,
/s/ Gordon D. Harnett
Gordon D. Harnett
Chairman of the Board,
President, and
Chief Executive Officer
8
<PAGE> 11
FINANCIAL INFORMATION
Selected Financial Data ................................................... 10
Consolidated Financial Statements ......................................... 12
Notes to Consolidated Financial Statements ................................ 16
Reports of Independent Auditors and Management ............................ 27
Management's Discussion and Analysis .......................................28
Brush Wellman Inc. Directors and Officers ..................................35
Corporate Data .............................................................36
9
<PAGE> 12
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Brush Wellman Inc. and Subsidiaries
(Dollars in thousands except per share amounts)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
FOR THE YEAR
<S> <C> <C> <C> <C> <C>
Net sales ................................................... $ 409,892 $ 433,801 $ 376,279 $ 369,618 $ 345,878
Cost of sales ............................................... 325,173 324,463 271,149 268,732 253,938
Gross profit ................................................ 84,719 109,338 105,130 100,886 91,940
Operating profit (loss) .................................... (10,313) 36,024 34,305 29,086 25,098
Interest expense ............................................ 1,249 553 1,128 1,653 2,071
Income (loss) from continuing operations
Before income taxes ....................................... (11,562) 35,471 33,177 27,433 23,027
Income taxes (benefit) ..................................... (4,430) 9,874 8,686 6,744 4,477
Net income (loss) .......................................... (7,132) 25,597 24,491 20,689 18,550
Earnings per share of common stock ..........................
Basic net income (loss) ............................... (0.44) 1.58 1.55 1.28 1.15
Diluted net income (loss) ............................. (0.44) 1.56 1.53 1.27 1.15
Dividends per share of common stock ......................... 0.48 0.46 0.42 0.36 0.26
Depreciation and amortization ............................... 24,589 19,329 22,954 20,911 19,619
Capital expenditures ........................................ 36,732 53,155 26,825 24,244 17,214
Mine development expenditures ............................... 433 9,526 3,663 787 543
YEAR-END POSITION
Working capital ............................................. 100,992 100,599 128,172 125,156 116,708
Ratio of current assets to current liabilities .............. 2.1 to 1 2.3 to 1 2.9 to 1 2.9 to 1 2.8 to 1
Property and equipment:
At cost ................................................ 421,467 463,689 404,127 374,367 350,811
Cost less depreciation and impairment .................. 164,469 173,622 130,220 121,194 116,763
Total assets ................................................ 403,690 383,852 355,779 331,853 317,133
Other long-term liabilities ................................. 49,955 48,025 47,271 45,445 43,354
Long-term debt .............................................. 32,105 17,905 18,860 16,996 18,527
Shareholders' equity ........................................ 221,811 236,813 219,257 200,302 186,940
Book value per share ........................................ 13.63 14.60 13.84 12.40 11.61
Average number of shares of stock outstanding
Basic .................................................. 16,267,804 16,214,718 15,846,358 16,159,508 16,102,350
Diluted ................................................ 16,267,804 16,429,468 15,980,481 16,289,795 16,156,159
Shareholders of record ...................................... 2,313 2,329 2,407 2,351 2,521
Number of employees ......................................... 2,187 2,160 1,926 1,856 1,833
</TABLE>
A special charge reduced net income by $16.5 million in 1998.
Impairment and restructuring charges reduced net income by $30.8 million in 1991
and $8.4 million in 1989.
The cumulative effect of a change in accounting for postretirement benefits
reduced net income by $16.5 million in 1991.
See notes to consolidated financial statements.
10
<PAGE> 13
<TABLE>
<CAPTION>
FOR THE YEAR 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net sales ......................................... $ 295,478 $ 265,034 $ 267,473 $ 297,390 $ 317,828 $ 345,838
Cost of sales ..................................... 227,686 192,944 202,080 212,841 233,165 239,554
Gross profit ...................................... 67,792 72,090 65,383 84,549 84,663 106,284
Operating profit (loss) .......................... 10,658 16,949 (57,354) 28,132 29,195 54,704
Interest expense .................................. 2,952 3,206 3,755 3,359 2,860 2,843
Income (loss) from continuing operations
Before income taxes ............................. 7,706 13,743 (61,109) 24,773 26,335 51,861
Income taxes (benefit) ........................... 1,248 3,243 (17,091) 7,214 7,793 19,344
Net income (loss) ................................ 6,458 10,500 (44,018) 17,559 18,542 32,517
Earnings per share of common stock ................
Basic net income (loss) ..................... 0.40 0.65 (2.74) 1.09 1.10 1.79
Diluted net income (loss) ................... 0.40 0.65 (2.74) 1.09 1.10 1.79
Dividends per share of common stock ............... 0.20 0.26 0.59 0.71 0.67 0.63
Depreciation and amortization ..................... 21,720 20,180 22,759 24,070 24,077 23,405
Capital expenditures .............................. 11,901 13,604 13,605 16,160 19,946 22,645
Mine development expenditures ..................... 814 848 6,389 5,699 259 503
YEAR-END POSITION
Working capital ................................... 105,272 88,616 80,427 87,570 78,346 92,530
Ratio of current assets to current liabilities..... 3.1 to 1 2.5 to 1 2.2 to 1 2.4 to 1 2.1 to 1 2.4 to 1
Property and equipment:
At cost ...................................... 337,342 332,971 321,981 307,088 292,708 279,927
Cost less depreciation and impairment ........ 118,926 127,991 132,579 143,635 141,639 143,180
Total assets ...................................... 293,372 310,039 307,296 338,982 338,279 357,751
Other long-term liabilities ....................... 40,663 40,332 38,029 9,356 9,087 9,547
Long-term debt .................................... 24,000 33,808 34,946 26,673 21,076 29,908
Shareholders' equity .............................. 172,075 168,824 162,264 215,891 211,769 232,840
Book value per share .............................. 10.70 10.50 10.10 13.40 12.60 12.82
Average number of shares of stock outstanding
Basic ........................................ 16,087,250 16,080,554 16,069,902 16,108,479 16,805,701 18,159,338
Diluted ...................................... 16,093,696 16,111,090 16,080,568 16,116,210 16,820,735 18,173,092
Shareholders of record ............................ 2,566 2,762 3,116 3,446 3,820 4,014
Number of employees ............................... 1,803 1,831 1,943 2,079 2,160 2,602
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1998, 1997, and 1996
(Dollars in thousands except per share amounts)
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
Net sales ............................................................. $ 409,892 $ 433,801 $ 376,279
Cost of sales .................................................... 325,173 324,463 271,149
------------ ----------- ------------
Gross margin .......................................................... 84,719 109,338 105,130
Selling, administrative, and general expenses .................... 64,553 65,282 61,555
Research and development expenses ................................ 8,665 7,707 8,309
Other -- net ..................................................... 21,814 325 961
------------ ----------- ------------
Operating profit (loss) ............................................... (10,313) 36,024 34,305
Interest expense ................................................. 1,249 553 1,128
------------ ----------- ------------
INCOME (LOSS) BEFORE INCOME TAXES (11,562) 35,471 33,177
------------ ----------- ------------
Income taxes (benefit):
Currently payable ................................................ 1,147 8,506 9,825
Deferred ......................................................... (5,577) 1,368 (1,139)
------------ ----------- ------------
(4,430) 9,874 8,686
------------ ----------- ------------
NET INCOME (LOSS) $ (7,132) $ 25,597 $ 24,491
============ =========== ============
Net income (loss) per share of common stock-- basic ................... $ (0.44) $ 1.58 $ 1.55
============ =========== ============
Average number of shares of common stock outstanding-- basic .......... 16,267,804 16,214,718 15,846,358
Net income (loss) per share of common stock-- diluted ................. $ (0.44) $ 1.56 $ 1.53
============ =========== ============
Average number of shares of common stock outstanding-- diluted ........ 16,267,804 16,429,468 15,980,481
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 15
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1998, 1997, and 1996
(Dollars in thousands)
1998 1997 1996
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) ...................................................................... $ (7,132) $ 25,597 $ 24,491
Adjustments to reconcile net income (loss) to net cash
Provided from operating activities:
Depreciation, depletion, and amortization ........................................... 21,535 18,695 18,537
Amortization of mine development .................................................... 3,054 634 4,417
Impairment of fixed assets and related intangibles .................................. 14,273 -- --
Decrease (increase) in accounts receivable .......................................... 2,670 (12,652) (557)
Decrease (increase) in inventory .................................................... (10,266) 3,653 (2,946)
Decrease (increase) in prepaid and other current assets ............................. (8,969) (4,001) (460)
Increase (decrease) in accounts payable and accrued expenses ........................ 1,091 10,126 1,158
Increase (decrease) in interest and taxes payable ................................... (1,671) (2,536) (1,327)
Increase (decrease) in deferred income tax .......................................... 3,490 1,466 (1,189)
Increase (decrease) in other long-term liabilities .................................. 1,739 962 1,954
Other-- net ......................................................................... (328) (1,550) 966
-------- -------- --------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 19,486 40,394 45,044
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property, plant, and equipment ................................ (36,732) (53,155) (26,825)
Payments for mine development .......................................................... (433) (9,526) (3,663)
Payments for acquisition of business ................................................... (12,376) -- --
Other investments-- net ................................................................ 6,331 (1,686) (4,909)
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (43,210) (64,367) (35,397)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of short-term debt .............................................. 15,595 6,997 552
Proceeds from issuance of long-term debt ............................................... 15,000 -- 8,305
Repayment of long-term debt ............................................................ (800) (960) (813)
Repayment of short-term debt ........................................................... (1,815) (93) (2,149)
Purchase of treasury stock ............................................................. (5,349) (4,927) (6,656)
