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 June 30, 1995
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 0-5181
ELCO INDUSTRIES, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 36-1033080
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1111 SAMUELSON ROAD, P.O. BOX
7009, ROCKFORD, ILLINOIS 61125
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (815) 397-5151
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $5 PAR VALUE
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(Title of Class)
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(Title of Class)
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /x/
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
----- -----
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing. For
purpose of this calculation, executive officers and directors were deemed to be
affiliates of the Registrant.
$139,303,543 as of September 1, 1995
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
4,982,869 Common Shares as of September 1, 1995
DOCUMENTS INCORPORATED BY REFERENCE:
Annual Report to Stockholders of Elco Industries, Inc. for the year ended June
30, 1995 is incorporated into Part I and Part II hereof.
<PAGE>
PART 1
Item 1 Business
(a) General Development of Business
Registrant was initially organized as an Illinois corporation on
November 28, 1922 under the name of "Elco Tool and Screw Corporation."
The Registrant conducted business as an Illinois corporation under
that name until June 9, 1969, at which time it changed its state of
incorporation from Illinois to Delaware and its name to "Elco
Industries, Inc."
In June 1989, the Company and Nagoya Screw Manufacturing Co., Ltd.
("Nagoya") formed a joint venture known as Rocknel Fastener, Inc.
("Rocknel"). Each company has a 50% interest in the venture. Elco and
Nagoya have equal representation on the Board of Directors of Rocknel.
Rocknel manufactures and sells fasteners to Japanese-owned
manufacturers in North America.
(b) Financial Information about Industry Segments
The information called for by Item 1 (b) is hereby incorporated by
reference to the "Products and Major Customers" footnote of the Notes
to Consolidated Financial Statements (Note 2, page 22-23) of the
Registrant's Annual Report to Stockholders for the year ended June 30,
1995.
(c) Narrative Description of Business
(i) Principal Products
The Registrant is a leading U.S. designer, manufacturer and supplier
of specialty metal fasteners and custom-engineered metal and plastic
components and products. The Registrant also offers a wide variety of
packaged fasteners, fastening-related products and other hardware
accessories to the do-it-yourself market. The Registrant's products
can be classified in two groups: industrial products and construction
products.
Industrial products include specialty fasteners and application-
specific, cold-formed, precision metal stamped and plastic molded
components and assemblies combining the three manufacturing
disciplines, which are supplied to a variety of markets including the
transportation, electrical and electronics, fabricated metal and other
industrial markets. Industrial products are sold primarily to original
equipment manufacturers.
Home and construction products include a full line of fasteners, wire
and fastening-related products packaged and merchandised for consumer
use. This group is also involved in the design, amnufacture and
marketing of specialty product lines and fastening systems for the
non-residential construction industry.
The following table sets forth sales of these product groups for the
years indicated:
<TABLE>
<CAPTION>
Year Ended June 30
------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Industrial Products $190,944,000 $169,078,000 $145,308,000
Home and Construction Products 58,310,000 56,823,000 53,871,000
------------ ------------ ------------
Consolidated Sales $249,254,000 $225,901,000 $199,179,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
2
<PAGE>
Registrant sells a portion of its products through its own employee
sales organization which is paid on a salary plus commission basis. It
also sells a portion of its products through independent
manufacturer's representatives who are paid on a commission basis.
These organizations are granted territories covering the United
States. Each of the Registrant's segments has a separate sales force.
The Registrant's relationships with its independent representatives
are terminable by either party on short notice.
(ii) Status of Product or Segment
The Registrant does not contemplate the introduction of any new
product or industry segment, other than in the ordinary course of
manufacturing custom-designed products primarily to customer
specifications. The manufacturing of custom-designed products will not
require any substantial investment other than those capital
expenditures required for modernization of equipment and for increased
capacity for products.
(iii) Source and Availability of Raw Materials
The Registrant uses a variety of metals in the manufacture of its
products, such as low and medium carbon steel, low alloy steel,
stainless steel, aluminum, brass, and commercial bronze. The
Registrant also uses a variety of plastics for injection molding. The
Registrant believes that its sources of supply of these materials are
adequate for its needs and that it is not substantially dependent upon
any one supplier.
The Registrant purchases most products for DIY consumers from foreign
suppliers for resale in the United States. As a manufacturer, the
Registrant would not be competitive with foreign manufacturers of
standard fasteners sold primarily to consumers. A majority of the
imported products are sourced through international vendors and
importing companies. These products are imported from a variety of
countries, including Taiwan, Korea, India, Japan and several European
countries. Taiwan is currently the largest single source country.
There are many standard fastener sources throughout the world, and
thus the loss of a major vendor of imported products would not have a
material, adverse effect on the Registrant.
(iv) Patents, Trademarks, Licenses, Franchises, and Concessions
Registrant owns numerous patents relating to the design and
manufacture of its products. Although the Registrant generally seeks
to obtain patents where appropriate, it does not consider the success
of its business to be dependent on any of its patents or patent
applications.
The Registrant is licensed on a non-exclusive basis to manufacture and
sell a number of products primarily related to fasteners. These
licenses require the payment of royalties based on sales of the
licensed product. Sales of licensed products accounted for
approximately $38.0 million in sales for the fiscal year ended June
30, 1995. The Registrant considers these licenses to be of importance
to its business, and the termination of certain of these licenses
would have a material, adverse effect upon the Registrant. These
licenses are not terminable by the licensor, except by failure of the
Registrant to pay royalties or meet quality standards. The Registrant
does not anticipate that any of the license agreements will be
terminated in the near future.
The Registrant has a number of registered trademarks, but other than
the trademark "Elco," none of these trademarks is considered to be
material to the Registrant's sales or revenues.
3
<PAGE>
(v) Seasonal Variations in Business
Sales and revenues of a material portion of the Registrant's business
are normally stronger in the second half of the Registrant's fiscal
year. Production levels are generally lower during the Registrant's
first half of the fiscal year because of customer plant shutdowns due
to summer vacations and the number of holidays scheduled during the
month of December by both customers and the Registrant.
(vi) Working Capital Practices
The Registrant has not adopted nor does it intend to adopt practices,
credit terms, or methods of doing business which will have a material
effect on changes in working capital during its fiscal year.
The seasonal changes in sales and revenues explained in paragraph (v)
above normally do not place an undue strain on working capital
requirements which would require short-term borrowings.
(vii) Dependence Upon Limited Number of Customers
In the fiscal year ended June 30, 1995, a material portion of the
Registrant's sales were dependent on Ford Motor Company and General
Motors Corp. The Registrant's sales to Ford Motor Company and General
Motors Corp. accounted for 16% and 14%, respectively, of total
consolidated sales during the fiscal year ended June 30, 1995. To the
extent that sales to all or several divisions of Ford or General
Motors were terminated or materially reduced, there would be a
material, adverse effect on the Registrant.
(viii) Backlog
The Registrant estimates that the total dollar amount of its backlog
of orders believed to be firm as of June 30, 1995, and June 30, 1994,
was approximately $54,400,000 and $52,100,000, respectively. The
Registrant expects that substantially all of the current backlog will
be shipped in the next 12 months. The Registrant does not consider the
size of backlogs as of a given date to be significant relative to a
forecast of annual sales because most orders are for short-term
delivery. Furthermore, orders may be cancelled or delivery delayed by
the customer without significant penalty.
(ix) Government Contracts
The Registrant is not dependent upon government contracts for a
material portion of its business.
(x) Competitive Conditions
INDUSTRIAL PRODUCTS SEGMENT
The metal fastener and component business is highly competitive.
Several competitors of the Registrant have greater financial resources
and operate more facilities. However, the Registrant believes its
knowledge and continued refinement of the cold-forming process,
combined with close cooperation with customers' engineers, quality
conformance and the capability to supply a wide range of fastener
products required by its customers, have established Elco as a leader
in the specialized fastener market. The Registrant considers the
Camcar Division of Textron, the Shakeproof Division of Illinois Tool
Works, SPS Technologies and Federal Screw Works to be among the major
competitors of Elco's Industrial Products Group. The metal stamping
and plastics parts businesses in which the Registrant
4
<PAGE>
is engaged are also highly competitive. There are numerous companies
supplying metal stampings and plastic parts to the automotive
industry. The Registrant believes that no one supplier is in a
dominant position. The Registrant also encounters competition from
suppliers of fasteners and metal parts made by other processes, such
as screw machines and powdered precision forming, as well as other
fastening methods such as adhesives, epoxies, clips and plastic parts.
Competition in this segment is based on quality, service, price and
engineering capability.
HOME AND CONSTRUCTION PRODUCTS SEGMENT
The Registrant considers Hillman Fasteners, Crown Bolt and the Bulldog
Jordan unit of Newell Co. to be the major competitors of the home
products portion of the Home and Construction Products Group.
Competition is primarily based on service, price and merchandising
capability. The Registrant believes that the major competitors of the
construction products portion of this group include the Buildex and
Ramset Divisions of Illinois Tool Works. Competition is based on
quality, service, price and engineering capability.
While the Registrant faces potential competition from foreign
manufacturers, it does not believe it currently has significant direct
foreign competitors in the markets it serves.
(xi) Research and Development
The Registrant spent approximately $3,200,000, $2,900,000 and
$2,300,000 on new or existing product development projects during the
fiscal years ended June 30, 1995, 1994 and 1993, respectively, none of
which was customer sponsored. The Registrant believes that the amounts
indicated above are not indicative of the total effort spent on
developing new products and production processes, but the Registrant
is not able to quantify all production related costs of such
activities. Products are generally developed or improved as a result
of providing engineering and design services for customer
applications.
(xii) Environmental Disclosures
The Registrant believes that it is in compliance with federal, state
and local laws and regulations. The Registrant believes that continued
compliance will not have a material effect on the Registrant. For the
fiscal year ended June 30, 1995, the Registrant spent approximately
$378,000 on capital expenditures related to protection of the
environment, and anticipates spending a somewhat higher amount in
fiscal 1996 for such purposes.
(xiii) Number of Employees
The average number of persons employed by the Registrant during the
fiscal year ended June 30, 1995, was approximately 2,180.
(d) Foreign Operations and Export Sales
The Registrant is not engaged in any material operations in foreign
countries, nor is any material portion of its sales derived from
foreign countries.
5
<PAGE>
Item 2 Properties
The Registrant's position as a leading manufacturer of fasteners and
other components is due in large part to the efficiency of its
manufacturing facilities. Over the years, the Registrant has expanded
and modernized its manufacturing plants and has invested substantial
sums in order to maintain up-to-date production capacity. The
Registrant believes that its facilities both owned and leased, are in
excellent condition and are suitable and adequate to meet the desired
levels of productive capacity. Although there is minimal idle space,
major expansion is not planned for the near future.
Certain information relating to the principal properties of the
Registrant is set forth below:
<TABLE>
<CAPTION>
Lease Expiration
Approximate (including options
Primary Area in to renew)
Location Segment Function(s) Square Feet or Ownership
------------------ ----------- ------------------ ------------ -------------------
<S> <C> <C> <C> <C>
Rockford, Illinois Industrial Corporate offices, 589,000 Owned
Products Manufacturing
Rockford, Illinois Industrial Coating, Finishing 125,000 2009
Products and Warehousing
Rockford, Illinois Industrial Manufacturing 143,000 Owned
Products
Logansport, Indiana Industrial Manufacturing and 102,000 Owned
Products Warehousing
Logansport, Indiana Industrial Coating and 24,000 2007
Products Finishing
Logansport, Indiana Industrial Coating and 64,000 Owned
Products Finishing
Mishawaka, Indiana Industrial Manufacturing 145,000 Owned
Products
Rockford, Illinois Home and Manufacturing, 51,000 Owned
Construction Packaging and
Products Warehousing
Rockford, Illinois Home and Packaging and 138,000 2006
Construction Warehousing
Products
Goodlettsville, Home and Manufacturing, 71,000 Owned
Tennessee Construction Packaging and
Products Warehousing
</TABLE>
6
<PAGE>
Item 3 Legal Proceedings
Two complaints seeking class action status on behalf of stockholders
of the Company have been filed in the State Chancery Court in Delaware
against the Company and its directors alleging breach of fiduciary
duties in their response to an unsolicited offer to purchase the
Company.
Item 4 Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of the year
ended June 30, 1995, to a vote of security holders, through the
solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF REGISTRANT
The following named officers' terms of office expire on November 3, 1995:
Position and Business Experience
Name Age during past five years
------------------ --- ----------------------------------
John C. Lutz 56 President and Chief Executive Officer since June
1993; President, Chief Operating Officer March
1991 - June 1993; Vice President and Division
Manager, Barber Colman Co., 1985-1989
August F. DeLuca 51 Vice President-Finance and Chief Financial
Officer
Derek M. Hasse 64 Vice President-Administration
Kenneth L. Heal 52 Secretary and Treasurer
Robert H. Rothkopf 50 President of Industrial Products Group since
June 1993; Vice President-Marketing and Sales
from September 1989 - June 1993; previously
served as President of Camcar Division of
Textron
James R. Stenberg 51 President of Home and Construction Products
Group since June 1993; previously was Group Vice
President, Consumer Products Group
There is no family relationship among the above named officers.
7
<PAGE>
PART II
Item 5 Market for the Registrant's Common Stock and Related Security Holder
Matters*
Item 6 Selected Financial Data*
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations*
*The information called for by Items 5, 6, and 7 is hereby
incorporated by reference to the following captions on the pages
indicated in the Registrant's Annual Report to Stockholders for the
year ended June 30, 1995 and made a part hereof:
Page(s) in
Item Caption in Annual Report Annual Report
---- ------------------------ -------------
5 Stock Prices and Other Market Information 34
Long-Term Debt (Note 6, seventh paragraph) 24
6 Eleven-Year Summary of Selected Financial Data 32-33
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 15-18
Item 8 Financial Statements and Supplementary Data
The information called for by Item 8 is hereby incorporated by
reference to the Registrant's Annual Report to Stockholders for the
year ended June 30, 1995 as set forth in the Index to Consolidated
Financial Statements and Schedules (see item 14) and made a part
hereof.
Item 9 Disagreements on Accounting and Financial Disclosure
No Form 8-K was filed within the twenty-four months prior to June 30,
1995, reporting a change of accountants involving a disagreement on
any matter of accounting principles or practices or financial
statement disclosure.
PART III
Item 10 Directors and Executive Officers of the Registrant
In addition to the information relating to the executive officers of
the Registrant set forth in Part I of this report, the following
information is provided:
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall
be comprised of not less than six or more than twelve. The number of
directors is currently fixed at nine. The directors are currently
divided into three classes, with members of each class holding office
for staggered three-year terms. The names of and certain information
regarding directors are as follows:
8
<PAGE>
CLASS 1 DIRECTORS WITH A TERM EXPIRING IN 1995:
<TABLE>
<CAPTION>
OCCUPATION AND EMPLOYMENT FIRST BECAME
NAME AGE FOR PAST FIVE YEARS A DIRECTOR
<S> <C> <C> <C>
(2) G. Robert Evans 64 Chairman and Chief Executive Officer, Material 1992
Sciences Corporation, a developer and
commercializer of continuously processed,
coated materials technologies, since 1991;
President and Chief Executive Officer, Corporate
Finance Associates Illinois, Inc., 1990-1991.
(1) David D. Peterson 63 President and Chief Executive Officer, Baker, 1987
Fentress & Company, a non-diversified
closed-end management investment company,
Chicago, Illinois.
(1)(2) James H. Rilott 58 President, Rockford Calibration Services, an 1989
industrial metrology service, since January 1994;
Management Consultant, Anderson Industries,
Inc., a diversified holding company, 1992-1993;
President, Atwood Industries, Inc., a manufacturer
of automotive components, 1988-1992.
CLASS 2 DIRECTORS WITH A TERM EXPIRING IN 1996:
(1)(2) Milton R. Brown 63 Chairman, President and Chief Executive 1993
Officer of Suntec Industries Incorporated,
manufacturer of fuel unit components.
(3) Wayne P. Lockwood 59 Partner, William Blair & Company, investment 1970
bankers, Chicago, Illinois
John C. Lutz 56 President, Chief Executive Officer, Elco Industries, 1991
Inc. since June 1993; President, Chief Operating
Officer, Elco Industries, Inc. from march 1991 -
June 1993; consultant to small businesses
from 1990-February 1991
CLASS 3 DIRECTORS WITH A TERM EXPIRING IN 1997:
(3) Robert L. Berner Jr. 63 Partner, Baker & McKenzie, attorneys at law, 1983
Chicago, Illinois.