Issuance of common stock under stock option plans ...................................... 3,561 5,872 1,460
Payments of dividends .................................................................. (7,812) (7,285) (6,489)
-------- -------- --------
NET CASH PROVIDED FROM (USED IN) FINANCING ACTIVITIES 18,380 (396) (5,790)
Effects of exchange rate changes on cash & cash equivalents .............................. 112 (210) (1,661)
-------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS (5,232) (24,579) 2,196
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 7,170 31,749 29,553
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,938 $ 7,170 $ 31,749
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 16
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Brush Wellman Inc. and Subsidiaries
December 31, 1998 and 1997
(Dollars in thousands)
ASSETS 1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents .................................................................... $ 1,938 $ 7,170
Accounts receivable (less allowance of $2,127 for 1998 and $1,059 for 1997) .................. 62,181 62,812
Inventories .................................................................................. 103,108 90,714
Prepaid expenses ............................................................................. 7,210 7,195
Deferred income taxes ........................................................................ 20,087 11,020
--------- ---------
TOTAL CURRENT ASSETS 194,524 178,911
OTHER ASSETS ...................................................................................... 44,697 31,319
PROPERTY, PLANT, AND EQUIPMENT
Land ......................................................................................... 5,426 5,043
Buildings .................................................................................... 88,912 85,721
Machinery and equipment ...................................................................... 282,492 312,088
Construction in progress ..................................................................... 10,694 26,735
Allowances for depreciation .................................................................. (236,520) (272,192)
--------- ---------
151,004 157,395
Mineral resources ............................................................................ 5,101 5,693
Mine development ............................................................................. 28,842 28,409
Allowances for amortization and depletion .................................................... (20,478) (17,875)
--------- ---------
13,465 16,227
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT-- NET 164,469 173,622
--------- ---------
$ 403,690 $ 383,852
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt .............................................................................. $ 45,587 $ 28,877
Accounts payable ............................................................................. 15,156 13,519
Salaries and wages ........................................................................... 8,381 12,341
Taxes other than income taxes ................................................................ 3,196 2,611
Other liabilities and accrued items .......................................................... 14,905 13,628
Dividends payable ............................................................................ 1,966 1,967
Income taxes ................................................................................. 4,341 5,369
--------- ---------
TOTAL CURRENT LIABILITIES 93,532 78,312
OTHER LONG-TERM LIABILITIES ....................................................................... 10,507 8,200
RETIREMENT AND POST-EMPLOYMENT BENEFITS ........................................................... 39,448 39,825
LONG-TERM DEBT .................................................................................... 32,105 17,905
DEFERRED INCOME TAXES ............................................................................. 6,287 2,797
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 22,481,321 shares (22,227,006 for 1997) ............... 22,481 22,227
Additional paid-in capital ................................................................... 63,974 59,583
Retained income .............................................................................. 239,230 254,174
--------- ---------
325,685 335,984
Common stock in treasury, 6,177,418 shares in 1998 (5,843,561 in 1997) ....................... (104,050) (96,639)
Other equity transactions .................................................................... 176 (2,532)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 221,811 236,813
--------- ---------
$ 403,690 $ 383,852
========= =========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 17
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS ' EQUITY
Brush Wellman Inc. and Subsidiaries
Years ended December 31, 1998, 1997, and 1996
(Dollars in thousands except per share amounts)
Additional Common Other
Common Paid-In Retained Stock In Comprehensive
Stock Capital Income Treasury Income Other Total
-------- -------- --------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1996 $ 21,330 $ 45,658 $ 218,209 $ (84,701) $ -- $ (194) $200,302
Net income ...................................... 24,491 24,491
Foreign currency translation adjustment ......... 27 27
--
Comprehensive income ............................ 24,518
Declared dividends $.42 per share ............... (6,657) (6,657)
Proceeds from sale of 93,710 shares under
Option plans ................................... 94 1,211 1,305
Income tax benefit from employees' stock options 155 155
Purchase of business ............................ 368 5,296 5,664
Other equity transactions ....................... 117 1,330 (821) 626
Purchase of shares for treasury ................. (6,656) (6,656)
-------- -------- --------- --------- ------- ------- --------
BALANCES AT DECEMBER 31, 1996 21,909 53,650 236,043 (91,357) 27 (1,015) 219,257
Net income ...................................... 25,597 25,597
Foreign currency translation adjustment ......... (1,657) (1,657)
--------
Comprehensive income ............................ 23,940
Declared dividends $.46 per share ............... (7,463) (7,463)
Proceeds from sale of 309,196 shares under
Option plans ................................... 309 4,821 5,130
Income tax benefit from employees' stock options 742 742
Other equity transactions ....................... 9 370 (3) 113 489
Forfeiture of restricted stock .................. (355) (355)
Purchase of shares for treasury ................. (4,927) (4,927)
-------- -------- --------- --------- ------- ------- --------
BALANCES AT DECEMBER 31, 1997 22,227 59,583 254,174 (96,639) (1,630) (902) 236,813
Net loss ........................................ (7,132) (7,132)
Foreign currency translation adjustment ......... 1,563 1,563
--------
Comprehensive loss .............................. (5,569)
Declared dividends $.48 per share ............... (7,812) (7,812)
Proceeds from sale of 179,101 shares under
Option plans ................................... 179 2,875 3,054
Income tax benefit from employees' stock options 496 496
Other equity transactions ....................... 75 1,020 (1,471) 1,145 769
Forfeiture of restricted stock .................. (591) (591)
Purchase of shares for treasury ................. (5,349) (5,349)
-------- -------- --------- --------- ------- ------- --------
Balances at December 31, 1998 $ 22,481 $ 63,974 $ 239,230 $(104,050) $ (67) $ 243 $221,811
======== ======== ========= ========= ======= ======= ========
</TABLE>
See notes to consolidated financial statements
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brush Wellman Inc. and Subsidiaries, December 31, 1998
NOTE A-SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION:The Company is a manufacturer of engineered materials used
primarily in the computer, telecommunications, and automotive electronics
markets. The Company also sells into the aerospace, appliance, optical media,
and industrial components markets. The majority of sales are to customers in
North America, Western Europe, and the Pacific rim. The Company's Metal Systems
Group produces Alloy Products, Beryllium Products, and Engineered Material
Systems while the Microelectronics Group produces precious and non-precious
metal materials including physical vapor deposition targets, speciality alloys,
ceramics, and thick film circuits. These two business segments are structured
based upon commonalities of the products manufactured and/or markets served. 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
are used in computing the annual provision for depreciation by class of asset
are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Land improvements ...................................... 5 to 25
Buildings .............................................. 10 to 40
Leasehold improvements ................................. Life of lease
Machinery and equipment ................................ 3 to 15
Furniture and fixtures ................................. 4 to 15
Automobiles and trucks ................................. 2 to 8
Research equipment ..................................... 6 to 12
Computer software and hardware ......................... 3 to 10
</TABLE>
Depreciation expense was $20,708,000 in 1998, $18,128,000 in 1997, and
$17,860,000 in 1996.
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.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities", which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Statement will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The Company has not yet determined when it will adopt the Statement, nor has it
determined what the effect of the Statement will be on earnings and the
financial position of the Company.
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.
16
<PAGE> 19
EXCHANGE GAIN (Loss): Included in Other-net in the Consolidated Statement
of Income is an exchange gain (loss) of ($1,752,000) in 1998, $2,275,000 in
1997, and $908,000 in 1996.
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 1998 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.
NEW PRONOUNCEMENTS: The Company adopted SFAS No. 130, "Reporting
Comprehensive Income", in 1998. Comprehensive income is defined as the change in
equity from transactions and other events from non-owner sources. It includes
all changes in equity during a period except those resulting from investments by
or distributions to owners. Comprehensive income is reported as a component of
equity in the Consolidated Statement of Shareholders' Equity.
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", in 1998. This Statement requires selected
information on reportable segments to be included in the financial reports
issued to shareholders. It also establishes disclosure standards about products
and services, geographic areas, and major customers. See Note N to the
Consolidated Financial Statements.
The Company also adopted SFAS No. 132, "Employers' Disclosures about
Pension and Other Postretirement Benefits", in 1998. This Statement revised the
disclosure requirements about pension and other postretirement benefit plans,
but did not change the measurement or recognition of those plans. See Note L to
the Consolidated Financial Statements.
NOTE B-ACQUISITIONS
At the end of the second quarter of 1998, the Company acquired certain
assets of Pure Tech Inc. for cash. In October 1996, the Company acquired the
Common Stock of Circuits Processing Technology Inc. for Company Common Stock.