(2)(3) Carl J. Dargene 65 President and Chief Executive Officer, Amcore 1981
Financial, Inc., a bank holding company.
(1)(3) James L. Packard 54 Chairman, President, Chief Executive Officer, 1994
Regal-Beloit Corporation, producer of power
transmission systems and perishable high speed
steel rotary cutting tools.
<FN>
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
(3) Member of Nominating and Director Affairs Committee.
</TABLE>
There is no family relationship among any of the above-named directors.
9
<PAGE>
Mr. Brown serves as a director of Amcore Financial, Inc., CLARCOR and Suntec
Industries, Inc.
Mr. Dargene serves as a director of Amcore Financial, Inc., Woodward Governor
Company, CLARCOR and Clinton Electronics.
Mr. Evans serves as director of Material Sciences Corporation, Consolidated
Freightways, Inc., The Old Second Bancorp, Inc. and Swift Energy Co.
Mr. Parkard serves as a director of Regal-Beloit Corporation.
Mr. Peterson serves as a director of Baker, Fentress & Company, Consolidated-
Tomoka Land Co. and American Electronic Components, Inc.
OTHER INFORMATION
The Board of Directors has the responsibility for establishing broad corporate
policies and for the overall performance of the Company, although it is not
involved in day-to-day operating details. Members of the Board are kept
informed of the Company's business by various reports and documents sent to them
during the course of the year and prior to each Board meeting, as well as by
operating and financial reports made at Board meetings by the Company's
executive officers.
The Board of Directors holds four regular meetings during the year and other
special meetings as necessary. In addition, there is an organizational meeting
following the conclusion of the Annual Meeting of Stockholders. In fiscal 1995,
the Board held seven meetings, inclusive of special meetings and the
organizational meeting. Each director attended at least 75% of the aggregate
number of Board meetings and meetings of committees of which they are a member.
The Board of Directors has three standing committees consisting of the
Compensation Committee, the Audit Committee and the Nominating and Director
Affairs Committee.
The Compensation Committee makes recommendations to the Board with respect to
compensation of senior management of the Company. The Compensation Committee
met five times in fiscal 1995.
The Audit Committee reviews the objectivity of the Company's financial
reporting. It also reviews and makes recommendations regarding the Company's
Code of Ethics. It meets with appropriate Company financial personnel, Company
internal audit personnel and with independent certified public accountants in
connection with such reviews. The independent certified public accountants have
the opportunity to meet, independent of Company personnel, with the Audit
Committee. The Audit Committee met twice in fiscal 1995.
The Nominating and Director Affairs Committee reviews qualifications and makes
recommendations of candidates to fill director vacancies and considers and makes
recommendations with repect to other director matters. The Nominating and
Director Affairs Committee will consider nominees recommended by stockholders in
writing to the Company addressed to the Secretary. The Nominating and Director
Affairs Committee met once in fiscal 1995.
Directors who are not employees of the Company receive an annual retainer of
$14,000 and fees of $1,000 for each Board of Directors meeting attended and $900
for each committee meeting attended. Committee chairmen receive $1,800 for each
meeting attended. Pursuant to the Company's stock compensation plan for non-
employee directors under 60 years of age, the annual retainer is required to be
paid primarily in Common Stock of the Company rather than in cash. Non-employee
directors over 60 years of age may elect to have the annual retainer paid
primarily in Common Stock of the Company rather than in cash. Under the terms
of the plan, the Company has issued six participating directors shares of Common
Stock with a value of $60,000, the aggregate of intended annual retainer fees
for the five year period beginning October 31, 1991 (three directors), October
30, 1992 (two
10
<PAGE>
directors) and October 29, 1993 (one director). Additionally, two directors
have been issued shares of Common Stock with a value of $70,000, the aggregate
of intended annual retainer fees for the five-year period beginning November 4,
1994. Subsequent to the issuance of the shares to the first six directors, the
annual retainer was increased to $14,000. These directors receive the
differential in cash. The directors' rights to the shares vest over a five-year
period at the rate of twenty percent per year. However, each director is
entitled to receive dividends and exercise voting rights with repect to all
shares prior to vesting. Any unvested shares are forfeited if the director
ceases to be a director for any reason.
Under the 1992 Stock Option Plan for Non-Employee Directors, on October 23,
1992, each non-employee director was granted an option to purchase 1,000 shares
of the Company's Common Stock at a per share price of $11.75. Thereafter,
following each annual meeting each eligible director will automatically be
granted additional options of 1,000 shares. The per share exercise price of
each option is equal to 100% of the fair market value of Common Stock on the
date of grant. Options become vested and exercisable six months from the date
of grant. The expiration date of each option is ten years from the date of
grant. However, the right to exercise an option terminate six months from the
date the optionee ceases to be a member of the Board, unless the optionee dies,
in which case the exercise right is extended until the earlier of the second
anniversary of the date of death or the expiration of the option.
SECTION 16 COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission. Executive officers, directors and greater than ten-percent
shareholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that during the Company's 1995
fiscal year all Section 16(a) filing requirements applicable to its executive
officers, directors, and greater than ten-percent beneficial owners were
complied with.
11
<PAGE>
Item 11 Executive Compensation
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information regarding
compensation received during each of the last three years by the
Company's Chief Executive Officer and the four other most highly paid
executive officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
SECURITIIES
UNDERLYING LTIP ALL OTHER
SALARY BONUS OPTIONS PAYOUTS COMPENSATION(1)
NAME & PRINCIPAL POSITION YEAR ($) ($) (#) ($) ($)
------------------------- ---- ------ ----- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John C. Lutz 1995 $293,529 $31,640 10,250 $88,485 $3,778
President, Chief Executive 1994 $268,017 $35,263 0 $43,469 $3,363
Officer and Director 1993 $206,204 $0 2,000 $0 $2,515
Robert H. Rothkopf 1995 $192,533 $87,931 4,250 $20,687 $3,847
President of Industrial 1994 $184,994 $50,395 0 $13,719 $3,427
Products Group 1993 $160,331 $10,179 1,400 $0 $2,862
August F. DeLuca 1995 $153,817 $13,363 3,300 $43,224 $3,602
Vice President-Finance 1994 $148,412 $15,733 0 $25,823 $3,181
and Chief Financial Officer 1993 $131,113 $0 1,200 $0 $2,366
James R. Stenberg 1995 $137,679 $0 3,050 $16,837 $4,705
President of Home and 1994 $128,671 $0 0 $9,197 $3,845
Construction Products Group 1993 $113,206 $0 1,000 $0 $2,990
Derek M. Hasse 1995 $132,421 $11,505 2,800 $40,795 $5,107
Vice President-Administration 1994 $127,933 $13,563 0 $23,494 $4,764
1993 $123,546 $0 1,100 $0 $3,847
<FN>
(1) Consists of the following: (a) contributions by the Company to the
executives' accounts under the Elco Industries, Inc. Profit Sharing and
Savings Plan; (b) contributions by the Company to the
executives' accounts under the Elco Industries, Inc. Employee Stock
Ownership Plan and (c) premiums related to group term life insurance. The
1995 values of the three components for each executive officer are: Mr.
Lutz (a) $747, (b) $2,131 and (c) $900; Mr. Rothkopf (a) $805, (b) $2,172
and (c) $870; Mr. DeLuca (a) $833, (b) $2,193 and (c) $576; Mr. Stenberg
(a) $1,207, (b) $2,461 and (c) $1,037; and Mr. Hasse (a) $1,294, (b) $2,409
and (c) $1,404.
Under the Elco Industries, Inc. Profit Sharing and Savings Plan (a defined
contribution plan), the Company contributed during the fiscal year ended
June 30, 1995, 10% of its profits (as defined in the plan) from its
Rockford-based operations. The contribution is allocated to individual
acccounts of eligible employees on the basis of years of service and
limited proportionate compensation.
Under the Elco Industries, Inc. Employee Stock Ownership Plan (a defined
contribution plan), the Company makes contributions to the plan in the form
of Company stock or cash as the Board of Directors, in its sole discretion,
determines. The contribution is allocated to the accounts of eligible
employees on the basis of years of service and limited proportionate
compensation.
</TABLE>
12
<PAGE>
OPTIONS
The Company has in effect a stock option plan pursuant to which options to
purchase Common Stock of the Company may be granted to key employees of the
Company and its subsidiaries, including the above-named executive officers.
The following table provides information related to options granted in fiscal
1995 to the named executive officers.
<TABLE>
<CAPTION>
OPTIONS GRANTED IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK PRICE
OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE FOR OPTION TERM(3)
GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (SHARES)(1) FISCAL YEAR ($/SHARE)(2) DATE 5%($) 10%($)
---- ----------- ------------ ------------ ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
John C. Lutz 10,250 27.0% $17.25 11/17/04 $111,196 $281,794
Robert H. Rothkopf 4,250 11.2% $17.25 11/17/04 $46,106 $116,841
August F. DeLuca 3,300 8.7% $17.25 11/17/04 $35,800 $90,724
James R. Stenberg 3,050 8.0% $17.25 11/17/04 $33,088 $83,851
Derek M. Hasse 2,800 7.4% $17.25 11/17/04 $30,376 $76,978
<FN>
(1) All options were granted on November 17, 1994 and become exercisable after
five years. Except under specific conditions, no granted option is
exercisable before five years. In the event of a change of control, all
options become vested and immediately exercisable in full.
(2) All options were granted at fair market value on the date of the grant.
The option exercise price and any required withholding obligations may be
paid in cash, shares of Common Stock having a fair market value equal to
the total of the exercise price and any required tax obligations or such
other consideration as the Compensation Committee of the Board of Directors
of the Company, in its sole discretion, deems appropriate.
(3) Values are reported net of the option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock, overall stock
considerations, as well as the optionholders' continued employment through
the vesting period.
</TABLE>
The following table provides information with respect to the named executive
officers concerning option exercises and unexercised option values as of June
30, 1995.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END(#) YEAR-END($)(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------------- ------------------
<S> <C> <C> <C> <C>
John C. Lutz 0 0 0/16,250 $0/$63,359
Robert H. Rothkopf 0 0 0/8,300 $0/$37,556
August F. DeLuca 0 0 0/6,850 $0/$32,322
James R. Stenberg 0 0 0/5,850 $0/$26,110
Derek M. Hasse 0 0 0/6,000 $0/$28,875
<FN>
(1) Computed based upon the difference between the aggregate fair market value and the aggregate exercise
price. The closing price for the Company's Common Stock on June 30, 1995 was $18.6875.
</TABLE>
13
<PAGE>
The following table sets forth information with respect to the named executive
officers concerning Performance Share Awards granted during fiscal 1995 pursuant
to the Company's Performance Share Plan.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN - AWARDS IN LAST FISCAL YEAR
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK PRICE-BASED PLANS
OTHER PERIOD ---------------------------------
NUMBER OF UNTIL MATURATION THRESHOLD TARGET MAXIMUM
NAME UNITS(1) OR PAYOUT (UNITS)(#)(2) (UNITS)(#)(3) (UNITS)(#)(4)
---- --------- ----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
John C. Lutz 7,455 7/1/94 - 6/30/97 746 7,455 17,222
Robert H. Rothkoph 1,837 7/1/94 - 6/30/97 184 1,837 10,815
August F. DeLuca 3,145 7/1/94 - 6/30/97 315 3,145 8,641
James R. Stenberg 1,307 7/1/94 - 6/30/97 131 1,307 7,771
Derek M. Hasse 2,708 7/1/94 - 6/30/97 271 2,708 7,439
<FN>
(1) Participation in the 1988 Performance Share Plan is primarily open to
executive officers and managers. Under the plan, participants are granted a
target incentive award expressed as a percentage of base salary. The dollar
value of the award is converted into units based on the then current market
value of the Company's common stock. The participant earns the right to
receive the monetary value of some or all of these units is the Company
meets predetermined performance goals measured over designated periods,
except that in the event of a change of control of the Company, all
performacne periods end and all performance awards are paid as if 100%
earned. The Compensation Committee of the Board of Directors approves the
target incentive award, establishes the performance goals, establishes
performance periods and determines whether earned awards will be paid in
cash, shares of stock or a combination thereof. Awards are subject to change
depending on the Company meeting predetermined performance goals over the
remaiing fiscal years within the performance period and the market value of
the Company's Common Stock at the end of the performance period.
(2) The units shown under the heading "Threshold" are the units that would be
earned at the lowest level of performance above the minimum level of
performance that must be achieved before any units are earned.
(3) The units shown under the heading "Target" are the units that would be
earned at the desired level of performance.
(4) The "Maximum" units payable are calculated by dividing the base salary in
the final year of the performance period by the per share price at the
beginning of the performance peiod. Since the base salary in the final
year of the performance period is not presently known, the estimate in this
column is calculated using current base salary.
</TABLE>
RETIREMENT PLANS
Government regulations limit the benefits available to certain employees through
retirement plans which qualify for preferential tax treatment. In order to
provide a competitive level of retirement benefit (including Social Security)
that is comparable for all career employees, the Company has entered into
supplemental benefit agreements with Mr. Lutz, Mr. DeLuca and Hr. Hasse. The
agreements with Mr. Lutz and Mr. DeLuca are defined contribution plans providing
that a specified percentage of compensation has accrued in an account until
retirement at age 65 (15.8% for Mr. Lutz and 14.4% for Mr. DeLuca). The balance
in the executive's account at age 65 determines the amount of fifteen subsequent
annual payments. The agreement with Mr. Hasse is a defined benefit plan and
provides fifteen annual payments upon retirement at age 65 of $66,000.
Payment of benefits (as defined in the plans) is subject to the officers'
continued employment by the Company until age sixty-five (65). In the event
of retirement at an earlier or later time, a benefit may be payable in such
14
<PAGE>
amount and upon such terms as may be determined by the Baord of Directors. In
the event of any change in control of the Company while any officer is actively
employed and in the event of an officer's termination or discharge as a result
of the change of control, the annual benefit indicated above would be payable
commencing with such termination or discharge.
The Company also has defined benefit pension plans covering a significant
portion of all employees. The plan covering the executive officers other than
Mr. Lutz and Mr. Rothkopf has been amended so that benefits are frozen as of
December 31, 1988 and no additional benefits accrued after that date. Mr. Lutz
and Mr. Rothkopf are not covered by a defined benefit plan. The maximum amount
of retirement benefits payable to a participant is 42% of the participant's
highest average compensation during any continuous five-year period within the
ten years immediately preceding December 31, 1988, reduced by a percentage
deduction of the participant's primary social security benefits based upon
credited service of the participant. The annual pension benefit payable at
normal retirement age for the named and covered executive officers will be as
follows: Mr. DeLuca-$552, Mr. Hasse-$15,276 and Mr. Stenberg-$8,592
CHANGE OF CONTROL AGREEMENTS
The Company has entered into Change of Control Agreements with the Named
Executive Officers and certain other key employees of the Company. The
agreements provide for benefits to be paid if the executive's employment is
terminated at any time within two years following a change of control of the
Company without cause, or by the executive for good reason (as defined in the
agreements). Benefits are also payable if the executive's employment is
terminated by the Company without cause prior to a change of control at the
request of any individual or entity acquiring ownership or control of the
Company, or is reasonably shown to be related to a prospective change of
control.
The agreements provide for the executive to receive a benefit of two times the
executive's base salary, bonus and fringe benefits (as defined in the
agreements). Should any benefit paid be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code, the executive shall be entitled to
receive an additional payment. The amount of the payment would be such that,
after payment by the executive of all taxes including, but not limited to,
income taxes and excise taxes imposed on the additional payment itself, the
executive would retain an amount equal to the excise tax.
Item 12 Security Ownership of Certain Beneficial Owners and Management
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following table sets forth as of September 5, 1995, all of the shares of
Common Stock of the Company beneficially owned by each person who is known by
the Company to own more than 5% thereof.
AMOUNT AND
TITLE NAME AND ADDRESS NATURE OF PERCENT
OF OF BENEFICIAL OF
CLASS BENEFICIAL OWNER OWNERSHIP CLASS
----- ---------------- ---------- -------
Common Okabe Company Limited 853,000(1) 17.1%
Stock 4-21-15 Mukohjima
Sumeda-ku
Tokyo, Japan
15
<PAGE>
Common Elco Inductries, Inc. 508,952(2) 10.2%
Stock Employee Stock Ownership Plan
c/o Amcore Trust Company
P.O. Box 1537
Rockford, IL 61110
Common FMR Corp. 433,700(3) 8.7%
Stock 82 Devonshire Street
Boston, MA 02109
(1) To the Company's knowledge, Okabe has sole voting and investment power
with respect to the shares owned.
(2) All of the shares held in the name of the ESOP are allocated to the
accounts of the participants. Participants exercise voting power over the
shares allocated to their account, but may not, under most circumstances,
exercise investment power over the shares until death, disability,
retirement or other termination of employment. The Trustee of the ESOP
may, at its discretion, vote those shares not voted by participants.
(3) This information is based on the most recent Schedule 13-G filed by the
named person. FMR Corp. has sole power to dispose or to direct the
disposition of the indicated shares. Various persons have voting power
and the right to receive or the power to direct the receipt of dividends
from, or the proceeds from the sale of the indicated shares.
No other stockholder beneficially owns, to the knowledge of the Company, more
than 5% of the Company's Common Stock.
MANAGEMENT
The following table sets forth as of September 5, 1995, all of the shares of
Common Stock of the Company owned beneficially by all directors, nominees, the
five most highly-compensated executive officers and by directors and officers of
the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
NAME TITLE OF CLASS BENEFICIAL OWNERSHIP OF CLASS
---- -------------- -------------------- --------
<S> <C> <C> <C> <C>
Robert L. Berner Jr. Common Stock 19,818 (1) .4%
Milton R. Brown Common Stock 4,572 (1) .1%
Carl J. Dargene Common Stock 10,811 (1) .2%
August F. DeLuca Common Stock 4,521 .1%
G. Robert Evans Common Stock 7,106 (1) .1%
Derek M. Hasse Common Stock 30,018 .6%
Wayne P. Lockwood Common Stock 23,511 (1) .5%
John C. Lutz Common Stock 7,156 .1%
James L. Packard Common Stock 4,375 (1) .1%
David D. Peterson Common Stock 17,106 (1)(3) .3%
James H. Rilott Common Stock 9,312 (1) .2%
Robert H. Rothkopf Common Stock 3,107 .1%
James R. Stenberg Common Stock 4,366 .1%
Elco Industries, Inc. Profit
Sharing and Savings Plan Common Stock 110,019 (2) 2.2%
All directors and
officers as a group Common Stock 260,715 (2) 5.2%
(14 persons)
-----------------------
16
<PAGE>
<FN>
(1) Includes 3,380 shares issued to Mr. Brown, 5,647 shares issued to Messrs.
Berner, Dargene and Lockwood, 5,106 shares issued to Messrs. Evans and
Peterson and 4,375 shares issued to Messrs. Packard and Rilott pursuant to
a non-employee direct stock compensation plan. The shares become vested at
twenty percent per year over a five year period from the date of issue.
The director receives dividends and exercises voting rights on all shares
whether vested or unvested.
(2) These shares are held by the Elco Industries, Inc. Profit Sharing and
Savings Plan Trust over which Mr. Lutz and certain other officer share
voting and investment power.
(3) Includes 6,000 shares held in a trust in which Mr. Peterson is co-
beneficiary and has shared voting and investment power.
</TABLE>
On September 13, 1995, the Company announced that it had entered into a
definitive agreement and Plan of Merger (the "Agreement") with Textron Inc.
("Textron") and E.I. Textron Inc., a wholly-owned subsidiary of Textron (the
"Sub"). Pursuant to the Agreement, the Sub will commence a cash tender offer for
all outstanding shares of the Company for $36.00 per share in cash. The tender
offer is conditioned upon, among other things, the tender of at least 66-2/3% of
the Company's common stock on a fully diluted basis. Any shares not acquired in
the tender offer will be acquired at $36.00 per share in cash in a subsequent
merger.
Item 13 Certain Relationships and Related Transactions
OTHER INFORMATION
The Company has borrowed funds from time to time in the ordinary course of
business from the Amcore Bank - Rockford of Rockford, Illinois of which Mr. Lutz
is a director. Mr. Dargene and Mr. Brown are directors of Amcore Financial,
Inc., a bank holding company of which Amcore Bank - Rockford is a part. There
were no such borrowings outstanding at June 30, 1995.
Mr. Lockwood is a partner in the investment banking firm of William Blair &
Company, Chicago, Illinois, which firm has performed services for the Company
during its last fiscal year. William Blair & Company also maintains a market in
the Common Stock of the Company and, in connection therewith, may have a long or
short position in its trading account. Such position fluctuates and any shares
owned are not held for investment.
Mr. Berner is a partner in the law firm of Baker & McKenzie, Chicago, Illinois,
which firm has been retained by the Company during its last fiscal year.
17
<PAGE>
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
a. Index to Consolidated Financial Statements and Schedules
<TABLE>
<CAPTION>
--------------------------------
Reference
--------------------------------
Form 10-K Annual Report
Annual Report to Stockholders
Page Page(s)
-------------- ---------------
<S> <C> <C>
Data incorporated by reference to Registrant's Annual Report
to Stockholders for the year ended June 30, 1995:
Consolidated Balance Sheets at June 30, 1995 and 1994 19
Statements of Consolidated Income for the years ended
June 30, 1995, 1994 and 1993 20
Statements of Consolidated Stockholders' Equity for the
years ended June 30, 1995, 1994 and 1993 20
Statements of Consolidated Cash Flows for the years
ended June 30, 1995, 1994 and 1993 21
Notes to Consolidated Financial Statements 22-28
Report of Independent Accountants 30
Report of Independent Accountants S-1
Financial Statement Schedules:
II. Reserves S-2
</TABLE>
Schedules other than those listed above have been omitted either
because the required information is contained in notes to the
consolidated financial statements or because of the absence of the
conditions under which the schedules are required.
b. No reports on Form 8-K were filed during the last quarter of the
period covered by this report.
c. The following exhibits are filed as part of this report:
(2) Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
(2.1) Asset Purchase Agreement--Bear-Kat Products
division of Key Manufacturing Group (filed as
Exhibit 2.1 to Registrant's Form 8-K dated May 22,
1991, and incorporated herein by reference).
(3) Articles of Incorporation and By-Laws
(3.1) Registrant's Certificate of Incorporation
including all amendments.
(3.2) Registrant's By-Laws (filed as Exhibit 3.2 to
Registrant's Annual Report on Form 10-K for the
year ended June 30, 1993, and incorporated herein
by reference).
(4) Instruments defining the rights of security holders
(4.1) Note Agreement dated August 15, 1986 (filed as
Exhibit 4.9 to Registrant's Annual Report on Form
10-K for the year ended June 30, 1993, and
incorporated herein by reference).
18
<PAGE>
(4.2) Amendments dated September 26, 1988 and November
9, 1988 to Note Agreement dated August 15, 1986
(filed as Exhibit 4.10 to Registrant's Annual
Report on Form 10-K for the year ended June 30,
1993, and incorporated herein by reference).
(4.3) Amendment dated December 12, 1989 to Note
Agreement dated August 15, 1986.
(4.4) Amendment dated May 1, 1991 to Note Agreement
dated August 15, 1986 (filed as Exhibit (4.12) to
Registrant's Annual Report on Form 10-K for the
year ended June 30, 1991, and incorporated herein
by reference).
(4.5) Stockholder Rights Agreement dated January 20,
1988 (filed as Exhibit 4.13 to Registrant's Annual
Report on Form 10-K for the year ended June 30,
1993, and incorporated herein by reference).
(4.6) Amendments dated June 24, 1988 to Stockholder
Rights Agreement dated January 20, 1988 (filed as
Exhibit 4.14 to Registrant's Annual Report on
Form 10-K for the year ended June 30, 1993, and
incorporated herein by reference).
(4.7) Loan Amendments dated December 1, 1989.
(4.8) Loan Amendment dated April 16, 1991 (filed as
Exhibit (4.18) to Registrant's Annual Report on
Form 10-K for the year ended June 30, 1991, and
incorporated herein by reference).
(4.9) Amendments dated April 24, 1992 to Loan Agreement
dated April 16, 1991 (filed as Exhibit (4.19) to
Registrant's Annual Report on Form 10-K for the
year ended June 30, 1992, and incorporated herein
by reference).
(4.10) Amendments dated April 30, 1992 to Note Agreement
dated August 15, 1986 and Loan Agreement dated
April 16, 1991 (filed as Exhibit (4.20) to
Registrant's Annual Report on Form 10-K for the
year ended June 30, 1992, and incorporated herein
by reference).
(4.11) Loan Agreement dated September 1, 1993 (filed as
Exhibit 4.11 to Registrant's Annual Report on Form
10-K for the year ended June 30, 1994, and
incorporated herein by reference).
(4.12) Loan Agreement dated September 1, 1993 (filed as
Exhibit 4.12 to Registrant's Annual Report on
Form 10-K for the year ended June 30, 1994, and
incorporated herein by reference).
(10) Material Contracts
(10.1) Lease Agreement dated August 2, 1984 with Rowe
Development Company (filed as Exhibit 10.1 to
Registrant's Annual Report on Form 10-K for the
year ended June 30, 1993, and incorporated herein
by reference).
(10.2) First Amendment dated April 27, 1992 to Lease
Agreement dated August 2, 1984 (filed as Exhibit
10.2 to Registrant's Annual Report on Form 10-K
for the year ended June 30, 1993, and incorporated
herein by reference).
19
<PAGE>
(10.3) Second Amendment dated October 22, 1992 to Lease
Agreement dated August 2, 1984 (filed as Exhibit
10.3 to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1993, and
incorporated herein by reference).
(10.4) License dated January 14, 1980 with Illinois Tool
Works, Inc. (filed as Exhibit 10.4 to Registrant's
Annual Report on Form 10-K for the year ended June
30, 1993, and incorporated herein by reference).
(10.5) Amendment dated June 3, 1991 to License dated
January 14, 1980 (filed as Exhibit 10.5 to
Registrant's Annual Report on Form 10-K for the
year ended June 30, 1993, and incorporated herein
by reference).
(10.6) License dated April 6, 1967 with Camcar Division
of Textron, Inc. (filed as Exhibit 10.6 to
Registrant's Annual Report on Form 10-K for the
year ended June 30, 1993, and incorporated herein
by reference).
(10.7) Amendment dated July 1, 1988 to license dated
April 6, 1967 with Camcar Division of Textron,
Inc. (filed as Exhibit 10.7 to Registrant's
Annual Report on Form 10-K for the year ended
June 30,1993, and incorporated herein by
reference).
(10.8) License dated October 11, 1966 with Research
Engineering and Manufacturing, Inc. (filed as
Exhibit 10.8 to Registrant's Annual Report on Form
10-K for the year ended June 30, 1993, and
incorporated herein by reference).
(10.9) Sublease Agreement dated March 14, 1986 with
Parkside Warehouse, Inc. (filed as Exhibit 10.9 to
Registrant's Annual Report on Form 10-K for the
year ended June 30, 1993, and incorporated herein
by reference).
(10.10) Joint Venture Agreement between Nagoya Screw
Manufacturing Co., Ltd. and Elco Industries, Inc.
dated June 14, 1989 and effective July 1, 1989
(filed as Exhibit 10.10 to Registrant's Annual
Report on Form 10-K for the year ended June 30,
1994, and incorporated herein by reference).
(10.11) Letter Agreements dated June 27, 1989, July 17,
1989 and August 18, 1989 between Elco Industries,
Inc. and Okabe Company Limited (filed as Exhibit
10.11 to Registrant's Annual Report on Form 10-K
for the year ended June 30, 1994, and
incorporated herein by reference).
(10.12) Stock Purchase Agreement dated June 7, 1994
between Elco Industries, Inc. and Okabe Company
Limited (filed as Exhibit 10 to Registrant's
Form 8-K dated June 17, 1994, and incorporated
herein by reference).
(10.13) Elco Industries, Inc. Performance Share Plan
adopted October 28, 1988.
(10.14) Elco Industries, Inc. 1991 Stock Option Plan
(filed as Exhibit (10.13) to Registrant's Annual
Report on Form 10-K for the year ended June 30,
1992, and incorporated herein by reference).
20
<PAGE>
(10.15) Elco Industries, Inc. 1992 Stock Option Plan For
Non-Employee Directors (filed as Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for the
year ended June 30, 1993, and incorporated herein
by reference).
(10.16) Stock Compensation Plan for Non-Employee Directors
(filed as Exhibit 10.15 to Registrant's Annual
Report on Form 10-K for the year ended June 30,
1993, and incorporated herein by reference).
(10.17) Agreement and Plan of Merger
(10.18) Change of Control Agreement with John C. Lutz.
(10.19) Change of Control Agreement with August F. DeLuca.
(10.20) Change of Control Agreement with Derek M. Hasse.
(10.21) Change of Control Agreement with Robert H.
Rothkopf.
(10.22) Change of Control Agreement with James R.
Stenberg.
(10.23) Change of Control Agreement with Kenneth L. Heal.
(11) Computation of Per Share Earnings.
(13) Annual Report to Stockholders for the year ended June 30,
1995.
(21) Subsidiaries of Registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule
With the exception of the aforementioned information incorporated by
reference in this Annual Report on Form 10-K, the Registrant's Annual
Report to Stockholders for the year ended June 30, 1995 is not to be
deemed "filed" as part of this Report.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ELCO INDUSTRIES, INC.
September 19, 1995 By: /s/ JOHN C. LUTZ
-------------------
John C. Lutz
President
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:
DATE SIGNATURE
September 19, 1995 /s/ JOHN C. LUTZ
----------------------
John C. Lutz
President
Chief Executive Offier
Director
September 19, 1995 /s/ AUGUST F. DELUCA
----------------------
August F. DeLuca
Vice President-Finance
Chief Financial Officer
September 19, 1995 /s/ KENNETH L. HEAL
----------------------
Kenneth L. Heal
Secretary/Treasurer
Chief Accounting Officer
September 19, 1995 /s/ ROBERT L. BERNER, JR.
-------------------------
Robert L. Berner, Jr.
Director
September 19, 1995 /s/ MILTON R. BROWN
----------------------
Milton R. Brown
Director
September 19, 1995 /s/ CARL J. DARGENE
----------------------
Carl J. Dargene
Director
22
<PAGE>
September 19, 1995 /s/ G. ROBERT EVANS
----------------------
G. Robert Evans
Director
September 19, 1995 /s/ WAYNE P. LOCKWOOD
----------------------
Wayne P. Lockwood
Director
September 19, 1995 /s/ JAMES L. PACKARD
----------------------
James L. Packard
Director
September 19, 1995 /s/ DAVID D. PETERSON
----------------------
David D. Peterson
Director
September 19, 1995 /s/ JAMES H. RILOTT
----------------------
James H. Rilott
Director
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Elco Industries, Inc. and
Subsidiaries has been incorporated by reference in this Form 10-K from the 1995
Annual Report to Stockholders of Elco Industries, Inc. and appears on page 30
therein. In connection with our audits of such financial statements, we have
also audited the related financial statement schedule listed in the index on
page 18 of this Annual Report on Form 10-K.
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 required to be
included therein.
COOPERS & LYBRAND L.L.P
Rockford, IL
August 18, 1995
S-1
<PAGE>
SCHEDULE II
ELCO INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
RESERVES
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
-------------------
DESCRIPTION CHARGED
BALANCE AT TO COSTS CHARGED DEDUCTIONS BALANCE
BEGINNING AND TO OTHER FROM AT END
OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
Valuation account deducted from
assets to which it applies--
Allowance for doubtful accounts $473,000 $ 43,884 $22,826(A) $232,710(B) $307,000
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
YEAR ENDED JUNE 30, 1994:
Valuation account deducted from
assets to which it applies--
Allowance for doubtful accounts $475,000 $ 30,236 -- $ 32,236(B) $473,000
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
Year Ended June 30, 1993:
Valuation account deducted from
assets to which it applies--
Allowance for doubtful accounts $335,000 $195,178 $27,313(A) $ 82,491(B) $475,000
-------- -------- ------- -------- --------
-------- -------- ------- -------- --------
----------------------------------------------------------------------------------------------------
<FN>
(A) Recoveries on accounts previously written off.
(B) Uncollectible accounts written off.
</TABLE>
S-2
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
ELCO INDUSTRIES, INC.
FIRST. The name of this corporation is ELCO INDUSTRIES, INC.