These transactions were accounted for as purchases 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,
1998 1997
---- ----
(Dollars in thousands)
<S> <C> <C>
Principally average cost:
Raw materials and supplies ................... $ 18,708 $ 17,331
In process ................................... 60,919 58,666
Finishedgoods ................................ 42,021 37,008
-------- --------
121,648 113,005
Excess of average cost over LIFO
inventory value ........................... 18,540 22,291
-------- --------
$103,108 $ 90,714
======== ========
</TABLE>
Average cost approximates current cost. Inventories aggregating $74,175,000
and $66,221,000 are stated at LIFO at December 31,1998 and 1997, 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 $2,732,000, $2,560,000, and $2,168,000 in
1998, 1997, and 1996, respectively. Interest costs capitalized and the amounts
amortized are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Interest incurred .......................... $2,829 $2,371 $2,103
Less capitalized interest .................. 1,580 1,818 975
------ ------ ------
$1,249 $ 553 $1,128
====== ====== ======
Amortization, included
principally in cost of sales ............. $ 697 $ 600 $ 573
====== ====== ======
</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 $580,000, $1,075,000, and ($190,000)
in 1998, 1997, and 1996, respectively. The related interest expense was
$2,966,000, $3,081,000, and $5,115,000, respectively.
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Brush Wellman Inc. and Subsidiaries, December 31, 1998
NOTE E-DEBT
A summary of long-term debt follows:
<TABLE>
<CAPTION>
December 31,
1998 1997
---- ----
<S> <C> <C>
(Dollars in thousands)
9 68% medium-term notes,
payable in 2000 .............................. $ 5,000 $ 5,000
Variable rate demand 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 .................... 1,600 2,400
Variable rate industrial development
revenue bonds payable in 2016 ................ 8,305 8,305
Revolving credit agreement ..................... 15,000 0
-------- --------
32,905 18,705
Current portion of long-term debt .............. (800) (800)
-------- --------
$ 32,105 $ 17,905
======== ========
</TABLE>
Maturities on long-term debt instruments as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
<C> <C>
1999 .................. $ 800
2000 .................. 20,800
2001 .................. 0
2002 .................. 0
2003 .................. 0
Thereafter ............ 11,305
------
$32,905
=======
</TABLE>
The Company has a revolving credit agreement with four banks which provides
a maximum availability of $55,000,000 through April 30, 2000. At December 31,
1998, there is $15,000,000 in borrowings outstanding against this agreement at a
rate of 5.59% that is fixed through February, 1999, at which time it will be
reset according to the terms and options available to the Company under the
agreement. The agreement allows the Company to borrow money at a premium over
LIBOR or prime rate at varying maturities.
Included in short-term debt is $44,787,000 ($28,077,000 at December
31,1997) outstanding under lines of credit totaling $64,747,000 ($82,894,000 at
December 31, 1997). The $64,747,000 lines of credit consist of $20,000,000,
$37,903,000, and $6,844,000 of domestic, foreign, and precious metal (primarily
gold) denominated debt, respectively. The domestic and foreign lines are
uncommitted, unsecured, and renewed annually. The precious metal facility is
secured and renewed annually. Of the amount outstanding, $12,423,000 is under
the uncommitted domestic lines of credit, $25,544,000 is payable in foreign
currencies, and $6,820,000 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 interest rate on
short-term debt was 3.7% and 3.0% as of December 31,1998 and 1997, respectively.
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, 1998).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.
In 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 3.09% to 4.64% during 1998
and from 3.32% to 4.79% during 1997.
In 1994, the Company re-funded its $3,000,000 industrial development
revenue bonds. The 7.25% bonds were re-funded into variable rate demand bonds.
The variable rate ranged from 2.95% to 4.45% during 1998 and from 3.15% to 4.65%
during 1997. In December 1995, the Company entered into an interest rate swap
agreement to manage its interest rate exposure on the $3,000,000 variable rate
demand 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. The most
restrictive covenant is the funded debt to earnings before interest, taxes,
depreciation, and amortization (EBITDA) ratio. In January 1999, the Company
amended certain provisions of its revolving credit agreement and a master lease
agreement (see Note F to the Consolidated Financial Statements), including the
funded debt to EBITDA 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 $6.8 million, $4.3 million, and $4.7 million during
1998, 1997, and 1996, respectively. The future estimated minimum lease payments
under non-cancelable operating leases with initial lease terms in excess of one
year at December 31, 1998 are as follows: 1999-$7.9 million; 2000-$7.7 million;
2001 -$7.4 million; 2002-$ 3.5 million; 2003-$3.3 million; and thereafter-$20.1
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 $79.7
18
<PAGE> 21
million. Start-up of this facility 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 facility 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. In January 1999, the Company amended certain provisions of its
master lease agreement, including its covenant regarding the funded debt to
earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio.
NOTE G-DERIVATIVE FINANCIAL INSTRUMENTS
AND FAIR VALUE INFORMATION
FOREIGN EXCHANGE HEDGE CONTRACTS
The Company has a program in place to manage foreign currency risk. As part
of that program, the Company has entered into forward and option contracts to
hedge anticipated foreign currency transactions, primarily foreign sales. The
purpose of the program is to protect against the reduction in value of foreign
currency transactions from adverse exchange rate movements. Should the U.S.
dollar strengthen significantly, the decrease in the value of the foreign
currency transactions will be partially offset bythe gains on the hedge
contracts. Depending upon the method used, the hedges may limit the benefits
from a weakening of the U.S. dollar.
All hedge contracts mature in two years or less. The Company recorded an
unrealized loss of $738,000 on forward contracts as of December 31, 1998. The
contracted amounts of the Company's outstanding forward and "in-the-money"
option contracts as of December 31, 1998 were as follows:
<TABLE>
<CAPTION>
FORWARD OPTION
CONTRACTS CONTRACTS
--------- ---------
(Dollars in thousands)
Currency:
<S> <C> <C>
Deutschmark ............................ $13,300 $ 9,800
Yen .................................... 7,800 4,200
Sterling ............................... 4,200 -0-
------- -------
Total ........................ $25,300 $14,000
======= =======
</TABLE>
Option contracts which were "out-of-the-money" due to exchange rates at
year-end are excluded from the above tables.
COMMODITY SWAPS
The Company purchases and manufactures products containing copper.
Purchases are exposed to price fluctuations in the copper market. However, for
the majority of its copper-based products, the Company will adjust its selling
prices to reflect the change in its copper purchase price. This program is
designed to be profit neutral, i.e. any changes in copper prices, either up or
down, will be directly passed on to the customer.
The Company uses commodity swaps to hedge the copper purchase price for
those volumes where price fluctuations cannot be passed on to the customer.
Under these swaps, which are purchased from financial institutions, the Company
makes or receives payments based on a difference between a fixed price (as
specified in each individual contract) and the market price of copper. These
payments will offset the change in prices of the underlying purchases and
effectively fix the price of copper at the swap rate for the contracted volume.
By using swaps, the Company limits the opportunity to benefit from favorable
price movements.
At December 31, 1998, the Company had outstanding contracts through the
year 2000 with a fair value of ($1,200,000) and a notional value of $8,100,000.
At December 31,1997, the fair value of the outstanding contracts was
($1,000,000) and the notional value was $12,900,000. The Company accounts for
these swaps as hedges.
SFAS No.107 defines fair value as the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a
forced or liquidation sale.
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 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 maximum notional amount
covered by this contract is $60.9 million. The fair value of the contract as of
December 31, 1998 was ($2,418,000).
In February 1998, the Company entered into an interest rate swap agreement
to hedge the variable rate payments on the equipment lease mentioned above for
the remaining terms of the lease through its expiration in 2008. The Company has
accounted for the swap as a hedge, effectively fixing the estimated lease
payments through the entire term of the lease. The maximum notional amount
covered by this contract is $54.8 million. The fair value of the contract as of
December 31,1998 was ($1,773,000).
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 31,1998 was
($117,000).
19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Brush Wellman Inc. and Subsidiaries, December 31, 1998
LONG AND SHORT-TERM DEBT
The fair value of the Company's debt (which had a carrying value of
$77,703,000) at December 31,1998 was estimated at $78,090,000 using a discounted
cash flow analysis based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements. At December 31,1997, the fair value
of the Company's $46,782,000 of debt was estimated at $44,289,000 using the same
procedure.
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. There are 450,000 unissued
shares of Serial Preferred Stock which will be designated as Series A Preferred
Stock. Each share of Series A Preferred Stock will be entitled to participate in
dividendson 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 personor 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 purchase 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, 1998, the Company purchased
455,600 shares at a total cost of $10.3 million.
In December 1995, the Company's Board of Directors authorized a purchase of
up to 1,000,000 shares of its Common Stock. Through December 31,1996, the
Company purchased 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 purchases.