SECOND. Its registered office in the State of Delaware is to
be located at 900 Market street, in the City of Wilmington, County
of New Castle, and its registered agent is CORPORATION SERVICE
COMPANY, 900 Market Street, Wilmington, Delaware
THIRD. The nature of the business and the objects and
purposes to be transacted, promoted and carried on are to do any or
all of the things herein mentioned as fully and to the same extent
as natural persons might or could do, and in any part of the world,
viz:
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware,
including, but not limited to the design, development, manufacture,
sale and distribution of fasteners, cold-headed products and other
components, devices and items formed or otherwise created or
manufactured from metals, plastics or other materials, and to carry
on and engage in any and all lawful activities in any way
associated with the conduct of each business and the objectives and
purposes herein set forth.
FOURTH. The total number of shares of all classes of stock
which the corporation shall have authority to issue is 20,250,000
shares, of which 20,000,000 shares shall be common stock having a
par value of $5.00 per share, and 250,000 shares shall be preferred
stock having a par value of $1.00 per share amounting in the
aggregate to $100,250,000. The preferred stock shall be issued
from time to time in one or more series with such serial
designations and (a) may have such voting powers, full or limited,
or may be without voting powers; (b) may be subject to redemption
at such time or times and at such prices; (c) may be entitled to
receive dividends (which may be cumulative or noncumulative) at
such rate or rates, on such conditions, and at such times, and
payable in preference to, or in such relation to, the dividends
payable on any other class or classes of stock; (d) may have such
rights upon the dissolution of, or upon any distribution of the
assets of, the corporation; (e) may be made convertible into, or
exchangeable for, shares of any other class or classes or of any
other series of the same or any other class or classes of stock of
the corporation, at such price or prices or at such rates of
exchange, and with such adjustments; and (f) shall have such other
relative, participating, optional or other special rights,
qualifications, limitations or restrictions thereof, all as shall
hereafter be stated and expressed in the resolution or resolutions
providing for the issue of such Preferred Stock from time to time
adopted by the board of directors pursuant to authority so to do
which is hereby vested in the board.
Each share of Common Stock shall entitle the holder thereof to
one vote, in person or by proxy, at any and all meetings of the
stockholders of the corporation, on all matters to be voted upon by
the stockholders, including the election of Directors, and there
shall be no cumulative voting.
No stockholder, as such, shall have any preemptive right to
subscribe for or purchase any additional shares of stock or
securities convertible into or carrying warrants or options to
acquire shares of stock in the corporation.
Any and all right, title, interest and claim in or to any
dividends declared by the corporation, whether in cash, stock or
otherwise, which are unclaimed by the stockholder entitled thereto
for a period of six years after the close of business on the
payment date, shall be and be deemed to be extinguished and
abandoned; and such unclaimed dividends in the possession of the
corporation, its transfer agents or other agents or depositaries,
shall at such time become the absolute property of the corporation,
free and clear of any and all claims of any persons whatsoever.
FIFTH. The name and mailing address of each of the
incorporator or incorporators is as follows:
NAME MAILING ADDRESS
L. W. PHILLIPS 900 Market Street
Wilmington, Delaware
A. F. TIMER 900 Market Street
Wilmington, Delaware
L. PANARIELLO 900 Market Street
Wilmington, Delaware
SIXTH. In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly
authorized:
To make, alter or repeal the by-laws of the corporation.
To authorize and cause to be executed mortgages and liens upon
the real and personal property of the corporation.
To set apart out of any of the funds of the corporation
available for dividends a reserve or reserves for any proper
purpose and to abolish any such reserve in the manner in which was
created.
By a majority of the whole board, to designate one or more
committees, each committee to consist of two or more of the
directors of the corporation. The board may designate one or more
directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting the committee.
Any such committee, to the extent provided in the resolution or in
the by-laws of the corporation, shall have and may exercise the
power of the board of directors in the management of the business
and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it;
provided, however, the by-laws may provide that in the absence of
disqualifications of any member of such committee or committees,
the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of
directors to act at the meeting the place of any such absent or
disqualified member.
When and as authorized by the affirmative vote of the holders
of no less than 66 2/3% of the stock issued and outstanding having
voting power at a stockholders' meeting duly called upon such
notice as is required by statute, or when authorized by the written
consent of the holders of no less than 66 2/3% of the voting stock
issued and outstanding, to sell, lease or exchange all or
substantially all of the property and assets of the corporation,
including its good will and its corporate franchises, or to merge
or consolidate with another corporation or corporations upon such
terms and conditions and for such consideration, which may consist
in whole or in part of money or property including shares of stock
in, and or other securities of, any other corporation or
corporations, as its board of directors shall deem expedient and
for the best interests the corporation.
SEVENTH. Meetings of stockholders may be held within or
without the State of Delaware, as the by-laws may provide. The
books of the corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such
place or places as may be designated from time to time by the board
of directors or in the by-laws of the corporation. Elections of
directors need not be by written ballot unless the by-laws of the
corporation shall so provide.
EIGHTH. The corporation reserves the right to amend, alter,
change or repeal any provision contained in this certificate of
incorporation, in the manner now or hereafter prescribed by statue,
and all rights conferred upon stockholders herein are granted
subject to this reservation.
NINTH. (a) The corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation) by reason of
the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him
in connection with such action, suit or proceeding if he acted in
good faith and in a manner, he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action,
suit or proceeding by judgment order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not of
itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporations a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys fees) actually and reasonably
incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the corporation and except that no indemnification shall be made
in respect to any claim, issue or matter as to which such person
shall have been adjudged to be liable (for negligence or misconduct
in the performance of his duty) to the corporation unless and only
to the extent that the Court of Chancery or the Court in which such
action or suit was brought shall determine upon application that
despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent
of the corporation has been successful on the merits or otherwise
in defense of any action, suit or proceeding referred to in
paragraphs (a) and (b), or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including
attorneys fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless
ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is
proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (a) and (b). Such
determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or, even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written
opinion, or (5) by the stockholders.
(e) Expenses incurred in defending a civil or criminal action,
suit or proceeding shall be paid by the corporation in advance of
the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the director, officer,
employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the
corporations authorized in this Article.
(f) The indemnification and advancement of expenses provided
by or granted pursuant to the other sections of this Article shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may bet entitled under
any by-law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify
him against such liability under the provisions of this Article.
(h) The indemnification and advancement of expenses provided
by, or granted pursuant to this Article shall, unless otherwise
provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of
such a person.
TENTH (a) In addition to any affirmative vote required by law
or this Certificate of Incorporation except as otherwise expressly
provided in paragraph (b) of this Article Tenth any Business
Combination shall require the affirmative vote of the holders of at
least 80% of the combined voting power of the Voting Shares, voting
together as a single class (it being understood that for the
purposes of this Article Tenth each Voting Share shall have the
number of votes granted to it pursuant to Article Fourth of this
Certificate of Incorporation).
(b) The provisions of this Article Tenth shall not be
applicable to any particular Business Combination and such Business
Combination shall require only such affirmative vote as is required
by law and any other provision of this Certificate of Incorporation
if all of the conditions specified in either of the following
subparagraphs (1) and (2) of this paragraph b are met.
(1) The Business Combination shall have been approved by
two-thirds of the Disinterested Directors.
(2) All of the following conditions shall have been met:
(A) The Business Combination shall provide for consideration
to be received by all holders of common shares in exchange for all
their shares and the aggregate amount of the cash and the Fair
Market Value as of the date of consummation of the Business
Combination of consideration other than cash to be received per
share by holders of common shares in such Business Combination
shall be at least equal to the higher of the following:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Stockholder or any Affiliate or Associate of
the Interested Stockholder to acquire any common shares
beneficially owned by the Interested Stockholder which were
acquired (a) within the two year period immediately prior to the
first public announcement of the proposal of the Business
Combination (the "Announcement Date") or (b) in the transaction in
which it became an Interested Stockholder whichever is higher; and
(ii) The Fair Market Value per common share on the first
trading date after the Announcement Date or on the first trading
date after the date of the first public announcement that the
Interested Stockholder became an Interested Stockholder (the
"Determination Date"), whichever is higher.
(B) The Business Combination shall provide for consideration
to be received by all holders of outstanding shares other than
common shares in exchange for all such shares and the aggregate
amount of the cash and the Fair Market Value as of the date of the
consummation of the Business Combination of consideration other
than cash to be received per share by holders of outstanding shares
other than common shares shall be at least equal to the highest of
the following (it being intended that the requirements of this
subparagraph (2)(b) shall be required to be met with respect to
every class and series of outstanding shares other than common
shares whether or not the Interested Stockholder or any Affiliate
or Associates of the Interested Stockholder has previously acquired
any shares of a particular class or series):
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers fees)
paid by the Interested Stockholder or any Affiliate or Associate of
the Interested Stockholder to acquire any shares of such class or
series beneficially owned by the Interested Stockholder which were
acquired (a) within the 2-year period immediately prior to the
Announcement Date or (b) in the transaction in which it became an
Interested Stockholder, whichever is higher;
(ii) (if applicable) the highest preferential amount per share
to which the holders of shares of such class or series are entitled
in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation;
(iii) the Fair Market Value per share of such class or series
on the first trading date after the Announcement Date or on the
Determination Date, whichever is higher; and
(iv) an amount equal to the Fair Market Value per share of
such class or series determined pursuant to clause (iii) times the
highest value obtained in calculating the following quotient for
each class or series of which the Interested Stockholder has
acquired shares within the 2-year period ending on the Announcement
Date: (x) the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by
the Interested Stockholder or any Affiliate or Associate of the
Interested Stockholder for any shares of such class or series
acquired within such 2-year period divided by (y) the market value
per share of such class or series on the first day in such 2-year
period on which the Interested Stockholder or any Affiliate or
Associate of the Interested Stockholder acquired any shares of such
class or series.
(C) The consideration to be received by holders of a
particular class or series of outstanding shares shall be in cash
or in the same form as the Interested Stockholder or any Affiliate
or Associate of the Interested Stockholder has previously paid to
acquire shares of such class or series beneficially owned by the
Interested Stockholder. If the Interested Stockholder and any
Affiliates or Associates of the Interested Stockholder have paid
for shares of any class or series with varying forms of
consideration, the form of consideration for such class or series
shall be either cash or the form used to acquire the largest number
of shares of such class or series beneficially owned by the
Interested Stockholder.
(D) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (i) except as approved by two-thirds of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full periodic
dividends (whether or not cumulative) of any outstanding shares of
the corporation other than the common shares; (ii) there shall have
been (a) no reduction in the annual rate of dividends paid on the
common shares (except as necessary to reflect any subdivision of
the common shares), except as approved by two-thirds of the
Disinterested Directors, and (b) an increase in such annual rate of
dividends (as necessary to prevent any such reduction) in the event
of any reclassification (including any reverse share split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding common
shares; and (iii) such Interested Stockholder shall not have become
the beneficial owner of any additional Voting Shares except as part
of the transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
(E) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received
the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided by the corporation or any Subsidiary whether in
anticipation of or in connection with such Business Combination or
otherwise.
(F) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations (or
any subsequent provisions replacing such Act, rules or regulations)
shall be mailed to public stockholders of the corporation at least
30 days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to
be mailed pursuant to such Act or subsequent provisions).
(c) For purposes of this Article Tenth:
(1) "Business Combination" shall mean any of the following:
(A) any merger, consolidation or share exchange of the
corporation or any Subsidiary with or involving (1) any Interested
Stockholder or (2) any other corporation (whether or not itself an
Interested Stockholder) which is, or after such merger,
consolidation, or share exchange would be, an Affiliate or an
Associate of an Interested Stockholder;
(B) any sale, lease, exchange: mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder or any Affiliate or Associate
of any Interested Stockholder (other than the corporation or any
Subsidiary) of any assets of the corporation or any Subsidiary
having an aggregate Fair Market Value (as hereinafter defined)
equal to 10% or more of the corporation s consolidated net worth as
of its then most recent fiscal year end;
(C) the issuance or transfer by the corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the corporation or any Subsidiary to any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder;
(D) the adoption of any plan or proposal for the liquidation
or dissolution of the corporation proposed by, or in which anything
other than cash will be received by, an Interested Stockholder or
any Affiliate or Associate of an Interested Stockholder; or
(E) any reclassification of securities (including any reverse
share split), or recapitalization of the corporation, or any
merger, consolidation or share exchange of the corporation with or
involving any of its Subsidiaries which has the effect, directly or
indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities
of the corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder;
(2) "Voting Shares" shall mean the then outstanding shares of
all classes and series of the corporation entitled to vote
generally at the election of directors.
(3) "Person" shall mean any individual, firm, corporation,
partnership, trust or other entity.
(4) "Interested Stockholder" shall mean any person (other than
(i) the corporation, (ii) any Subsidiary, or (iii) any
profit-sharing, employee stock ownership or other employee benefit
plan or trust of the corporation or any trustee or fiduciary
thereof acting in such capacity) who which is the beneficial owner,
directly or indirectly, of Voting Shares conveying 10% or more of
the combined voting power of the outstanding Voting Shares.
(5) A person shall be a "beneficial owner" of any Voting
Shares:
(A) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly;
(B) which such person or any of its Affiliates or Associates
has (i) the right to acquire(whether such right is exercisable
immediately or only after the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote or direct the vote pursuant to
any agreement, arrangement or understanding; or
(C) which are beneficially owned, directly or indirectly, by
any other person with which such person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any Voting
Shares.
(6) For the purposes of determining whether a person is an
Interested Stockholder pursuant to subparagraph (4) of this
paragraph c, the number of Voting Shares deemed to be outstanding
shall include shares deemed owned by such person through
application of subparagraph (5) of this paragraph c but shall not
include any other Voting Shares which maybe issuable to other
persons pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, exchange rights, warrants or
options, or otherwise.
(7) "Affiliate" and "Associates" shall have the respective
meanings ascribed to such terms in Rule 12b-2 or the General Rules
and Regulations under the Securities Exchange Act of 1934, as
amended from time to time, or any successor provision (or the
respective meanings last ascribed thereto if there are no amended,
or successor provisions).
(8) "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by
the corporation: provided, however, that for the purposes of the
definition of Interested Stockholder set forth in subparagraph (4)
of this paragraph c, the term "Subsidiary" shall mean only a
corporation of which a majority of each class or equity security is
owned, directly or indirectly, by the corporation.
(9) "Disinterested Director" means any member of the board of
directors of the corporation who: (A) is neither the Interested
Stockholder nor an Affiliate or Associate of the Interested
Stockholder; (B) was a member of the board of directors prior to
the time that the Interested Stockholder became an Interested
Stockholder, or was recommended to succeed a Disinterested Director
by a majority of the Disinterested Directors then in office; and
(C) was not nominated for election as a director by the Interested
Stockholder or any Affiliate or Associate of the Interested
Stockholder.
(10) "Fair Market Value" means (a) in the case of shares, the
highest closing sale price during the 30-day period immediately
preceding the date in question of a share on the New York Stock
Exchange Composite Tape, or, if such shares are not quoted on the
Composite Tape, on the New York Stock Exchange, or if such shares
are not listed on such Exchange, on the principal United States
Securities exchange registered under the Securities Exchange Act of
1934 on which such shares are listed, or, if such shares are not
listed on any such exchange, the highest closing sale price or bid
quotation with respect to a share during the 30-day period
preceding the date in question on the National Association of
Securities Dealers, Inc., Automated Quotations System or any system
then in use, or if no such quotations are available, the fair
market value on the date in question of a share as determined by a
majority of the Disinterested Directors in good faith; and (b) in
the case of property other than cash or shares, the fair market
value of such property on the date in question as determined by a
majority of the Disinterested Directors in good faith.
(11) In the event of any Business Combination in which the
corporation survives, the phrase consideration other than cash to
be received as used in subparagraphs (2)(A) and (B)of paragraph b
of this Article Tenth shall include the common shares and the
shares of any other class or series retained by the holders of such
shares.
(d) A majority of the Disinterested Directors shall have the
power to determine, for the purposes of this Article Tenth (1)
whether a person is an Interested Stockholder, (2) the number of
Voting Shares beneficially owned by any person, (3) whether a
person is an Affiliate or Associate of another, and (4) whether the
assets which are the subject of any Business Combination have an
aggregate Fair Market Value equal to 10% or more of the
corporation's consolidated net worth as of its then most recent
fiscal year end. Such determination shall be conclusive and binding
for all purposes of this Article Tenth.
(e) Nothing contained in this Article Tenth shall be construed
to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
(f) Notwithstanding any other provisions of this Certificate
of Incorporation or the By-laws of the corporation (and
notwithstanding the fact that a lesser percentage may be specified
by law, this Certificate of Incorporation or the By-laws of the
corporation), the affirmative vote of the holders of 80% or more of
the combined voting power of the then outstanding Voting Shares
voting together as a single class, shall be required to amend, or
repeal, or to adopt any provision inconsistent with, any provision
in this Article Tenth.
ELEVENTH. No director of the Corporation shall be personally
liable to the corporation or its stockholders for monetary damages
for any breach of fiduciary duty as a director, except for
liability (i) for any breach of the directors duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
TWELFTH. (a) Number of Directors. The number of directors of
the Corporation shall be fixed and may from time to time be
increased or decreased by the board of directors, but in no event
shall the number of directors be less than six or more than twelve.
(b) Classified Directors. Directors shall be elected at the
annual meetings or special meetings of the stockholders.
Notwithstanding anything to the contrary in the By-laws, effective
as of the annual meeting of the stockholders in 1988, the board of
directors shall be divided into three classes, designated as Class
1, Class 2 and Class 3, as nearly equal in number as possible. The
term of office of one class shall expire at each annual meeting of
stockholders, and in all cases as to each director until his
successor shall be elected and shall qualify, or until his earlier
resignation, removal from office, death or incapacity. The initial
term of office of directors of Class 1 shall expire at the annual
meeting of stockholders in 1989, that of Class 2 at the annual
meeting of stockholders in 1990, that of Class 3 at the annual
meeting; of stockholders in 1991, and in all cases as to each
director until his successor shall be elected and shall qualify, or
until his earlier resignation, removal from office, death or
incapacity. After 1988 at each annual meeting of stockholders that
number of directors equal to the number of directors of the class
whose term expires at the time of such meeting (or, if less, that
number of directors properly nominated and qualified for election)
shall be elected to hold office until the third succeeding annual
meeting of stockholders after their election.
(c) Vacancies; New Directorships. Vacancies on the board of
directors shall be filled as provided in the By-laws. Any director
chosen to fill such a vacancy shall hold office until the next
election the class for which such director shall have been chosen
and until his successor shall have been elected and qualified. or
until his earlier resignation, removal from office, death or
incapacity.
Additional directorships resulting from an increase in the
number of directors shall be apportioned among the classes as
equally as possible. When the number of directors is increased by
the board and newly created directorships are filled by the board,
there shall be no classification of the additional directors until
the next annual meeting of stockholders. No decrease in the number
of directors shall have the effect of shortening the term of any
incumbent director.
(d) Required Vote. Notwithstanding anything contained in the
certificate to the contrary, the affirmative vote of at least 75%
of the shares entitled to vote shall be required to alter, amend or
repeal, or adopt any provisions inconsistent with, this Article
Twelfth, or to fix (including by increase or decrease)the number of
directors of the Corporation by vote of the Corporation's
stockholders.
Exhibit 4.3
Metropolitan Life Insurance Company
One Madison Avenue. New York. NY 10010-3690
December 12, 1989
Elco Industries, Inc.
1111 Samuelson Road
Rockford, Illinois 61101
Attention: Treasurer
Gentlemen:
Metropolitan Life Insurance Company ("Metropolitan") is the holder of 9.15%
Senior Notes due August 27, 1996 (the "Notes") of Elco Industries, Inc. ("Elco")
in the principal amount of $13,000,000, issued pursuant to a Note Agreement
between Metropolitan and Elco dated as of August 15, 1986, as amended (the "Note
Agreement").
As holder of the Notes and as a party to the Note Agreement, Metropolitan hereby
agrees to amend the Note Agreement as follows:
1. (a) The second sentence of the first paragraph in Section 2.05 shall be
deleted and the following sentence shall be inserted in lieu thereof:
"Upon the occurrence of a Change of Control Date, the Company will prepay, if
you shall so request, all of the Notes then held by you at the greater of (1)
the unpaid principal amount of the Notes then held by you and (2) the Prepayment
Price, plus in each case interest accrued thereon to the date of such
prepayment."
(b) The last paragraph in Section 2.05 shall be deleted and the following
paragraph shall be inserted in lieu thereof:
"On the Change of Control Prepayment Date, the Company shall prepay all of the
Notes then held by you at the greater of (1) the unpaid principal amount of the
Notes then held by you and (2) the Prepayment Price, plus in each case interest
accrued thereon to the Change of Control Prepayment Date."
2. The proviso in clause "(vii)" of Section 5.08 shall be deleted and the
following proviso shall be inserted in lieu thereof:
"provided that (a) the lien or charge shall attach to the property purchased
(except that the lien or charge given to secure the payment of the Indebtedness
incurred in connection with the expansion and development by Thermoplastics,
Inc., a Wholly-owned Subsidiary, of certain of its property located at 1400
South Industrial Drive, Mishawaka, Indiana may attach to the property
described on Exhibit A hereto), (b) the aggregate amount remaining unpaid on
the purchase price with respect to any single purchase shall not be in excess
of 100% of the total purchase price of such property and (c) the aggregate
amount remaining unpaid on all Indebtedness secured by such liens shall at
no time exceed 15% of Consolidated Net Tangible Assets; and"
Very truly yours,
METROPOLITAN LIFE INSURANCE COMPANY
By:
Its:
Accepted and agreed to
ELCO INDUSTRIES, INC.
By:
Its:
<PAGE>
Exhibit A
Real property consisting of approximately 5 acres of land located at 1400 S.
Industrial Drive, Mishawaka, Indiana, the existing building of approximately
57,000 sq. ft. thereon, the approximately 13,000 sq. ft. single story building
addition thereto, and the permanent building fixtures affixed to said existing
building and building addition.
Exhibit 4.7
LOAN AGREEMENT
ELCO INDUSTRIES, INC.
AND
CITY OF LOGANSPORT, INDIANA
DATED AS OF DECEMBER 1, 1989
The rights of the City of Logansport, Indiana, under this
Agreement (except the right to receive payment for its expenses,
the right to receive indemnities, and rights relating to the
amendment of this Agreement) have been assigned to INB National
Bank, Indianapolis, Indiana, as Trustee under a Trust Indenture
dated as of the date of this Agreement, between the City and the
Trustee.
TABLE OF CONTENTS
Section Page
RECITALS................................................... 1
AGREEMENT.................................................. 2
ARTICLE I
Definitions and Exhibits
1.1. Terms Defined........................................ 2
1.2. Rules of Interpretation.............................. 3
1.3. Exhibits............................................. 4
ARTICLE II
The Loan and The Project
2.1. Municipality's Representations, Warranties and
Covenants............................................ 4
2.2. Company's Representations, Warranties and
Covenants............................................ 5
2.3. The Project.......................................... 7
ARTICLE III
The Bonds, Use of Proceeds, The Note
3.1. Agreement to Issue Bonds............................. 8
3.2. Disbursements from Construction Fund................. 8
3.3. Company is Required to Pay in the Event
Construction Fund is Insufficient.................... 8
3.4. Investment of Construction Fund and Bond Fund
Moneys............................................... 9
3.5. Covenants with Respect to Arbitrage.................. 9
3.6. Loan Payments and Other Amounts Payable.............. 10
3.7. Obligations of Company Unconditional................. 11
3.8. Letter of Credit and Alternate Letter of Credit...... 12
ARTICLE IV
Particular Covenants of the Company
4.1. Consent to Assignment to Trustee..................... 13
4.2. Payment of Expenses of Issuance of Bonds............. 13
4.3. Company to Maintain its Existence; Conditions Under
Which Exceptions Permitted........................... 13
4.4. Further Assurances and Corrective Instruments........ 13
4.5. Covenants of Company with Respect to Use of Bond
Proceeds............................................. 13
4.6. Indemnification of Municipality and Trustee.......... 14
4.7. Reports, Certificates and Other Information.......... 14
4.8. Insurance............................................ 15
4.9. Taxes and Liabilities................................ 15
4.10. Company to Furnish Notice of Fixed Interest Rate and
Mandatory Redemption Dates........................... 15
4.11. Notice of Adjustment Dates, Rate Determination
Dates, Rate Change Dates, Interest Payment Dates
and LOC Termination Tender Dates..................... 15
ARTICLE V
Maintenance, Taxes and Insurance
5.1. Maintenance and Modifications of Project by
Company.............................................. 15
5.2. Taxes, Other Governmental Charges and Utility
Charges.............................................. 15
5.3. Insurance Required................................... 16
5.4. Application of Net Proceeds of Insurance............. 16
5.5. Additional Provision Respecting Insurance............ 16
ARTICLE VI
Damage, Destruction and Condemnation
6.1. Damage and Destruction............................... 17
6.2. Condemnation......................................... 17
ARTICLE VII
Prepayment of Note
7.1. Optional Prepayment of Note.......................... 17
7.2. Mandatory Prepayment of Note in the Event of a
Determination of Taxability................ ......... 18
7.3. Purchase of Bonds.................................... 18
7.4. Extraordinary Event Prepayment of the Note........... 18
7.5. Notice of Prepayment................................. 18
ARTICLE VIII
Events of Default and Remedies
8.1. Events of Default.................................... 19
8.2. Remedies on Default.................................. 20
8.2. Application of Moneys................................ 20
8.3. Remedies Cumulative.................................. 21
8.4. Delay or Omission Not a Waiver....................... 21
8.6. Remedies Subject to Provisions of Law................ 21
ARTICLE IX
Supplements and Amendments to this Agreement
9.1. Supplements and Amendments to this Agreement......... 21
ARTICLE X
Miscellaneous
10.1. Binding Effect...................................... 21
10.2. Severability........................................ 21
10.3. Amounts Remaining in Bond Fund...................... 21
10.4. Amendments, Changes and Modifications............... 22
10.5. Execution in Counterparts........................... 22
10.6. Notices............................................. 22
10.7. References to Bonds Ineffective After Bonds are
Paid................................................ 22
10.8. Agreement for Benefit of Parties Hereto............. 22
10.9. Waiver.............................................. 22
10.10. Captions and Table of Contents...................... 23
10.11. Survival of Covenants, Representations and
Warranties.......................................... 23
10.12. Applicable Law...................................... 23
10.13. Holidays............................................ 23
EXHIBIT A: Description of Project
EXHIBIT B: Form of Note
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT has been executed as of December 1,
1989, by and between ELCO INDUSTRIES, INC., a Delaware
corporation (the "Company"), and the CITY OF LOGANSPORT, INDIANA
(the "Municipality").
RECITALS
1. Definitions of certain of the terms used in these
Recitals are set out in Article I hereof and Article I of the
Indenture.
2. The Company is pursuing the acquisition,
installation and equipping of the Project which is to be located
on the Project Site.
3. To finance a portion of the costs of the Project,
the Company is borrowing from the Municipality funds derived from
the sale of the Bonds, and the Company, as evidence of its
obligation to repay the funds, is issuing to the Municipality its
Note.
4. Pursuant to IC 36-7-11.9 and IC 36-7-12, the
Municipality is obtaining funds to loan to the Company through
the sale of $3,000,000 aggregate principal amount of City of
Logansport, Indiana Economic Development Revenue Bonds, Series
1989 (Elco Industries, Inc. Project).
5. Pursuant to a Trust Indenture dated as of the date
of this Agreement, between the Municipality and INB National
Bank, Indianapolis, Indiana, as Trustee, the Municipality will
issue the Bonds and, as security for the payment of the Bonds and
the performance of the obligations of and the Company under the
Indenture and the Note, the Municipality will assign the Note and
its rights under this Agreement (except the right to receive
payment for its expenses, the right to receive indemnities and
rights relating to any amendments to this Agreement) to the
Trustee and the Company will cause to be issued to the Trustee an
irrevocable direct pay letter of credit of The Mitsui Bank
Limited, dated December 14,1989. The Bonds will be payable
solely out of the revenues and other amounts derived from the
Note and under this Agreement and from the Letter of Credit and
shall not, in any respect, be a general obligation of, an
indebtedness of, or constitute a charge against the general
credit of the Municipality, the State of Indiana, or any
political subdivision thereof.
AGREEMENT
In consideration of the premises and the mutual
covenants contained herein, the Company and the Municipality
agree as follows:
ARTICLE I
Definitions and Exhibits
Section 1.1. Terms Defined. As used in this Agreement, the
following terms shall have the following meanings unless the
context otherwise required:
"Act" means IC 36-7-11.9 and IC 36-7-12, as from time to
time amended.
"Agreement" means this Loan Agreement and any amendment
and supplement thereto.
"Agreement Term" means the period commencing on the date
of this Agreement and, subject to the provisions of this
Agreement, ending on such date as the Bonds have been fully paid
and retired or provision for such payment made as provided in the
Indenture.
"Authorized Company Representative" means any officer
designated to act on behalf of the Company by written certificate
furnished to the Municipality and the Trustee containing the
specimen signature of the person and signed on behalf of the
Company by its President, any of its Vice Presidents, its Chief
Financial Officer, its Secretary or any of its Assistant
Secretaries. The certificate may designate an alternate or
alternates. The Authorized Company Representative may be an
employee of the Company.
"Bonds" means the $3,000,000 aggregate principal amount
of the City of Logansport, Indiana Economic Development Mortgage
Revenue Bonds, Series 1989 (Elco Industries, Inc. Project).
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commission" means the Logansport Economic Development
Commission, a development commission created by the Municipality
pursuant to the Act.
"Company" means Elco Industries, Inc., a Delaware
corporation, and its successors and assigns.
"Counsel" means an attorney-at-law (who may be counsel
to the Trustee, the Municipality or the Company).
"Debt Service Fund" means the fund created in Section
402 of the Indenture.
"Indenture" means the Trust Indenture, dated as of the
date of this Agreement, between the Municipality and INB National
Bank, Indianapolis, Indiana, as Trustee, relating to the Bonds,
and any indenture supplemental thereto.
"Letter of Credit" means the irrevocable direct pay
letter of credit of The Mitsui Bank, Limited dated December 14,
1989 issued to the Trustee for the benefit of the bondholders
under a Reimbursement Agreement among said Bank, the Trustee and
the Company dated as of December 1, 1989.
"Loan" means the $3,000,000 loan in principal amount by
the Municipality to the Company of the proceeds from the sale of
the Bonds.
"Municipality" or "Issuer" means the City of Logansport,
Indiana, and any successor.
"Net Proceeds" means, when used with respect to any
insurance proceeds or any condemnation award, the amount
remaining after deducting all expenses (including attorneys'
fees) incurred in the collection of such proceeds or award from
the gross proceeds thereof.
"Note" or "Promissory Note" means the Note of the
Company in substantially the form of Exhibit B hereto and any
Note issued in exchange therefor.
"Project" means the acquisition and installation of
equipment at certain development facilities of the Company as
more fully described in Exhibit A to this Loan Agreement.
"Project Cost" means and includes all those costs
related to the Project which are permitted to be financed under
the Code, the Act, this Agreement and the Indenture and which do
not result in a loss of the exclusion from gross income for
federal income tax purposes of the interest on the Bonds under
the Code.
"Project Fund" means the fund created in Section 302 of
the Indenture.
"Reimbursement Agreement" means the Reimbursement
Agreement between the Company and The Mitsui Bank, Limited dated
as of December 1, 1989, under which the Letter of Credit will be
issued.
"Trustee" means the trustee at the time serving under
the Indenture.
Section 1.2. Rules of Interpretation. For all purposes
of this Agreement, except as otherwise expressly provided or
unless the context otherwise requires:
(a) "This Agreement" means this instrument as originally
executed and as it may from time to time be supplemented or
amended.
(b) The words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision.
(c) The terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well
as the singular.
(d) All accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally
accepted accounting principles.
(e) Any terms not defined herein but defined in the
Indenture shall have the same meaning herein.
(f) The terms defined elsewhere in this Agreement shall
have the meanings therein prescribed for them.
Section 1.3. Exhibits. The following Exhibits are a part of
this Agreement:
Exhibit A: Description of the Project.
Exhibit B: Form of Note, form of Note Registrar's
Certificate of Validation and Form of Assignment.
ARTICLE II
The Loan and The Project
Section 2.1. Municipality's Representations, Warranties and
Covenants
(a) The Municipality represents and warrants that:
(i) The Municipality is a duly organized and existing
Municipal corporation and political subdivision of the State of
Indiana, with full power and authority Under the Act to enter
into the transactions contemplated by this Agreement and to carry
out its obligations hereunder,
(ii) The Municipality has duly authorized the issuance,
execution and delivery of the Bonds and the execution and
delivery of this Agreement.
(b) The Municipality covenants that:
(i) The Municipality shall not take any action to
interfere with any obligation it may have with respect to the
Bond, the proceedings authorizing the Bonds or this Agreement.