The amended 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 1998, a
total of 60,450 performance restricted shares, 30,225 performance shares, and
16,900 special restricted shares (1,000 were subsequently forfeited) were
granted to certain employees. In 1997, a total of 9,000 special restricted
shares (2,000 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 is 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 $1,394,000 and $270,000 in
1998 and 1997, 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 amended 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 amended 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 (the "1990 Plan") was
terminated effective May 7, 1998. The 1997 Stock Incentive Plan for Non-Employee
Directors replaced the 1990 Plan and provided for a one-time grant of 5,000
options to up to six new non-employee directors who have not yet received
options under the 1990 Plan, 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 plans. 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
20
<PAGE> 23
No. 123 by amortizing the expense over the options' vesting
period, the pro forma net income and earnings per share (E.P.S.)
would have been as noted below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in thousands except per
share amounts)
<S> <C> <C> <C>
Net income (loss) As reported $ (7,132) $ 25,597 $ 24,491
Pro Forma $ (7,973) $ 25,113 $ 24,048
Basic E.P.S. As reported $ (0.44) $ 1.58 $ 1.55
Pro Forma $ (0.49) $ 1.55 $ 1.52
Diluted E.P.S. As reported $ (0.44) $ 1.56 $ 1.53
Pro Forma $ (0.49) $ 1.53 $ 1.50
</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 $7.13,
$4.99, and $5.96 for 1998, 1997, and 1996, respectively. The fair 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
1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate .............. 5.65% 6.15% 6.88%
Dividend yield ....................... 2.33% 2.00% 2.03%
Volatility of stock .................. 31.60% 29.90% 29.35%
Expected life of option .............. 4 years 4 years 10 years
</TABLE>
A summary of option activity during the years 1998, 1997, and 1996 follows:
<TABLE>
<CAPTION>
Weighted
Average
Range of Exercise
Shares Option Price Price
------ ------------ -----
<S> <C> <C> <C>
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 ..................... 217,550 $18.13 to $23.78 $ 18.39
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 ......... 1,345,384 $11.81 to $29.94 $ 17.62
Granted ..................... 200,650 $16.06 to $26.72 $ 26.30
Exercised ................... (179,101) $12.00 to $25.50 $ 17.35
Canceled .................... (92,890) $13.56 to $29.94 $ 24.18
---------
Outstanding at
December 31, 1998 ......... 1,274,043 $11.81 to $28.38 $ 18.57
=========
</TABLE>
At December 31, 1998, options for 1,070,653 shares (1,141,774 shares at
December 31,1997) were exercisable with a weighted average remaining life of 5.6
years and 5.5 years for 1998 and 1997, respectively, and a weighted average
exercise price of $17.85 and $17.58 for 1998 and 1997, respectively. The
outstanding options as of December 31,1998 may be divided into the following
ranges:
<TABLE>
<CAPTION>
Weighted
Range of Average
Option Prices Outstanding Exercisable Remaining Life
------------- ----------- ----------- --------------
<S> <C> <C> <C>
$11.81 to $17.69 677,243 655,133 4.86
$18.13 to $23.78 407,450 327,020 5.06
$26.72 to $28.38 189,350 88,500 9.25
--------- ---------
1,274,043 1,070,653
========= =========
</TABLE>
As of December 31,1998, there were 897,297 shares (194,757 at December
31,1997) available for future grants.
NOTE I-SPECIAL CHARGE
The Company recorded a special charge totaling $22.6 million pre-tax and
$16.5 million after tax in 1998, primarily for write-downs of property, plant,
and equipment, inventory, and goodwill, and increases to environmental reserves.
Of the $22.6 million, $5.6 million was charged to Cost of sales and $17.0
million was charged to Other-net in the Consolidated Income Statement for the
year ended December 31, 1998. The Company recorded $21.8 million of the pre-tax
charge in the second quarter with the balance recorded in the third and fourth
quarters.
In analyzing the strategic plans for each of the Company's business units,
management determined that the carrying value of certain assets within its
Microelectronics and Metal Systems Groups were impaired based upon current cash
flow projections. Property, plant and equipment and related intangibles with a
carrying value of $19.6 million were written down by $14.3 million to their
estimated fair market value in the second quarter 1998. The fair market value
was determined by a discounted cash flow analysis using the Company's estimated
pre-tax weighted average cost of capital. The impaired assets may be held for
future use. The $14.3 million impairment is included in Other-net on the
Consolidated Income Statement.
An increase in the environmental reserve of $2.1 million was recorded as a
long-term liability recognizing the Company's plan to pursue a voluntary
remediation program of a former manufacturing site of a subsidiary. Payments of
less than $0.1 million were made against this reserve in 1998. The allowance for
doubtful accounts was increased by $0.6 million although the Company continues
to pursue collection of this receivable. The remaining $5.6 million of the
charge was for inventory write-downs resulting from reduced growth expectations
and current market conditions, accelerated depreciation and amortization of
fixed assets and associated prepaid manufacturing expenses for items to be taken
out of service as a result of new investments or other changes in operations.
21
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Brush Wellman Inc. and Subsidiaries, December 31, 1998
NOTE J-INCOME TAXES
Income (loss) before income taxes and income taxes (benefit) are comprised
of the following components, respectively:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Income(loss) before income taxes:
Domestic .......................... $(12,730) $30,993 $ 28,750
Foreign ........................... 1,168 4,478 4,427
-------- ------- --------
Total before income taxes ....... $(11,562) $35,471 $ 33,177
======== ======= ========
Income taxes(benefit):
Current income taxes:
Domestic ........................ $ 442 $ 5,982 $ 7,736
Foreign ......................... 705 2,524 2,089
-------- ------- --------
Total current ................. 1,147 8,506 9,825
Deferred income taxes:
Principally domestic ............ (5,577) 1,368 (1,139)
-------- ------- --------
Total income taxes ............ $ (4,430) $ 9,874 $ 8,686
======== ======= ========
</TABLE>
A reconciliation of the federal statutory and effective income tax rates
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate ..................... (34.0)% 35.0% 35.0%
State and local income taxes,
net of federal tax effect ................. 1.3 1.7 1.1
Effect of excess of percentage
depletion over cost depletion ............. (14.7) (5.5) (4.9)
Company-owned life insurance ............... (4.3) (1.5) (3.6)
Difference due to book and tax
and tax basis of assets of
acquired businesses ....................... 14.2 0.4 1.1
Taxes on foreign income-net ................ (3.6) (1.2) (1.2)
Other items ................................ 2.8 (1.1) (1.3)
----- ---- ----
Effective tax rate ....................... (38.3)% 27.8% 26.2%
===== ==== ====
</TABLE>
Included in income taxes currently payable, as shown in the Consolidated
Statements of Income, are $234,000, $935,000, and $585,000 of state and local
income taxes in 1998, 1997, and 1996, respectively.
The Company made domestic and foreign income tax payments, net of refunds,
of $1,650,000, $10,507,000, and $11,144,000 in 1998, 1997, and 1996,
respectively.
Under Statement 109, deferred tax assets and liabilities are determined
based on temporary differences between the financial reporting bases and the tax
bases of assets and liabilities. Deferred tax assets and (liabilities) recorded
in the Consolidated Balance Sheets consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
(Dollars in thousands)
Postretirement benefits other
than pensions .............................. $ 12,476 $ 12,455
Alternative minimum tax credit ............... 11,691 5,582
Other reserves ............................... 8,094 7,095
Environmental reserves ....................... 2,684 1,666
Inventory .................................... 1,893 --
Miscellaneous ................................ 265 652
-------- --------
Total deferred tax assets .................... 37,103 27,450
Depreciation ................................. (14,562) (9,765)
Pensions ..................................... (3,968) (3,946)
Mine development ............................. (3,444) (4,139)
Capitalized interest expense ................. (1,329) (1,179)
Inventory .................................... -- (198)
-------- --------
Total deferred tax liabilities ............... (23,303) (19,227)
-------- --------
Net deferred tax asset ....................... $ 13,800 $ 8,223
======== ========
</TABLE>
NOTE K-EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (E.P.S.):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Numerator for basic
and diluted E.P.S.:
Net income (loss) ................ $ (7,132,000) $25,597,000 $24,491,000
Denominator:
Denominator for basic E P S
Weighted-average shares
outstanding ................... 16,267,804 16,214,718 15,846,358
Effect of dilutive securities:
Employee stock options ........... -- 194,189 112,440
Performance restricted
stock ......................... -- 18,680 12,857
Special restricted stock ......... -- 1,881 8,826
------------ ----------- -----------
Diluted potential
common shares ................. -- 214,750 134,123
------------ ----------- -----------
Denominator for diluted E P S
Adjusted weighted-average
shares outstanding ............... 16,267,804 16,429,468 15,980,481
============ =========== ===========
Basic E.P.S ........................ $ (0.44) $ 1.58 $ 1.55
============ =========== ===========
Diluted E.P.S ...................... $ (0.44) $ 1.56 $ 1.53
============ =========== ===========
</TABLE>
Under SFAS No. 128, "Earnings per Share", no potential common shares shall
be included in the computation of any diluted per-share amount when a loss from
continuing operations exists. Accordingly, dilutive securities totaling
approximately 157,000 shares have been excluded from the 1998 diluted E.P.S.
calculation.
22
<PAGE> 25
NOTE L-PENSIONS AND OTHER POSTRETIREMENT BENEFITS
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
(dollars in thousands)
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at end of prior year ............................... $ 71,668 $ 69,187 $ 30,775 $ 31,843
Service cost .......................................................... 3,063 2,434 345 312
Interest cost ......................................................... 5,154 4,916 2,122 2,174
Amendments ............................................................ 5,025 924 -- --
Actuarial (gain) loss ................................................. 3,552 (1,902) 274 (1,493)
Benefit payments ...................................................... (3,668) (3,891) (2,186) (2,061)
--------- -------- -------- --------
Benefit obligation at end of year ..................................... 84,794 71,668 31,330 30,775
--------- -------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at end of prior year ........................ 96,372 84,819 -- --
Actual return on plan assets .......................................... 17,316 15,433 -- --
Employer contributions ................................................ 17 11 2,186 2,061
Plan participants contributions ....................................... -- -- -- --
Benefit payments ...................................................... (3,668) (3,891) (2,186) (2,061)
--------- -------- -------- --------
Fair value of plan assets at end of year .............................. 110,037 96,372 -- --
-------- --------
Funded status ......................................................... 25,243 24,704 (31,330) (30,775)
Unrecognized net actuarial (gain) loss ................................ (19,989) (13,811) (5,386) (5,875)
Unrecognized prior service cost ....................................... 7,984 3,182 -- --
Unrecognized initial net (asset) obligation ........................... (2,601) (3,308) -- --
--------- -------- -------- --------
Net amount recognized ................................................. $ 10,637 $ 10,767 $(36,716) $(36,650)
--------- -------- -------- --------
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET CONSIST OF:
Prepaid benefit cost .................................................. 12,988 12,615 -- --
Accrued benefit liability ............................................. (2,351) (1,848) (36,716) (36,650)
--------- -------- -------- --------
Net amount recognized ................................................. $ 10,637 $ 10,767 $(36,716) $(36,650)
--------- -------- -------- --------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate ......................................................... 7.00% 7.25% 7.00% 7.25%
Expected return on plan assets ........................................ 9.00% 9.00% N/A N/A
Rate of compensation increase ......................................... 5.00% 5.00% N/A N/A
</TABLE>
For measurement purposes, a 6.75 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 5.0 percent for 2002 and remain at that level
thereafter.
<TABLE>
<CAPTION>
COMPONENTS OF NET PERIODIC BENEFIT COST
<S> <C> <C> <C> <C>
Service cost
Interest cost .................................................. $ 3,063 $ 2,434 $ 345 $ 312
Expected return on plan assets ................................. 5,154 4,916 2,122 2,174
Amortization of prior service cost ............................. (7,589) (7,082) -- --
Amortization of initial net (asset) obligation ................. 340 258 -- --
Recognized net actuarial (gain) loss ........................... (707) (707) -- --
Net periodic benefit cost ...................................... 3 2 (215) (230)
------- ------- ------- -------
$ 264 $ (179) $ 2,252 $ 2,256
======= ======= ======= =======
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $1,275,000, $852,000, and $0, respectively, as of
December 31, 1998, and $1,003,000, $639,000, and $0, respectively, as of
December 31, 1997.
23
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Brush Wellman Inc. and Subsidiaries, December 31, 1998
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE 1-PERCENTAGE
POINT POINT
INCREASE DECREASE
-------- --------
<S> <C> <C>
(Dollars in thousands)
Effect on total of service and
interest cost components ...................... $ 104 $ (92)
Effect on postretirement benefit
obligation .................................... 1,638 (1,402)
</TABLE>
The Company also has accrued unfunded retirement arrangements for certain
directors. At December 31,1998, the projected benefit obligation was $239,000
($1,038,000 in 1997). A corresponding accumulated benefit obligation of $239,000
($995,000 in 1997) has 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 contributions were $2,291,000 in 1998, $2,207,000 in 1997, and
$1,844,000 in 1996.
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 currently known facts, 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 $7.9 million
at December 31, 1998 ($5.1 million at December 31, 1997). 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.
24
<PAGE> 27
NOTE N-SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
Selected financial data by business segment as prescribed by SFAS No. 131,
"Disclosures about segments of an Enterprise and Related Information", for 1998,
1997 and 1996 are as follows.
<TABLE>
<CAPTION>
Metal Micro- All
Systems Electronics Other Total
------- ----------- ----- -----
(Dollars in thousands)
1998
- ----
<S> <C> <C> <C> <C>
Revenues from external customers .......................... $295,705 $ 106,347 $ 7,840 $ 409,892
Intersegment revenues ..................................... 482 1,145 -- 1,627
Special charge ............................................ -- -- 22,572 22,572
Depreciation, depletion and amortization .................. 15,716 2,283 6,590 24,589
Segment profit (loss) before taxes ........................ 27,897 2,120 (40,330) (10,313)
Segment assets ............................................ 262,847 51,052 89,791 403,690
Expenditures for long-lived assets ........................ 21,054 7,432 8,679 37,165
1997
- ----
Revenues from external customers .......................... 302,403 124,418 6,980 433,801
Intersegment revenues ..................................... 1,616 773 -- 2,389
Special charge ............................................ -- -- -- --
Depreciation, depletion and amortization .................. 12,870 2,543 3,916 19,329
Segment profit (loss) before taxes ........................ 51,024 2,860 (17,860) 36,024
Segment assets ............................................ 253,462 48,000 82,390 383,852
Expenditures for long-lived assets ........................ 42,302 2,502 17,877 62,681
1996
- ----
Revenues from external customers .......................... 292,479 76,900 6,900 376,279
Intersegment revenues ..................................... -- 1,184 -- 1,184
Special charge ............................................ -- -- -- --
Depreciation, depletion and amortization .................. 12,866 2,376 7,712 22,954
Segment profit (loss) before taxes ........................ 56,305 (1,700) (20,300) 34,305
Segment assets ............................................ 220,585 43,458 91,736 355,779
Expenditures for long-lived assets ........................ 17,974 3,144 9,370 30,488
</TABLE>
All Other includes corporate and certain unallocated costs, non-operating
items of Other income/expense, and the revenues and related costs from one
manufacturing facility. Segments are evaluated using earnings before interest
and taxes. In 1998, the Company recorded a special charge of $22.6 million (see
Note I to the Consolidated Financial Statements). While this charge included
write-downs of assets of the Metal Systems and Microelectronics Groups, it was
not recorded against their profits asmanagement evaluates the profitability of
those groups exclusive of the special charge. Assets shown in All Other include
cash, computer hardware and software, deferred taxes, capitalized interest, and
the operating assets for one manufacturing facility. Inventories for Metal
Systems and Microelectronics are shown at their FIFO values with the LIFO
reserve included under the All Other column. Intersegment revenues are
eliminated in consolidation. The revenues from external customer totals are
presented net of the Intersegment revenues.
The Company's sales from U.S. operations to external customers, including
exports, were $327,927,000 in 1998, $345,100,000 in 1997, and $301,451,000 in
1996. Revenues attributed to countries based upon the location of customers and
long-lived assets deployed by the Company, by country, are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Revenues
- --------
United States .................. $280,830 $291,378 $267,877
All Other ...................... 129,062 142,423 108,402
-------- -------- --------
Total .......................... $409,892 $433,801 $376,279
Long-Lived Assets
- -----------------
United States $166,979 $172,623 $128,304
All Other 6,283 6,128 7,390
-------- -------- --------
Total $173,262 $178,751 $135,694
</TABLE>
No individual country, other than the United States, or customer accounted
for 10% or more of the Company's revenues for the years presented. Revenues from
outside the U.S. are primarily from Europe and Asia.
25
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Brush Wellman Inc. and Subsidiaries, December 31, 1998
NOTE O-QUARTERLY DATA
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Net sales ......................................... $ 114,181 $ 102,992 $ 96,240 $ 96,479 $ 409,892
Gross profit ...................................... 28,029 17,516 19,416 19,758 84,719
Percent of sales ................................ 24.5% 17.0% 20.2% 20.5% 20.7%
Net income (loss) ................................. 6,162 (13,084) 98 (308) (7,132)
Earnings (loss) per share of common stock:
Basic ........................................... 0.38 (0.80) 0.01 (0.02) (0.44)
Diluted ......................................... 0.37 (0.80) 0.01 (0.02) (0.44)
Dividends per share of common stock ............... 0.12 0.12 0.12 0.12 0.48
Stock price range
High ............................................ 28.50 29.69 22.75 17.44
Low ............................................. 22.94 19.13 13.81 11.94
</TABLE>
Included in the second quarter of 1998 is $15.9 million of the $16.5 million
after tax special charge.
<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 ................................... 24,782 28,866 26,292 29,398 109,338
Percent of sales ............................. 24.9% 25.5% 24.1% 26.3% 25.2%
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
</TABLE>
26
<PAGE> 29
REPORTS OF INDEPENDENT AUDITORS AND MANAGEMENT
REPORT OF 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, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 26, 1999
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 judgements 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 solely 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/ Johb D. Grampa
John D. Grampa
Vice President, Finance
27
<PAGE> 30
MANAGEMENT 'S DISCUSSION AND ANALYSIS
FORWARD-LOOKING INFORMATION
Portions of the narrative set forth in this document 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. These factors include, in addition to those
mentioned elsewhere herein, the condition of the markets which the Company
serves (especially as impacted by events in particular markets including
telecommunications, automotive, and computer, or in particular geographic
regions, such as Asia), the success of the Company's strategic plans, the timely
and successful completion of pending capital expansions and Year 2000
remediation projects, 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
1998 TO 1997 COMPARISON
Worldwide sales of $409.9 million in 1998 were 6% lower than the record
$433.8 million of sales in 1997. Sales and profits from both the Metal Systems
Group and Microelectronics Group declined in 1998 from 1997. The Company also
recorded a $22.6 million special charge (see Note I to the Consolidated
Financial Statements) to write-down certain assets and establish various
reserves. This resulted in a per share loss of $0.44 in 1998 compared to net
income per share of $1.56 in 1997. Absent the special charge, earnings per share
would have been $0.57 in 1998.