(ii) The Municipality shall provide funds from the
proceeds from the sale of the Bonds for the financing of a
portion of the costs of the Project, and shall secure the payment
of the Bonds by assigning this Agreement (except the right to
receive payment for its expenses, the right to receive
indemnities and rights relating to any amendment of this
Agreement) and the Note to the Trustee pursuant to the Indenture.
Section 2.2. Company's Representations, Warranties and
Covenants.
The Company makes the following representations and warranties
(all as of the date on which this Agreement has been executed)
and in addition, makes the following covenant:
(a) It is a duly organized and validly existing corporation
in good standing under the laws of the State of Delaware and is
duly qualified to transact business in Indiana, has the power and
authority to own its properties and assets and to carry on its
business as now being conducted and as now contemplated, and has
full power and authority to issue the Note and to execute and
deliver this Agreement, the Reimbursement Agreement and all other
agreements contemplated by this Agreement to which the Company is
a party all actions necessary for the execution and delivery of
the Note, this Agreement and the Indenture have been taken and
the Note will be a valid and binding obligation of the Company,
(b) The execution, delivery and performance of this
Agreement, the Note and the Reimbursement Agreement will not
conflict with or result in a breach of, or a default under, the
Company's Articles of Incorporation, By-Laws, or any material
agreement or instrument to which the Company is a party or by
which it is bound (excepting, however such agreements or
instruments with respect to which the Company has been required
to and has obtained waivers or consents) or result in the
creation or imposition of any lien, charge or encumbrance upon
any of the property or assets of the Company, except for the lien
of the Indenture and liens, charges or encumbrances in favor of
The Mitsui Bank, Limited to secure the obligations of the Company
under the Reimbursement Agreement.
(c) At least 95% of the proceeds from the Bonds (including
any income earned on the investment of such proceeds) will be
used for the acquisition and installation of machinery and
equipment for the Project. No more than 2% of the proceeds of
the Bonds will be used for the costs of issuance of the Bonds,
including any broker's, underwriter's or placement agent's
discount or other compensation. Costs of issuance paid from the
Bond proceeds together with any other expenditures which are not
described in the first sentence of this subsection will be not
more than 5% of the proceeds of the Bonds. No part of the
proceeds are to be used by the Company, directly or indirectly,
as working capital or to finance inventory.
(d) The Project and all components thereof will consist of
property of a character subject to the allowance for depreciation
under the Code.
(e) The indication of interest by the Issuer on the date of
adoption of the inducement resolution to issue its Bonds and lend
the proceeds to the Company for the purposes set forth herein has
encouraged the Company to acquire and construct the Project, and
will promote diversification of economic development and create
new or preserve existing job opportunities in the area. The
Project, or any components thereof which is to be paid for out of
the proceeds of the Bonds, had not been acquired, constructed,
equipped, furnished or rehabilitated by the Company prior to the
adoption of the inducement resolution of the Common Council of
the Issuer with respect to the Project.
(f) The sum of the following does not exceed $10,000,000:
(i) the aggregate face amount of any outstanding issues
of obligations (other than the Bonds) exempt from taxation under
Sections 103 and 144 of the Code, the proceeds from which were or
will be used primarily with respect to the Project or other
facilities (a) located within the County of Cass (but not in any
incorporated municipality) or within the Municipality and (b) the
principal user of which is or will be the Company or any other
principal user of the Project or related person or persons within
the meaning of Section 144 of the Code;
(ii) the aggregate principal amount of the Bonds; and
(iii) the sum of all capital expenditures (within the
meaning of Section 144(a) of the Code (and, pursuant to said
section, specifically excluding capital expenditures made from
the proceeds of bonds described in paragraph (i)and (ii) above))
relating to the facilities described in subsection (i) and made
during the period beginning three years prior to the date on
which the Bonds are issued and ending on the date on which the
Bonds are issued.
(g) The "average maturity" of the Bonds (taking into
account there issue prices) does not exceed 120% of the "average
reasonably expected economic life" of the facilities to be
financed with the proceeds of the Bonds (taking into account the
respective cost of such facilities), all as determined in
accordance with the provisions of Section 147(b) of the Code.
(h) No portion of the proceeds of the Bonds will be used to
provide any facility the primary purpose of which is retail food
and beverage service, automobile sales or services, or the
provision of recreation or entertainment, any private or
commercial golf course, country club, massage parlor, tennis
club, skating facility (including roller skating, skateboard and
ice skating), racquet sports facility (including any handball or
racquetball court), hot tub facility, suntan facility, racetrack,
airplane, sky box or other private luxury box, health club
facility, facility used for gambling, or facility used for the
sale of alcoholic beverages.
(i) The Bonds are not and shall not be "federally
guaranteed" as defined in Section 149(b) of the Code.
(j) No portion of the proceeds of the Bonds will be used to
acquire land (or an interest therein) or to acquire any property
(or an interest therein) where the first use of such property is
not pursuant to such acquisition.
(k) The aggregate authorized face amount of the Bonds
allocated to any "test period beneficiary," as such term is
defined in Section 144 of the Code, when increased by the
outstanding tax-exempt industrial development bonds of such
beneficiary, does not and shall not exceed $40,000,000.
(1) The execution, delivery and performance by the Company
of this Loan Agreement and the Note do not require the consent or
approval of, the giving of notice of, the registration with, or
the taking of any other action in respect of, any federal, state
or other governmental authority or agency, not previously
obtained or performed.
(m) No litigation, arbitration proceedings or governmental
proceedings are pending or threatened against the Company which
would, if adversely determined, materially and adversely affect
the right and power of the Company to execute and deliver this
Loan Agreement and all documents and instruments related hereto
or contemplated hereby to which the Company is a party or
signatory.
(n) Except with respect to future capital expenditures, the
Company will take no action which would (and will omit no action
reasonably within its power, the omission of which would) cause
the interest on the Bonds to become includable for Federal income
tax purposes in the gross income of any Bondholder, other than a
Bondholder who is a "substantial user" of the Project or a
"related person" within the meaning and for the purpose of
Section 147 of the Code. While this Agreement does not restrict
the Company as to future capital expenditures (and such
expenditures, if sufficiently large, could cause the interest on
the bonds to become includable in gross income for Federal income
tax purposes), the Company presently believes and expects that it
will comply with the applicable Code limitations on future
capital expenditures.
Section 2.3. The Project. The Company shall cause the
Project to be acquired, constructed, installed and equipped with
all reasonable dispatch in accordance with the Company's
specifications and directions. It is the Company's present
intention to use the Project, or to cause it to be used,
throughout the term of this Agreement as an "economic development
facility" within the meaning of the Act. The failure or
inability of the Company to use the Project, or to cause it to be
used, for the intended purposes shall not affect in any way the
Company's obligations under this Agreement or the Note and shall
not be deemed a breach or default under this Agreement as long as
the use does not affect the validity of the Bonds or result in
the interest on the Bonds becoming includable for Federal income
tax purposes in the gross income of a Bondholder.
ARTICLE III
The Bonds, Use of Proceeds, The Note
Section 3.1. Agreement to Issue Bonds. In order to
provide funds to make the Loan, the Municipality shall issue the
Bonds and sell them to the purchaser or purchasers thereof and
deposit the proceeds with the Trustee as follows:
(a) Into the Debt Service Fund, the accrued interest,
if any, paid by the purchasers of the bonds; and
(b) Into the Project Fund, the balance of the proceeds.
Section 3.2. Disbursements from Project Fund. The
Indenture authorizes the Trustee to make payments from the
Project Fund to pay Project Costs and to reimburse the Company
for Project Costs paid by it. Payments shall be made upon
receipt of requisitions signed by an Authorized Company
Representative stating: (a) the requisition number, (b) the name
and address of the person, firm or corporation to whom payment is
due or to whom the Company has made payment for which
reimbursement is to be made, (c) the amount be paid, and (d) that
each obligation has been properly incurred, is a Project Cost
that is a proper charge against the Project Fund, and has not
been the basis of any previous withdrawal. The requisition shall
be accompanied by copies of such invoices, cancelled checks (or
other evidence of payment) and similar documentation as the
Trustee may reasonably request.
After the Trustee has paid all amounts requisitioned
from the Project Fund and has received a certificate from the
Company stating that the Project has been completed, or that the
Project cannot or will not be completed for the reasons specified
therein, any balance in the Project Fund shall, subject to
compliance with the Act, be transferred to the Purchase Fund and
disbursed in accordance with the provisions of the Indenture
relating thereto provided, that at least 95% of the amount
actually expended has been expended on property of a character
subject to the allowance for depreciation under the Code
("qualified facilities"). If such balance, plus any amounts
actually expended other than on qualified facilities, exceeds the
permissible 5% insubstantial amount of the Bond proceeds, the
Company shall so notify the Trustee in writing, which written
notification shall include detailed instructions as to the
disposition of such balance, including instructions that the
Trustee shall deposit such excess into a special escrow account
within the Purchase Fund and detailed instructions pursuant to
which the Trustee shall invest and use any amount so deposited to
redeem or retire the Bonds, or portions thereof, in accordance
with Internal Revenue Service Rev. Proc., 79-5 and Rev. Proc.
81-22 and any subsequent amendments, modifications or
replacements thereof at the earliest redemption date occurring
after such deposit.
Section 3.3. Company is Required to Pay in the Event
Project Fund is Insufficient. In the event the moneys in the
Project Fund available for payment of the Project Costs should
not be sufficient to pay the costs of acquiring, constructing,
installing and equipping the Project in full, the Company shall
complete the Project and pay that portion of the costs of the
Project in excess of the moneys available in the Construction
Fund.
Section 3.4. Investment of Project Fund and Debt Service
Fund. Moneys held as part of the Debt Service Fund shall be
invested by the Trustee at the direction of the Company in direct
obligations of the United States of America or in other
obligations backed by the full faith and credit of the United
States of America. Subject to the provisions of Section 405 of
the Indenture, any moneys held as part of the Construction Fund
shall be invested by the Trustee at the direction of the Company
in (a) obligations of the United States of America, or (b)
obligations the principal and interest of which are guaranteed by
the United States of America, or (c) obligations of any agency of
the United States of America, or (d) certificates of deposit or
bankers acceptances issued by, or interest bearing time or demand
deposits with, any bank, trust company or national banking
association (including the Trustee, any affiliate of the Trustee
and any paying agent) having a combined capital and surplus of at
least $10,000,000, or (e) contracts with any entity meeting the
requirements specified in (d) above for the purchase and sale of
obligations of the type specified in (a) or (b) above (including
contracts with the Trustee, any affiliate of the Trustee and any
paying agent), or (f) commercial paper which has been classified
for rating purposes by Moody's Investors Service, Inc., as
Prime-2 or by Standard and Poor's Corporation as A-2 (other than
commercial paper of the Company or any "related person"), or (g)
obligations the interest on which is excludable from gross income
for Federal income tax purposes and that are rated at least "A"
"MIG-2" or Prime-2 by Moody's Investor's Service, Inc., or "A" or
"A-2" by Standard and Poor's Corporation or an equivalent rating
by any other national rating agency, or (h) funds, mutual funds,
common trust funds or any similar entity whose investments
consist of the foregoing.
Section 3.5. Covenants with Respect to Arbitrage. The
Company and the Municipality covenant to each other and to and
for the benefit of the holders of the Bonds that no use will be
made of the proceeds from the issue and sale of the Bonds which,
if such use could have been reasonably expected on the date of
issue of the Bonds, would have caused the Bonds to be classified
as arbitrage bonds within the meaning of Section 103(b)(2) of the
Code. As long as any Bonds are outstanding, the Municipality and
the Company shall not violate the requirements of the Code
relating to arbitrage bonds, and any regulations thereunder
including the requirement of Section 148 of the Code relating to
the rebate of certain amounts to the United States government.
The Company will provide to the Trustee instructions relating to
the permissible investment of Bond proceeds and instructions and
computations (using investment information provided by the
Trustee) relating to the amount required to be rebated to the
United States, all in conformity with Section 148 of the Code.
The Company reserves the right, however, to make any investment
of proceeds permitted under the laws of the State of Indiana, if
the sections of the Code relating to arbitrage bonds or the
regulations thereunder are repealed or relaxed or are held void
by final judgment of court of competent jurisdiction, so long as
the investment would not result in making the interest on the
Bonds includable in the gross income of the holders thereof for
purposes of Federal income taxation. In making investments, the
Company may rely on an opinion of counsel of recognized
competence in such matters. The Trustee may make any and all
such investments through its own bond department.
Section 3.6. Loan Payments and Other Amounts Payable.
(a) Concurrently with the sale of the Bonds, the Company
shall execute and deliver the Note to the Municipality, pursuant
to which the Company shall make payments sufficient to pay when
due (whether at maturity, upon call for redemption, by
acceleration or otherwise) the principal of and premium, if any,
and interest on the Bonds. The Note shall be issued as a fully
registered note substantially in the form attached hereto as
Exhibit B. The Trustee shall act as Note Registrar and shall
cause books for the registration and for the transfer of the Note
to be kept at its principal office. Upon surrender for transfer
of the Note at the Principal Office of the Trustee, endorsed for
transfer by the registered owner or accompanied by an assignment
executed by the registered owner or his authorized attorney, the
Trustee shall validate and deliver in the name of the transferee
a new Note which shall have been executed by the Company. The
person in whose name the Note is registered shall be deemed the
absolute owner thereof for all purposes, and references to the
holder of the Note shall mean the registered owner thereof. The
obligation of the Company to make any payment in respect of the
loan made hereunder shall be reduced by the amount of any
reduction under the Indenture of the corresponding payment to be
made by the Issuer thereunder, including any reduction due to
payments made by the Bank to the Trustee in respect of the
principal of premium, if any, or interest on the bonds when due
pursuant to the Letter of Credit.
(b) The Company shall pay or cause to be paid to the Tender
Agent as agent for the Trustee amounts equal to the amounts to be
paid to Owners of Bonds pursuant to Section 403 of the Indenture,
on the dates the purchase price of Bonds delivered to the Tender
Agent to be paid from the sources described in Section 403 of the
Indenture. The obligation of the Company to make the payments
required to be made under this Section 3.6 shall be reduced by
the amount of any moneys otherwise available for such payment,
including particularly, any payment made by the Bank to the
Trustee in respect of the purchase price of Bonds pursuant to the
Letter of Credit.
(c) The Company shall also pay when due (i) the reasonable
and necessary fees and expenses of the Trustee (including any
reasonable and necessary fees and expenses in its capacity as
Note Registrar) the Tender Agent and any paying agent for
services in connection with the Bonds as specified in Section 802
of the Indenture and (ii) the reasonable and necessary fees and
expenses of the Municipality, including reasonable attorneys'
fees, in connection with any default of the Company under this
Agreement or the Note.
(d) If the Company fails to make any of the payments
required in this Section 3.6 or in the Note, all unpaid items or
installments shall continue as an obligation of the Company until
fully paid, and the Company shall pay the same with interest
thereon (to the extent permitted by law) until paid at a per
annum rate of interest equal to the per annum rate then in effect
on the Bonds.
(e) All payments under this Section 3.6 other than with
respect to (b) above shall be made by the Company directly to the
Trustee or as directed by the Trustee in immediately available
funds and the Trustee shall deposit all such payments into the
Debt Service Fund, provided that payments under Section 3.6(c)
shall be made by the Company directly to the person entitled
thereto. The amount of any money in the Debt Service Fund which
is either proceeds from the sale of any Bonds or earnings on
investments made pursuant to the provisions of the Indenture
which has been set aside by the Trustee, at the request of the
Company, for payments of principal, whether at maturity or upon
redemption, of the Bonds shall be credited against the obligation
of the Company to pay the principal of the Note. The amount of
any money in the Debt Service Fund which is either proceeds from
the sale of any Bonds or earnings on investments made pursuant to
the provisions of the Indenture which has been set aside by the
Trustee for payments of interest on the Bonds shall be credited
against the obligation of the Company to pay interest on the
Note. The principal amount of any Bonds purchased by the Company
and delivered to the Trustee, or purchased by the Trustee and
cancelled, shall be credited against the obligation of the
Company to pay the principal of the Note.
(f) If on any principal or interest payment date the
balance in the Debt Service Fund is insufficient to make the
required payments of principal of and premium, if any, and
interest on the Bonds on that date, the Company upon notice shall
pay forthwith any deficiency to the Trustee.