Metal Systems Group sales were $295.7 million in 1998 compared to $302.4
million in 1997. Products sold by the Metal Systems Group include Alloy Products
(primarily copper-beryllium), Engineered Material Systems, and Beryllium
Products. These products are used in a wide variety of applications where
superior electrical conductivity, formability, wear resistance, high strength,
or hardness characteristics may be required. They are sold into the
telecommunications, computer, automotive, aerospace/defense, plastic molds, and
appliance markets. Copper is a large component of these sales and changes in the
market price of raw copper generally are passed through to the Company'sdomestic
customers. Average copper prices were lower in 1998 than 1997 thereby reducing
reported revenues but not margins. The U.S. dollar strengthened in 1998 compared
to 1997 and, as a result, the translated value of Metal Systems' foreign
currency denominated sales declined. Had copper prices and exchange rates in
1998 been equal to 1997 (andassuming no other changes to 1998's volumes and
prices), Metal Systems' sales would have been slightly higher than last year.
The Company has an active sales, marketing, and distribution program
designed to develop and penetrate new markets and applications while servicing
current customer needs. Demand from the aerospace and plastic mold markets
remained strong in 1998. However, a general softness in the telecommunications
and computer markets beginning in the second quarter and the General Motors
strike during the second and third quarters negatively impacted sales volumes.
Sales into the defense market, which is a considerably smaller market for the
Company compared to a decade ago, were solid in the first half of the year but
slowed down in the second half. European sales of Metal Systems products
increased over last year, but the weak economic conditions in Asia caused a
decline of sales in that region. Prior to this year, sales of alloy strip and
bulk products through the Company's Japanese subsidiary had increased every year
since its formation in the mid-1980s.
Worldwide sales of alloy strip and bulk products in pounds were 6% higher
than 1997 and a new record high. Shipments from the new facility in Lorain, Ohio
that produces afamily of non-beryllium containing alloys were a minor
contributor to this increase. Engineered Material Systems revenues declined 3%
in 1998 from 1997 after five straight years of growth.
Capacity and material flow issues at the Company's Elmore, Ohio facility
constrained the growth of Metal Systems sales and, in particular, alloy strip
products. The construction of the $117 million Alloy Expansion Project continued
and the new cast shop portion of the project has been placed in service.
However, start-up costs and yield problems were worse than anticipated. The
lower yields were caused by casting issues, which at times were not detectable
until further processing in the strip mill. The strip mill needed to operate at
full capacity with high quality input material in order to satisfy current
customer demand, and the lower yield reduced the mill's output. Casting quality
and flow of material did improvein the latter part of the year. The balance of
the Alloy Expansion Project,the new strip mill, has also been installed and is
undergoing testing and qualification. Portions of the equipment are being used
to produce salable product in early 1999 with the full line anticipated to be
integrated into full
28
<PAGE> 31
production in the third quarter of 1999. The start-up costs and inefficiencies
from the Alloy Expansion Project were approximately $4.0 million higher than in
1997 and served to reduce margins earned on Metal Systems sales. It is
anticipated that start-up costs in 1999 associated with the strip mill will be
less than the 1998 start-up costs.
Microelectronics Group sales were $106.3 million in 1998 compared to $124.4
million in 1997. Markets served by this group include telecommunications,
automotive, optical media, aerospace, and medical. The major product forms
manufactured and sold are precious and non-precious metal physical vapor
deposition (PVD) targets, beryllium ceramics, direct bond copper, copper
tungsten, and thick film circuits. The decline in sales from 1997 is primarily a
result of a planned substitution of silver for gold in PVD applications. Under
this program the customer receives the benefits of a high quality product but at
a significantly lower cost as the cost of the precious metal is a straight pass
through. While the reported revenue from PVD is lower, the actual number of
targets and the resulting value added (revenue less the cost of the metal) were
higher in 1998 than 1997. At the end of the second quarter 1998, the Company
acquired the assets of Pure Tech Inc., a manufacturer of non-precious metal PVD
targets. The Company also undertook a capital investment program to expand these
operations and augment its current product offerings.
Sales of Ceramic Products declined slightly from the prior year as the
softness in the telecommunications market and the General Motors strike also
negatively impacted these sales. The Company expanded its Tucson, Arizona plant
and created a separate facility dedicated to the development and manufacture of
copper tungsten products. These products will be sold into the markets currently
served by Ceramics. Direct bond copper sales were disappointing in 1998 and the
high manufacturing costs caused by poor yields prevented the Company from
achieving reasonable margins on these products. Production processes were
revised, and by year-end 1998, yield rates had improved significantly. Sales of
thick film circuits, manufactured at the Oceanside, California facility, were
flat with the prior year and remain a small portion of the Company's total
revenue.
Sales from international operations were $82.0 million in 1998 compared to
$88.7 million in 1997. International operations consist of distribution centers
in Germany, England, Japan, and Singapore, as well as a precious metal finishing
operation in Singapore. The Company also has a network of independent agents and
distributors throughout the world. The international markets served are
essentially the same as in the U.S. The distribution centers typically price in
their local currency and face competition based in that country. Since the
majority of the product cost is incurred in U.S. dollars, a strengthening of the
U.S. dollar reduces the translated value of sales and the resulting margins.
Direct exports to unaffiliated customers were $47.1 million in 1998 and $53.7
million in 1997. These sales are denominated in U.S. dollars. Approximately 80%
of total international sales (sales by international operations and direct
exports) are from the Metal Systems Group.
Gross margin was $84.7 million or 20.7% of sales in 1998 compared to $109.3
million or 25.2% of sales in 1997. Included in cost of sales and serving to
reduce 1998's margin is $5.6 million of the special charge. The charge will be
described below. In addition to the start-up costs and currency effect, 1998
margins were reduced by approximately $5.0 million in higher fixed costs
associated with the recent capital investments (i.e. depreciation, lease
charges, taxes, and insurance). These costs are anticipated to increase again in
1999 as lease payments for the new strip mill equipment in Elmore will begin in
March 1999. The decline in gross margin, other than the special charge, is in
the Metal Systems Group. The Microelectronics Group gross margin was level with
the prior year. Prices in general were stable, but there was a slight mix shift
towards lower priced, but not necessarily lower margin percent, products.
Selling, administrative, and general expenses declined to $64.6 million in
1998 from $65.3 million in 1997. Lower incentive compensation expenses and
planning and development work for the new Lorain facility incurred in 1997, but
not 1998, were the main reasons for the lower expenses. In addition, the
stronger U.S. dollar reduced the translated value of the international
operations' expenses by $0.5 million compared to the prior year.
Research and development (R&D) expenses were $8.7 million, or 2.1% of sales
in 1998, versus $7.7 million, or 1.8% of sales in 1997. The majority of R&D
expense supports the Metal Systems Group sales. The major increase was for
development of alloys to be produced at the Company's Lorain facility.
Additional research dollars were also invested to support casting techniques and
processes.
29
<PAGE> 32
MANAGEMENT 'S DISCUSSION AND ANALYSIS (CONTINUED)
Other-net expense includes $17.0 million of the $22.6 million special
charge in 1998. The charge includes the write-down of certain fixed assets and
related intangibles in the Microelectronics and Metal Systems Groups to their
estimated fair market values in accordance with SFAS No. 121. The Company's
current long-term strategic plans anticipate only modest growth from certain
operations, and the projected cash flows were not sufficient to support the
carrying value of these assets. The written-down assets were generally not taken
out of service. Charges were also recorded for assets that will no longer be in
service as a result of new capital investments. A reserve for environmental
expenses was recorded in support of a plan to pursue a voluntary remediation
program of a former manufacturing site of a subsidiary under the State of Ohio's
Voluntary Action Program. The special charge is consistent with the Company's
long-term goals and objectives and does not suggest any plans to exit any of the
Company's current businesses at the present time.
Absent the special charge, Other-net was $4.8 million in 1998 compared to
$0.3 million in 1997. Exchange gains/losses account for $4.0 million of this
difference. Interest income was $0.7 million lower in 1998 than 1997 due to the
decrease in cash balances.
The 1998 operating loss was $10.3 million compared to a profit of $36.0
million in 1997. Excluding the special charge, the 1998 operating profit would
have been $12.3 million. Metal Systems' operating profit decreased from $51.0
million in 1997 to $27.9 million in 1998 because of the start-up costs and yield
issues in Elmore, the higher fixed costs from new investments, and the
unfavorable currency effect. Microelectronics' operating profit of $2.1 million
is down slightly from the prior year. The special charge was recorded centrally
and not charged back against either group's profits.
Interest expense was $1.2 million in 1998 and $0.6 million in 1997. These
figures are net of capitalized interest of $1.6 million in 1998 and $1.8 million
in 1997 associated with long-term capital projects. Debt levels increased
significantly throughout 1998 and the average debt level was higher in 1998 than
1997. The average borrowing rate was 0.5% lower in 1998 than 1997.
Income taxes were provided at a rate of 38.3% of the loss before income
taxes in 1998 and 27.8% of the income before income taxes in 1997. Adjustments
to the statutory tax rate are detailed in Note J to the Consolidated Financial
Statements. The diluted loss per share was $0.44 in 1998 compared to diluted
earnings per share of $1.56 in 1997.
The Company is subject to litigation involving claims relating to product
liability and other claims relating to alleged beryllium disease exposure (see
"Legal Proceedings" in the Company's Annual Report on Form 10-K). Management
believes that the Company has substantial defenses and intends to vigorously
contest such suits. However, the Company's results of operations could be
materially affected by unfavorable results in one or more of these cases. Based
on information known to the Company and assuming collectibility of insurance on
covered claims, management believes the outcome of the Company's pending
litigation should not have a material adverse effect upon the consolidated
financial position, results of operations, or the cash flow of the Company.
1997 TO 1996 COMPARISON
Sales in 1997 were a record $433.8 million, a 15% improvement over 1996
sales of $376.3 million, and an increase for the fifth consecutive year. Diluted
earnings per share grew to $1.56 in 1997 from $1.53 in 1996.
Metal Systems sales were $302.4 million in 1997 compared to $292.5 million
in 1996. Alloy Products strip sales posted significant gains in 1997 over 1996
in the domestic and international markets. Pounds shipped increased at a higher
rate than the sales value as a large portion of the additional sales were 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 of 1997. Alloy Products bulk sales declined year over year due to lower
sales to the recreation and leisure market, while 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 completed
construction of a new facility in Lorain, Ohio. Production in limited quantities
began in the fourth quarter 1997. Sales of Engineered Material Systems grew to
record levels once again. Engineered Material Systems includes 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. Beryllium Products sales also grew in 1997 from
1996. AlBeMet((R)) sales, while still relatively small, increased in 1997.
Investment cast products also offer an opportunity for growth. Beryllium metal
sales, primarily for defense applications, were flat year over year.
30
<PAGE> 33
Sales of Microelectronics Group products increased dramatically to $124.4
million in 1997 from $76.9 million in 1996. 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 Products 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. Thick film circuits were a minor
contributor to the increased sales in 1997 from 1996.
Sales by international operations totaled $88.7 million in 1997 compared to
$74.8 million in 1996. Direct exports were $53.7 million in 1997 and $33.6
million in 1996.
Gross margin was $109.3 million in 1997, a gain of $4.2 million from 1996.
However, the margin percentage declined to 25.2% of sales from 27.9%. The two
major causes for the decline in the percentage were the effects of the stronger
U.S. dollar and the mix effect of higher Microelectronics Group sales that carry
smaller margins as previously discussed. Capacity constraints at several
facilities within the Metal Systems Group created additional cost pressures
(increased overtime, limited availability of the optimal equipment, etc.). The
cost of copper, typically passed through to customers, was essentially flat year
on year. Selling prices in general were fairly stable during 1997.
Selling, administrative, and general expenses were $65.3 million or 15.1%
of sales in 1997 compared to $61.6 million or 16.4% of sales in 1996. Costs
associated with the start-up of the new facility in Lorain 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.
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.
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 inventory 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 consignment rates. By the end of 1997, these 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.
Operating profit for Metal Systems was $51.0 million in 1997, a 10%
decrease from 1996 while Microelectronics' profit improved to $2.9 million after
posting a loss of $1.7 million in 1996.
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 $1.8
million in 1997 and $1.0 million in 1996. The higher incurred interest expense
in 1997 was the result of increased borrowings, however, 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 J 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.
31
<PAGE> 34
MANAGEMENT 'S DISCUSSION AND ANALYSIS (CONTINUED)
FINANCIAL POSITION
Cash flow from operations was $19.5 million in 1998 versus $40.4 million in
1997. The main differences are the lower net income in 1998, absent the special
charge, and an increase in inventories. The recording of the special charge had
no effect on cash flow in 1998. Cash balances at the end of 1998 were $1.9
million compared to $7.2 million at year-end 1997.
Inventories increased by $12.4 million during 1998. A portion of this
increase is in work-in-process at the Elmore facility. The Company attempts to
recycle as much of its beryllium containing scrap as feasible. The abnormally
low yield rate caused by the casting process in 1998 produced higher levels of
scrap. This scrap is maintained in inventory at the appropriate input feed value
and is available for remelting and reprocessing into good product. The start-up
of manufacturing operations at the Lorain facility and the acquisition of the
assets of Pure Tech Inc. also contributed to the inventory increase.
Capital expenditures for property, plant, and equipment and mine
development expenditures were $37.2 million in 1998. Expenditures incurred by
Metal Systems totaled $21.1 million and included a portion of the payments for
the Alloy Expansion Project in Elmore, Ohio and new plating lines and rolling
mills for the Lincoln, Rhode Island facility. The $117 million Alloy Expansion
Project began in 1995 and is expected to be completed in 1999. It is being
financed, in part, by two operating leases totaling approximately $79.7 million.
Payments under the facility lease began in December 1997, and payments under the
equipment lease will begin in 1999. The equipment lease payments are graduated
and will increase over time. Capital expenditures for Microelectronics were $7.4
million in 1998, with the mainprojects being the expansion of precious and
nonprecious metal capabilities, and the new copper tungsten facility.
The Company is also undertaking several major capital investments to
replace a large portion of its legacy computer systems while other systems are
undergoing major upgrades. One of the benefits from these system replacements
and upgrades is mitigating the need to make numerous legacy systems Year 2000
compliant. The Company currently is actively addressing the Year 2000 issues for
both information technology equipment and non-information technology equipment
(i.e., manufacturing and other support machinery). The related expense for this
activity was approximately $1.0 million in 1998 with a smaller but undetermined
amount expected to be expended in 1999. Outside consultants have been contracted
to assist in assessing the Company's exposure and costs. The majority of the
sales, financial, and payroll information technology systems either already are
or anticipated to be Year 2000 compliant by early 1999. The Company is still in
the assessment phase relative to remediation of any Year 2000 issues with its
non-information technology equipment, although, some equipment is known to be or
has been made Year 2000 compliant. If required modifications and conversions are
not made on a timely basis, the Year 2000 issue could have a material adverse
effect on the Company's operations. The Company can provide no assurance that
Year 2000 compliance plans will be successfully completed by suppliers and
customers on a timely basis, nor has the Company been able to assess the
potential impact of noncompliance by any customer or supplier. While the Company
is attempting to resolve its Year 2000 issues to the best of its understanding,
given the complexity of the issue and the potential costs, the Company cannot
provide absolute assurance that this issue will not have any impact on the
Company's future cash flows or results of operations. The Company anticipates
developing contingency plans as warranted.
The assets of Pure Tech Inc. were acquired by Williams Advanced Materials
Inc., a wholly-owned subsidiary of the Company, for $12.4 million in cash late
in the second quarter 1998. The acquisition was accounted for as a purchase.
Short-term debt was $45.6 million at December 31, 1998, an increase of
$16.7 million from the prior year-end. Included in this amount is $25.5 million
of foreign currency loans and $6.8 million denominated in precious metals.
Long-term debt on the balance sheet was $32.1 million at year-end 1998 compared
to $17.9 million at year-end 1997. Unused lines of credit totaled $113.0 million
at December 31, 1998. In January 1999, the Company amended certain provisions of
its revolving credit agreement and master lease agreement including a covenant
limiting the amount of outstanding debt to a multiple of earnings before
interest, taxes, depreciation, and amortization (funded debt/EBITDA ratio).
The Company purchased 250,000 shares of its Common Stock at a cost of $5.3
million and paid dividends totaling $7.8 million in 1998.
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<PAGE> 35
Funds being generated from operations, plus the available borrowing
capacity, are believed to be adequate to support operating requirements, capital
expenditures, remediation projects, and dividends. Excess cash, if any, is
invested in money market or other high quality investments.
Cash flow from operations was $40.4 million in 1997. Cash balances declined
to $7.2 million from $31.7 million during 1997 while total balance sheet debt
increased by $2.2 million. Capital expenditures were $53.2 million in 1997. The
Company purchased 205,600 shares of stock at a cost of $4.9 million and paid
$7.3 million of dividends in 1997.
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.
Beginning in 1998, updated computer models are being used to estimate ore
reserves which are subject to economic and physical evaluation. Development
drilling has affected the total ore reserves to some degree. The requirement
that reserves pass an economic test causes open-pit mineable ore to be found in
both proven and probable geologic settings. Although both the proven ore
reserves and the open-pit mining depths have increased, the probable reserves
have substantially decreased. Based upon 1998 production levels, proven reserves
would last sixty years or more.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Proven bertrandite
ore reserves at
year-end (thousands
of dry tons) ................... 7,747 6,924 6,763 6,927 6,747
Grade beryllium .................. 0.259% 0.249% 0.249% 0.249% 0.251%
Probable bertrandite
ore reserves at
year-end (thousands
of dry tons) ................... 3,535 6,750 7,432 7,346 7,559
Grade beryllium .................. 0.210% 0.277% 0.281% 0.281% 0.279%
Bertrandite ore
processed
(thousands of dry
tons, diluted) ................. 113 110 97 96 79
Grade beryllium,
diluted ........................ 0.234% 0.229% 0.236% 0.232% 0.240%
</TABLE>
INFLATION AND CHANGING PRICES
The prices of certain major raw materials, including copper, nickel, gold,
silver, 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 $7.9 million at December 31, 1998 ($5.1 million at December 31,
1997). This reserve covers existing and currently foreseen projects.