(g) The Company shall not be obligated to make any further
payments under this Section 3.6, and the Company's liability to
make payments under this Section 3.6 shall cease, at any time
that the entire principal of and premium, if any, and interest on
the Bonds shall have been fully paid in accordance with their
terms and the provisions of Section 1101 of the Indenture
(including, without limitation, principal, interest to maturity
or earliest redemption date, as the case may be, expenses of
redemption premiums, and fees and expenses of the Municipality,
the Trustee, the Tender Agent, and any paying agent and any other
costs and fees required to be paid by the Company pursuant to
this Agreement), or at any time that there shall be in the Debt
Service Fund an amount sufficient to pay or redeem the Bonds in
accordance with the provisions of Section 1101 of the Indenture
(including, without limitation, principal, interest to maturity
or earliest redemption date, as the case may be, expenses of
redemption and redemption premiums, and fees and expenses of the
Municipality, the Trustee and any paying agent and any other
costs and fees required to be paid by the Company pursuant to
this Agreement) and all other requirements of Section 1101 of the
Indenture have been satisfied in full.
Section 3.7. Obligation of Company Unconditional. The
obligation of the Company to make the payments and to perform and
observe its other agreements pursuant to this Agreement and the
Note shall be absolute and unconditional and shall not be subject
to reduction or delay by set-off, counterclaim, abatement or
otherwise. Until such time as the principal of and premium, if
any, and interest on the Bonds shall have been fully paid or
provision for the payment thereof shall have been made in
accordance with Section 1101 of the Indenture (including, without
limitation, principal, interest to maturity or earliest
redemption date, as the case may be, expenses of redemption.
redemption premiums, and fees and expenses of the Municipality,
the Trustee, the Tender Agent, and any paying agent and any other
costs and fees required to be paid by the Company pursuant to
this Agreement), and all other requirements of Section 1101 of
the Indenture have been satisfied in full, the Company (a) shall
not suspend or discontinue any payments pursuant to this
Agreement or the Note, (b) shall perform and observe all its
other agreements contained in this Agreement and the Note, and
(c) except as provided in Article VII hereof, shall not terminate
this Agreement or the Note for any cause. Nothing contained in
this Agreement shall be construed to release the Municipality
from the performance of any of its obligations and in the event
the Municipality shall fail to perform any such agreement on its
part, the Company may institute such action against the
Municipality as the Company may deem necessary to compel
performance, provided that no such action shall (i) violate the
agreements on the part of the Company contained in the first
sentence of this Section 3.7 or (ii) diminish the amounts
required to be paid by the Company pursuant to Section 3.6
hereof.
Section 3.8. Letter of Credit and Alternate Letter of
Credit.
(a) From the date of issuance of the Bonds to and
including the fifth anniversary of the issuance of the Bonds or
the effective date of the Fixed Interest Rate, the Company shall
provide security for payment of the principal of and interest on
the Bonds and for payment of the purchase price of Bonds
delivered to the Tender Agent pursuant to Section 202(d) or
Section 503 of the Indenture by causing the Letter of Credit to
be delivered to the Trustee. The Company hereby authorizes and
directs the Trustee to draw moneys under the Letter of Credit, in
accordance with its terms and the terms of the Indenture, to the
extent necessary to pay the principal of, premium if any, and
interest on the Bonds when due and to pay the purchase price of
Bonds as provided in the Indenture.
(b) The Company may, at its election and with the
consent of the Bank provide for one or more extensions of the
Letter of Credit beyond its then stated date of expiration. At
any time prior to the Trustee's giving of notice of redemption of
Bonds pursuant to Section 202(e) of the Indenture, the Company
may provide for the delivery of an Alternate Letter of Credit
which must have a term of at least one year from its date of
delivery provided that the Company must furnish to the Trustee
written evidence from Moody's if the Bonds are rated by Moody's,
and S&P, if the Bonds are rated by S&P, to the effect that it has
reviewed such Alternate Letter of Credit and that its
substitution for the Letter of Credit then in effect will not, of
itself, result in a reduction or withdrawal of its ratings of the
Bonds from those which then prevail, accompanied by an opinion of
Bond Counsel that the delivery of such Alternate Letter of Credit
is permitted under the Indenture and this Agreement and will not
adversely affect the exemption from federal income taxation of
interest on the Bonds.
ARTICLE IV
Particular Covenants of the Company
Section 4.1. Consent to Assignment to Trustee. The
Company acknowledges and consents to the assignment of the Note
and of the Municipality's rights hereunder (except the right to
receive payment for its expenses, the right to receive
indemnities and rights relating to any amendments to this
Agreement) to the Trustee pursuant to the Indenture except as
otherwise provided herein, the Company shall pay to the Trustee
all amounts payable under this Agreement and the Note, and the
Company acknowledges that the Trustee may enforce the rights,
remedies and privileges granted to the Municipality hereunder.
Section 4.2. Payment of Expenses of Issuance of Bonds.
In addition to its payment obligations under Section 3.6 of this
Agreement, the Company shall pay for all the reasonable costs and
shall be liable and pay for any recording expenses, legal fees,
printing expenses and other fees and expenses reasonably incurred
or to be incurred by or on behalf of the Commission, the
Municipality and the Trustee in connection with or as an incident
to the issuance and sale of the Bonds or any amendment or
supplement to this Agreement or the Indenture.
Section 4.3. Company to Maintain its Existence:
Conditions Under Which Exceptions Permitted. The Company shall
during the term of this Agreement maintain its corporate
existence and will be duly qualified to transact business in the
State of Indiana and shall not voluntarily take, or omit to take,
any action that would cause the Company to be dissolved, nor
shall the Company sell, lease transfer or otherwise dispose of
all or substantially all of its assets or consolidate with or
merge into another corporation or permit one or more other
corporations to consolidate with or merge into it except that the
Company may consolidate with or merge into another corporation
incorporated and existing under the laws of the United States of
America or one of the states of the United States of America or
permit one or more other corporations to consolidate with or
merge into it or sell or otherwise transfer to another such other
corporation all or substantially all of its assets as an entirety
and may thereafter dissolve, provided, that immediately after
such action there is no default under the Note, this Agreement or
the Indenture, and further provided that if the Company is not
the surviving, resulting or transferee corporation ("the
Survivor"), the Survivor is (a) qualified to do bushiness in the
State of Indiana and (b) shall expressly assume and agree to
perform all of the Company's obligations under this Agreement,
the Note and the Indenture.
Section 4.4. Further Assurances and Corrective
Instruments. The Municipality and the Company shall execute and
deliver, or cause to be executed and delivered, such supplements
hereto and further instruments as may reasonably be required for
carrying out the intention of or facilitating the performance of
this Agreement.
Section 4.5. Covenants of Company with Respect to Use
of Bond Proceeds. The Municipality is issuing the Bonds pursuant
to an exemption contained in the Code. It is the intention of
the parties that the interest on the Bonds remain excludable from
gross income for purposes of federal income taxation and to that
end the Company covenants with the Municipality and with the
Trustee for the benefit of the future holders of the Bonds, that
it will never, insofar as it is able, permit Bond proceeds to be
expended or utilized in such a manner as to cause the loss of the
exclusion claimed other than as a result of previously
unanticipated capital expenditures.
Section 4.6. Indemnification of Municipality and
Trustee. The Company shall indemnify and hold the Municipality
and the Trustee harmless against any claim, loss, liability or
expense incurred without negligence or bad faith or willful
misconduct on the part of the Municipality or the Trustee arising
out of or in connection with this Agreement, the Note or the
Indenture, including reasonable attorneys' fees and the costs and
expense of defense against any such claim or liability.
Section 4.7. Reports, Certificates and Other
Information The Company shall furnish to the Trustee:
(a) Annual Statements. As soon as available and in any
event within one hundred twenty days after the close of each
fiscal year of the Company ending after the date of this
Agreement, copies of the consolidated balance sheet of the
Company, and consolidated statements of income and retained
earnings and statements of consolidated cash flows of the Company
for such fiscal year, each of which shall be reviewed by the
Company's independent public accountants and shall set forth in
comparative form the figures for the preceding fiscal year, all
in reasonable detail.
(b) Quarterly Statements. As soon as available, and in any
event within sixty days after the close of each calendar quarter
ending after the date of this Agreement (except the last quarter
of each fiscal year), copies of the consolidated balance sheet of
the Company as of the end of such quarter, and consolidated
statements of income and retained earnings and statements of
consolidated cash flows of the Company for the portion of the
fiscal year ended as of the end of such quarter. All such
statements may be prepared internally and shall be accompanied by
a certificate of an appropriate officer of the Company that such
financial statements have been prepared in material conformity
with generally accepted accounting principles consistently
applied (except for changes in which the independent accountants
for the Company concur), and present fairly the financial
position of the Company as of the dates of such statements.
(c) No Default Certificate. Concurrently with providing
such financial statements, a certificate of the President, a
Vice-President or the Chief Financial Officer of the Company that
after reasonable investigation he has no knowledge of the
occurrence of any event of default under this Agreement or the
Indenture (or of any event that with the lapse of time or the
giving of notice would constitute an event of default), or if
such officer shall have obtained knowledge of any such event of
default, he shall disclose the same in such certificate and the
nature thereof.
Section 4.8. Insurance. Subject to Article V of this
Agreement, the Company shall maintain such insurance as may be
required by law and such other, to such extent and against such
hazards and liabilities, as is customarily maintained by
companies similarly situated.
Section 4.9. Taxes and Liabilities. Subject to Article
V of this Agreement, the Company shall pay when due all taxes,
assessments and other liabilities including trade accounts,
except such as are being contested in good faith and by
appropriate proceedings and for which appropriate reserves have
been established and, as to trade accounts, subject to industry
practices.
Section 4.10. Company to Furnish Notice of Fixed
Interest Rate and Mandatory Redemption Dates. The Company agrees
that, upon the determination of a Fixed Interest Rate for the
Series 1989 Bonds pursuant to the Indenture, the Company shall
cause notice of (i) the specific mandatory redemption dates or
serial maturities of such Series 1989 Bonds and (ii) the Fixed
Interest Rate applicable to such Series 1989 Bonds, to be given
to the Issuer, the Trustee, the Paying Agent, if any, and the
Remarketing Agent in accordance with the Indenture
Section 4.ll. Notices of Adjustment Dates, Rate
Determination Dates, Rate Change Dates, Interest Payment Dates
and LOC Termination Tender Dates. The Company shall, or shall
cause the Remarketing Agent to, make the designations and give
the written notices to the Persons to whom the Company or the
Remarketing Agent are therein required to give notice, as
provided in Sections 202 and 209 of the Indenture. In addition,
the Company shall, if required, deliver to the Trustee the
opinions of Bond Counsel referred to in Sections 202 and 209 of
the Indenture.
ARTICLE V
Maintenance, Taxes and Insurance
Section 5.1. Maintenance and Modifications of Project
by Company. The Company shall, during the Agreement Term and at
its own expense (a) keep the Project and the Project Site in as
reasonably safe condition as its operations shall permit, and (b)
keep the Project in good repair and in good operating condition,
making from time to time all necessary repairs thereto (including
external and structural repairs) and renewals and replacements
thereof. Subject to the provisions of this Agreement and the
Indenture, the Company may, also at its own expense, make from
time to time any additions, modifications or improvements to the
Project, including specifically additions and expansions to the
Project, as it may deem desirable for its business purposes that
do not materially adversely affect the structural integrity of
the Project or substantially reduce its value.
Section 5.2. Taxes, Other Governmental Charges and
Utility Charges. The Company shall promptly pay, as the same
become due, all taxes and governmental charges of any kind
whatsoever that may at any time be lawfully assessed or levied
against or with respect to the Project or the Project Site, or
any interest therein or any machinery, equipment or other
property installed or bought by the Company therein or thereon
(including, without limiting the generality of the foregoing, any
taxes levied upon or with respect to the revenues, income or
profits of the Company from the Project which if not paid, will
become a lien on the Project or the Project Site prior to or on a
parity with the lien of the Indenture and including all ad
valorem taxes lawfully assessed upon the Project or the Project
Site), all utility and other charges incurred in the operation,
maintenance, use, occupancy and upkeep of the Project or the
Project Site and all assessments and charges lawfully made by any
governmental body for public improvements that may be secured by
lien on the Project or the Project Site.
The Company may, at its expense and in its own name and
behalf, in good faith contest by appropriate proceedings any such
taxes, assessments and other charges and, in the event of any
such contest, may permit the taxes, assessments or other charges
so contested to remain unpaid during the period of such contest
and any appeal therefrom, provided during such period enforcement
of any such contested item shall be effectively stayed and
appropriate reserves shall be established.
Section 5.3. Insurance Required The Company shall
insure or cause to be insured during the Agreement Term the
Project and the Project Site, against such risks as are
customarily insured against by businesses of like size and type,
paying as the same become due all premiums in respect thereto,
including but not necessarily limited to comprehensive general
public liability insurance to the extent of $1,000,000 per
occurrence against liability for bodily injury, including death
resulting therefrom, and damage to property including loss of use
thereof occurring on or in any way related to the Project or the
Project Site or any part thereof and worker's compensation and
occupational disease coverage as required by the laws of the
State of Indiana.
Section 5.4. Application of Net Proceeds of Insurance.
The Net Proceeds of the insurance carried pursuant to the
provisions of Section 5.3 hereof shall be paid and applied as
provided in Section 6.1 hereof.
Section 5.5. Additional Provision Respecting Insurance.
All insurance required in Section 5.3 hereof shall be taken out
and maintained in generally recognized responsible insurance
companies selected by the Company and qualified to do business in
the State of Indiana. All policies evidencing such insurance
shall provide for payment to the Company.
A certificate, or certificates, of the insurers that
such insurance is in force and effect, together with copies of
the insurance policies, shall be deposited promptly with the
Trustee upon request and, prior to the expiration of any such
policy, the Company shall furnish the Trustee upon request with
evidence satisfactory to the Trustee that the policy has been
renewed or replaced, or is no longer required by this Agreement.
The insurance herein required may be contained in blanket
policies now or hereafter maintained by the Company.
ARTICLE VI
Damage, Destruction and Condemnation
Section 6.1. Damage and Destruction. Unless the
Company shall have exercised its option to prepay the Note in
full pursuant to the provisions of Section 7.4 hereof, if prior
to full payment of the Bonds (or provision for payment thereof
having been made in accordance with the provisions of the
Indenture) the Project is destroyed (in whole or in part) or is
damaged by fire or other casualty, the Company (a) shall promptly
repair, rebuild or restore the property damaged or destroyed to
substantially the same condition as it existed prior to the event
causing such damage or destruction, with such changes,
alterations and modifications (including the substitution and
addition of other property) as may be desired by the Company and
as will not impair operating unity or productive capacity or the
character of the Project, and (b) shall apply for such purpose so
much as may be necessary of any Net Proceeds of insurance
resulting from such claims for losses, as well as any additional
moneys of the Company necessary therefor.
Section 6.2 Condemnation. Unless the Company shall
have exercised its option to prepay the Note in full pursuant to
the provisions of Section 7.4 hereof, in the event that title to,
or the temporary use of, the Project or the Project Site or any
part thereof shall be taken under the exercise of the power of
eminent domain by any governmental body or by any person, firm or
corporation acting under governmental authority, the Company
shall be obligated to continue to make payments on the Note and
all other payments specified herein. The Company and the Trustee
shall cause the Net Proceeds received by them or either of them
from any award made in such eminent domain proceedings to be paid
to and held by the Trustee in a separate trust account, and to be
applied, at the option of the Company, in one or more of the
following ways as shall be directed in writing by the Company:
(a) The prompt repair, restoration, relocation,
modification or improvement of the Project and the Project Site,
to substantially the same condition as existed prior to the
exercise of said power of eminent domain, or
(b) Redemption of the Bonds pursuant to Section 7.4 hereof.
Unless the Company shall have exercised its option to
prepay the Note in full pursuant to the provisions of Section 7.4
hereof within the time period set forth therein, the condemnation
award should be applied as provided in (a) above.
ARTICLE VII
Prepayment of Note
Section 7.1. Optional Prepayment of Note. Prior to the
Conversion Date and so long as the Bonds are in a Short Period
(as defined in the Indenture), the Company may, at its option,
prepay the Note in whole or in part (but in whole multiples of
$100,000) at any time by paying to the Trustee a sum sufficient,
together with other funds in the Debt Service Fund and available
for that purpose, to pay (a) the principal of, and interest on
that portion of the Bonds then outstanding to be redeemed, and
(b) all reasonable and necessary fees and expenses of the
Trustee, the Tender Agent, the Remarketing Agent, and any paying
agent accrued and to accrue through the redemption date. After
the Conversion Date or at any time prior thereto when the Bonds
are in an Adjustment Period other than a Short Period (as defined
in the Indenture), the Company may prepay the loan made
hereunder, in whole or in part on any Interest Payment Date, upon
45 days' written notice to the Trustee, in a principal amount
equal to 100% of the principal amount of Bonds to be redeemed on
such Interest Payment Date, plus a premium on such principal
amount equal to the premium to be paid in connection with the
redemption of the Bonds as provided in Section 501(A)(2) of the
Indenture plus accrued interest to the redemption date.