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<PAGE> 36
MANAGEMENT 'S DISCUSSION AND ANALYSIS (CONTINUED)
MARKET RISK DISCLOSURES
The Company is exposed to commodity price, interest rate, and foreign
exchange rate differences. The Company attempts to minimize the effects of these
exposures through a combination of natural hedges and the use of derivatives.
See Note G to the Consolidated Financial Statements.
The Company uses gold and other precious metals in manufacturing various
Microelectronics and Metal Systems products. To minimize exposure to market
price changes, precious metals are maintained on a consigned inventory basis.
The metal is purchased out of consignment when it is ready to ship to a customer
as a finished product. The Company's purchase price forms the basis for the
price charged to the customer for the precious metal content and, therefore, the
current cost is matched to the price. The Company does maintain a certain level
of gold in its own inventory, but this is typically balanced out by having a
loan denominated in gold for the same number of ounces. Any change in the market
price of gold will result in an equal change in the book value of the asset and
liability.
The Company is charged a consignment fee by the financial institutions that
actually own the gold. This fee, along with the interest charged on the gold
loan, is partially a function of the market price of gold. The fee, but not the
interest on the loan, can be charged to customers on a case by case basis.
Should the market price of precious metals used by the Company increase by 15%
from the levels on December 31, 1998, the additional pre-tax cost to the Company
on an annual basis would be approximately $0.1 million. This calculation assumes
no changes in the quantity of inventory or the underlying fee and interest rates
and that none of the additional fee is charged to customers.
The Company also uses base metals, primarily copper, in its production
processes. Fluctuations in the market price of copper are passed on in the form
of price adders (or as price reductions) to customers for the majority of the
copper sales volumes. However, when the Company cannot pass through the price of
copper, margins can be reduced by increases in the market price of copper. To
hedge this exposure, the Company enters into copper swaps with financial
institutions that exchange a variable price of copper for a fixed price. By so
doing, the difference between the Company's purchase price and selling price of
copper will be a known, fixed value for the quantities covered by the swaps.
Based upon copper swaps outstanding at December 31, 1998 that will mature during
1999, management estimates a 10% decrease in the price of copper from the
December 31, 1998 level will increase the loss on these contracts and decrease
pre-tax income by approximately $1.9 million. This calculation excludes the
additional profit that the Company anticipates it will make by selling copper at
a fixed price that cost 10% less than it does on December 31, 1998.
The Company is exposed to changes in interest rates on its debt and cash.
This interest rate exposure is managed by maintaining a combination of
short-term and long-term debt and variable and fixed rate instruments. The
Company also uses interest rate swaps to fix the interest rate on variable debt
obligations as it deems appropriate. Excess cash, if any, is typically invested
in high-quality instruments that mature in seven days or less. If interest rates
were to increase 200 basis points (2%) from the December 31, 1998 rates, and
assuming no changes in debt or cash from the December 31, 1998 levels, the
additional annual net expense would be approximately $0.9 million on a pre-tax
basis.
The Company sells products in foreign currencies, mainly the deutschmark,
yen, and sterling. The majority of these products' costs are incurred in U.S.
dollars. The Company is exposed to currency movements in that if the U.S. dollar
strengthens, the translated value of the foreign currency sale and the resulting
margin will be reduced. The Company does not change the price of its products
for short-term exchange rate movements because of its local competition. To
minimize this exposure, the Company purchases foreign currency forward contracts
and options. Should the U.S. dollar strengthen, the decline in margins should be
offset by a gain on the contract. A decrease in the value of the U.S. dollar
would result in larger margins but potentially a loss on the contract, depending
upon the method used to hedge. If the U.S. dollar weakened 10% against all
currencies from the December 31, 1998 exchange rates, the additional loss on the
outstanding contracts as of December 31, 1998 would reduce pre-tax profits by
approximately $2.6 million. This calculation does not take into account the
increase in margins as a result of translating foreign currency sales at the
more favorable exchange rate.
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<PAGE> 37
BRUSH WELLMAN INC. DIRECTORS AND OFFICERS
BOARD OF DIRECTORS
ALBERT C. BERSTICKER(2, 3, 4)
Chairman
Ferro Corporation
CHARLES F. BRUSH, III(1, 4)
Personal Investments
DAVID L. BURNER(1, 4)
Chairman, President, and
Chief Executive Officer
BF Goodrich Co.
GORDON D. HARNETT(2)
Chairman of the Board,
President, and
Chief Executive Officer
Brush Wellman Inc.
DAVID H. HOAG(3, 4)
Retired Chairman
The LTV Corp.
JOSEPH P. KEITHLEY(3, 4)
Chairman, President, and
Chief Executive Officer
Keithley Instruments, Inc.
WILLIAM P. MADAR(1, 2, 3, 4)
Chairman
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
BRIAN J. DERRY(1, 2)
Vice President, Operations
STEPHEN FREEMAN(1, 2)
Vice President, Alloy Products
JOHN D. GRAMPA(1, 2)
Vice President, Finance
WILLIAM R. SEELBACH(1, 2)
President, Alloy Products
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
MICHAEL C. HASYCHAK(1, 2)
Treasurer and Secretary
ALFONSO T. LUBRANO(2)
President, Technical Materials, Inc.
JOHN J. PASCHALL(2)
President, Williams Advanced Materials Inc.
ANDREW J. SANDOR(1, 2)
Vice President, Alloy Technology
WILLIAM M. CHRISTOFF(1)
Assistant Treasurer - Taxes, Assistant Secretary
DAVID C. DEUBNER(1)
Vice President, Occupational Medicine
JAMES P. MARROTTE(1)
Controller
JOHN J. PALLAM(1)
Vice President, General Counsel
1 Corporate Officers
2 Executive Officers
OFFICES AND FACILITIES
MANUFACTURING FACILITIES
Buffalo, New York
Carmel, New York
Delta, Utah
Elmore, Ohio
Fremont, California
Lincoln, Rhode Island
Lorain, Ohio
Newburyport, Massachusetts
Oceanside, California
Reading, Pennsylvania
Tucson, Arizona
Wheatfield, New York
RESEARCH FACILITIES AND
ADMINISTRATIVE OFFICES
Cleveland, Ohio
SERVICE AND DISTRIBUTION CENTERS
Elmhurst, Illinois
Fairfield, New Jersey
Singapore
Stuttgart, Germany
Theale, England
Tokyo/Fukaya, Japan
Torrance, California
Warren, Michigan
SUBSIDIARIES
Brush Wellman GmbH,
Stuttgart, Germany
Brush Wellman Limited,
Theale, England
Brush Wellman (Japan), Ltd,
Tokyo, Japan
Brush Wellman (Singapore) Pte Ltd,
Singapore
Circuits Processing Technology Inc.
Oceanside, California
Technical Materials, Inc.
Lincoln, Rhode Island
Williams Advanced Materials Inc.
Buffalo, New York,
Singapore
35
<PAGE> 38
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 4, 1999 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:
Michael C. Hasychak
Treasurer and Secretary
WEB SITE
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 our
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 o Facsimile: (216) 383-4091
36
<PAGE> 39
BRUSHWELLMAN
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 26, 1999, included in the 1998
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 26, 1999,
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 the Annual Report (Form 10-K) of Brush
Wellman Inc. for the year ended December 31, 1998:
Registration Statement Number 333-63351 on Form S-8 dated September 14,
1998;
Registration Statement Number 333-63353 on Form S-8 dated September 14,
1998;
Registration Statement Number 333-63355 on Form S-8 dated September 14,
1998;
Registration Statement Number 333-63357 on Form S-8 dated September 14,
1998;
Registration Statement Number 333-52141 on Form S-8 dated May 5, 1998;
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 29, 1999
<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, 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, 1998,
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 2nd day of March, 1999.
/s/ Gordon D. Harnett /s/ Joseph P. Keithley
- -------------------------------------- ----------------------------
Gordon D. Harnett, Chairman, President, Joseph P. Keithley, Director
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Albert C. Bersticker /s/ William P. Madar
- ------------------------------ --------------------------
Albert C. Bersticker, Director William P. Madar, Director
/s/ Charles F. Brush, III /s/ Robert M. McInnes
- ------------------------------- ---------------------------
Charles F. Brush, III, Director Robert M. McInnes, Director
/s/ David L. Burner /s/ William R. Robertson
- ------------------------- ------------------------------
David L. Burner, Director William R. Robertson, Director
/s/ David H. Hoag /s/ John Sherwin, Jr.
- ----------------------- ---------------------------
David H. Hoag, Director John Sherwin, Jr., Director
/s/ John D. Grampa
- --------------------------------------
John D. Grampa, Vice President Finance
(Principal Accounting Officer)
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