Section 7.2. Mandatory Prepayment of Note in the Event
of a Determination of Taxability. The Company shall prepay the
amounts due under this Agreement and the Note in whole prior to
the expiration of this Agreement and prior to the full payment
(or provision for full payment) of the Bonds on the earliest
practicable date (selected by the Trustee) within one hundred
eighty (180) days following a Determination of Taxability (as
defined in the Indenture).
In the event of an obligation to prepay under this
Section 7.2, the Company shall pay to the Trustee a sum
sufficient, together with other funds deposited into the Debt
Service Fund and available for the purpose, to pay the principal
and interest on the principal of all the Bonds then outstanding
and all reasonable and necessary fees and expenses of the Trustee
and any paying agent accrued and to accrue through final payment
of the Bonds.
Section 7.3. Purchase of Bonds. The Company may at any
time, and from time to time, furnish moneys to the Trustee
accompanied by a notice directing such moneys to be provided to
the Tender Agent to be applied, at such time as they constitute
Eligible Moneys, to the purchase of Bonds delivered pursuant to
Section 202(d) or 503 of the Indenture, which Bonds shall, at the
direction of the Company, be delivered to the Trustee for
cancellation.
Section 7.4. Extraordinary Event Prepayment of the
Note. The Company may, at its option, prepay the Note in whole
but not in part, without redemption premium, within one year
following the occurrence of any of the events specified in
Article VI of this Agreement by paying the Trustee a sum
sufficient, together with other funds in the Debt Service Fund
and available for that purpose, to pay (a) the principal of and
interest upon all of the Bonds5 then outstanding, and (b) all
reasonable and necessary fees and expenses of the Trustee and the
paying agent accrued and to accrue through the redemption date.
Section 7.5. Notice of Prepayment. To exercise
prepayment under this Article VII, the Company shall give written
notice to the Trustee at the time specified in the Indenture.
ARTICLE VIII
Events of Default and Remedies
Section 8.1. Events of Default. The occurrence and
continuance of any of the following events shall constitute an
"event of default" hereunder:
(a) Default in the due and punctual payment of any
installment of principal of (whether at stated maturity, upon
required prepayment, acceleration or otherwise) or any payment of
interest or redemption premium on the Note;
(b) Failure by the Company to pay the Tender Price with
respect to the purchase price of the Bonds on the date such
purchase price is to be paid;
(c) The dissolution or liquidation of the Company unless
such dissolution or liquidation is permitted by this Agreement;
(d) Failure by the Company to observe and perform any
covenant, condition or agreement in this Agreement on its part to
be observed or performed excluding, however, any covenant,
condition or agreement that, it not observed, would result in an
event of default as described in Section 8.1 (a), (b) or (c) for
a period of thirty days after written notice, specifying the
failure and requesting that it be remedied, given to the Company
by the Trustee, unless the Trustee agrees in writing to an
extension of the time prior to its expiration; provided, however,
that with respect to this clause (d),if such failure of
performance shall be such that it cannot be corrected within such
period, it shall not constitute an event of default during the 90
day period beginning 31 days after the delivery of the above
described notice (but shall, if not corrected, constitute an
Event of Default thereafter) if: (i) such failure of performance,
in the reasonable opinion of the Trustee, is correctable without
material adverse effect on the Bonds (ii) corrective action is
instituted by or on behalf of the Company within such period and
(iii) such corrective action is diligently pursued until such
failure of performance is corrected. The Trustee may request
(and may rely upon) from the Company or the Municipality a
certificate to the effect that the Company or the Municipality
has instituted corrective action and will diligently pursue such
action and believes that its failure of performance can be
corrected through such action.
(e) A decree or order shall have been entered by a court of
competent jurisdiction constituting an order for relief under the
Bankruptcy Code or adjudging the Company insolvent or approving
as properly filed a petition seeking reorganization of the
Company under the Bankruptcy Code or any other federal or state
law relating to bankruptcy or insolvency or appointing a receiver
or decreeing or ordering the winding up or liquidation of the
affairs of the Company or the sequestration of a substantial part
of the property of the Company, and any such decree or order
shall remain in force undischarged and unstayed for period of
ninety days.
(f) The Company shall file a petition seeking relief under
the bankruptcy Code or shall suffer the imposition of an order
thereunder or shall institute or consent to the institution of
bankruptcy or insolvency proceedings against it or shall file a
petition or answer or consent seeking reorganization or relief
(other than as a creditor) under the Bankruptcy Code or any other
federal or state law relating to bankruptcy or insolvency or
shall consent to the filing of any such petition or shall consent
to the appointment of a receiver or shall make an assignment for
the benefit of creditors or shall admit in writing its inability
to pay its debts generally as they become due or shall fail to
pay its debts generally as they become due, or action shall be
taken by the Company in furtherance of any of the aforesaid
purposes.
(g) If the Trustee receives notice from the Bank on or
before the date or dates specified in the Letter of Credit or
Alternate Letter of Credit following a drawing on the Letter of
Credit or Alternate Letter of Credit for interest that it will
not reinstate to the stated amount of its Letter of Credit or
Alternate Letter of Credit an amount to cover such Interest.
(h) Receipt of Written Notice from the Bank that an event
of default as defined in the Reimbursement Agreement has occurred
and that the Letter of Credit or Alternate Letter of Credit, as
the case may be, will expire not less than 30 days after such
notice.
Section 8.2. Remedies on Default. Whenever any Event
of Default referred to in Section 8.1 shall have happened and be
continuing, the Trustee:
(a) Shall to the extent that the Indenture so requires or
permits, declare the Note and all amounts payable thereunder,
whether by acceleration of maturity or otherwise, to be
immediately due and payable.
(b) The Trustee may take whatever action may appear
necessary or desirable to collect the amounts due and to become
due under this Agreement and the Note, or to enforce performance
and observance of any obligation, agreement or covenant of the
Company under this Agreement and the Note.
Section 8.3. Application of Moneys. All moneys collected
by the Trustee under Section 8.2 shall be applied as follows:
FIRST: To pay any sums required to be paid by the Company
pursuant to this Agreement, the Note, the Indenture or the Bonds
other than principal, premium and interest on the Note or the
Bonds, including specifically any amounts required to be paid to
the United States of America pursuant to Section 148(f) of the
Code.
SECOND: To pay the whole amount then due, owing and unpaid
upon the Note for principal, premium, if any, and interest in
accordance with Section 705 of the Indenture. Payment shall be
made upon presentation of the Note and the notation on the Note
of the payment, if partially paid, or the surrender and
cancellation of the Note, if fully paid.
THIRD: To pay the Company, its successors or assigns, upon
the written request of the Company or to whosoever maybe lawfully
entitled to receive the same upon its written request, or as any
court of competent jurisdiction may direct.
Section 8.4. Remedies Cumulative. No remedy granted by
this Agreement is intended to be exclusive of any other remedy.
All available remedies shall be cumulative.
Section 8.5. Delay or Omission Not a Waiver. No delay
or omission of the Trustee to exercise any right or power
accruing upon any Event of Default shall impair the right or
power, or shall be construed to be a waiver of the Event of
Default or an acquiescence therein. Every power and remedy may
be exercised as often as the Trustee deems expedient.
Section 8.6. Remedies Subject to Provisions of Law.
All rights, remedies and powers provided by this Article may be
exercised only to the extent that their exercise does not violate
any applicable provision of law. All the provisions of this
Article are intended to be subject to all applicable mandatory
provisions of law which may be controlling and to be limited to
the extent necessary so that they will not render this Agreement
invalid or unenforceable under the provisions of any applicable
law.
ARTICLE IX
Supplements and Amendments to this Agreement
Section 9.1. Supplements and Amendments to this
Agreement. Reference is made to Article X of the Indenture.
ARTICLE X
Miscellaneous
Section 10.1. Binding Effect This Agreement shall
inure to the benefit of and shall be binding upon the
Municipality, the Company and their respective successors and
assigns.
Section 10.2. Severability. In the event any provision
of this Agreement shall be held invalid or unenforceable by any
court of competent Jurisdiction, that holding shall not
invalidate or render unenforceable any other provisions hereof.
Section 10.3. Amounts Remaining in Debt Service Fund.
Any amounts remaining in the Debt Service Fund upon expiration or
termination of this Agreement in accordance with the Indenture
shall belong to and be paid to the Company by the Trustee.
Section 10.4. Amendments, Changes and Modifications.
After the Bonds are issued and before they are paid in full (or
provision for payment in fu11 is made), this Agreement may not be
amended, assigned or terminated without the written consent of
the Trustee.
Section 10.5. Execution in Counterparts. This
Agreement may be executed in several counterparts, each of which
shall be an original.
Section 10.6. Notices. All notices, certificates,
payments or other communications hereunder shall be sufficiently
given and shall be deemed given when delivered or mailed by
registered or certified mail, postage prepaid, or overnight
express mail addressed as follows: if to the Municipality, at
the City Building, Logansport, Indiana 46947, Attention of its
Clerk-Treasurer; if to the Company, at 1111 Samuelson Road, P.O.
Box 7009, Rockford, Illinois 61125. Attention of its Chief
Financial Officer with a copy to the attention of its President;
or to such other address as may hereafter be furnished by notice.
Section l0.7. References to Bonds Ineffective After
Bonds are Paid. Upon payment in full of the Bonds (or provision
for payment thereof having been made in accordance with the
provisions of the Indenture) and payment of all fees and charges
of the Municipality, Trustee, Tender Agent, and any paying agent,
all references in this Agreement to the Bonds and the Trustee
shall be ineffective and neither the Trustee nor the holders of
the Bonds shall thereafter have any rights hereunder, except
those that shall have theretofore vested.
Section 10.8. Agreement for Benefit of Parties Hereto.
Nothing in this Agreement, express or implied, is intended to
give to any person other than the parties hereto and the holder
of the Note, any right, remedy or claim under or by reason of
this Agreement.
Section 10.9. Waiver. No waiver of any of the
provisions of this Agreement shall be effective and binding
unless set forth in a written notice and no waiver of one
provision shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver or a waiver of such
provision in any other instance.
Section 10.10. Captions and Table of Contents. The
captions herein and the Table of Contents are inserted only as a
matter of convenience and do not in any way define, limit,
construe or describe the scope or intent of this Agreement or any
section thereof or in any other way effect this Agreement.
Section 10.11. Survival of Covenants, Representations
and Warranties. All covenants, representations and warranties
made by the Company and the Municipality contained herein or in
any other document, certificate or instrument delivered in
connection with the sale of any of the Bonds shall be continuing
and shall survive delivery of the Bonds and the other
transactions contemplated by this Agreement and the Indenture.
Section 10.12. Applicable Law. This Agreement shall
be governed by and construed in accordance with the Laws of the
State of Indiana.
Section 10.11. Holidays. Where a date of payment on
the Note is not a Business Day, then payment may be made on the
first Business Day thereafter.
IN WITNESS WHEREOF, the Municipality and the Company
have caused this Agreement to be executed all as of the date
first above written.
CITY OF LOGANSPORT, INDIANA
By: John R. Davis
John R. Davis, Mayor
(SEAL)
ATTEST:
Mary Lynn Barnard
Mary Lynn Barnard, Clerk-Treasurer
ELCO INDUSTRIES, INC.
By: August F. DeLuca
August F. DeLuca, Chief Financial
Officer
ATTEST:
Kenneth L. Heal
Kenneth L. Heal, Secretary
<PAGE>
EXHIBIT A
(Description of the Project)
The Project is the acquisition of and installation of
the following machinery and equipment at the Company's existing
manufacturing facility that is located within the boundaries of
the Issuer:
Description Estimated Cost
Heat treat furnace and
related equipment $1,000,000
Multi-slide forming machine 1,000,000
Presses 300,000
CNC machinery centers 150,000
Wire EDM machine 200,000
Custom design secondary
operations machines 350,000
Total $3,000,000
<PAGE>
EXHIBIT B
(Form of Note)
ELCO INDUSTRIES, INC.
PROMISSORY NOTE
FOR VALUE RECEIVED, Elco Industries, Inc. (the
"Company"), a Delaware Corporation, promises to pay to The City
of Logansport, Indiana, or registered assigns, on or before 2
o'clock p.m. (Logansport time) (a) on October 1, 2003,a sum
which, together with other moneys available therefor in the Debt
Service Fund under the Trust Indenture (the "Indenture") dated as
of December 1, 1989, between the City of Logansport, Indiana (the
"Municipality"), and INB National Bank, as trustee (the
"Trustee"), will equal the principal amount of the Bonds defined
below) which becomes due on that date; (b) on the first business
day of each month commencing January 2, 1990, a sum which,
together with other moneys available therefor in the Debt Service
Fund under the Indenture, will equal the interest which becomes
due on the Bonds outstanding on that date; (c) on the dates fixed
for redemption or tender of the Bonds in whole or in part, the
principal of and premium, if any, and interest on the Bonds to be
redeemed to the date fixed for redemption; and (d) immediately
upon a declaration of acceleration of the maturity of the Bonds
by the Trustee, the principal, interest and premium, if any, to
the date of declaration of acceleration.
All payments of principal, premium, if any, and interest
are to be made directly to the Trustee (or subsequent registered
owner) for the account of the Municipality in immediately
available funds. This Note is security for the payment of the
Municipality's Economic Development Revenue Bonds, (Elco
Industries, Inc., Project) issued pursuant to the Indenture (the
"Bonds"). All of the terms, conditions, and provisions of the
Indenture are incorporated into this Note by reference.
This Note is issued pursuant to the Loan Agreement (the
"Agreement") dated as of December 1, 1989, between the
Municipality and the Company and is entitled to the benefits, and
is subject to the conditions, thereof. The obligation of the
Company to make the payments required under this Note is absolute
and unconditional without any defense or right of setoff,
counterclaim or recoupment by reason of any default by the
Municipality under the Agreement or under any other agreement
between the Company and the Municipality or out of any
indebtedness or liability at any time owing to the Company by the
Municipality or for any other reason.
This Note is subject to prepayment under the terms and
conditions, and in the amounts, provided in Article VII of the
Agreement.
This Note is transferable only upon the books of the
Trustee kept for that purpose at its principal office in its
capacity as Note Registrar, upon surrender for transfer of this
Note at the principal office of the Trustee, endorsed for
transfer by the registered owner or accompanied by an assignment
executed by the registered owner or his authorized attorney.
Upon such surrender for transfer, the Trustee shall validate and
deliver in the name of the transferee a new Note which shall have
been executed by the Company.
If the Company fails to make any of the payments under
this Note, the amount unpaid shall continue as an obligation of
the Company until fully paid and shall bear interest(to the
extent permitted by law) until paid at a per annum rate of
interest equal to the per annum rate then in effect on the Bonds.
If an "Event of Default" occurs under Section 8.1 of the
Agreement, the principal of this Note may be declared due and
payable as provided in, Article VIII of the Agreement.
Where a date of payment is not a business day in the City
of Indianapolis, Indiana, Rockford, Illinois, Chicago, Illinois,
or New York, New York. then payment may be made on the first
business day thereafter.
All amounts payable under the terms of this Note are
payable without relief from valuation and appraisement laws and
with attorneys' fees. The maker and any endorsers waive demand,
presentment for payment, protest, notice of protest and notice of
non-payment or dishonor and consent to any and all extensions of
time for payment without notice.
All terms used in this Note which are defined in the
Agreement and not in this Note shall have the meanings assigned
to them in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Note to
be executed and delivered this _ day of December, 1989.
ELCO INDUSTRIES. INC.
By: August F. DeLuca
August F. DeLuca, Chief Financial
Officer
ATTEST:
Kenneth L. Heal
Kenneth L. Heal, Secretary
<PAGE>
LOAN AGREEMENT
THERMOPLASTICS, INC.
AND
CITY OF MISHAWAKA, INDIANA
DATED AS OF DECEMBER 1, 1989
The rights of the City of Mishawaka, Indiana, under this Agreement
(except the
right to receive payment for its expenses, the right to receive
indemnities, and
rights relating to the amendment of this Agreement) have been
assigned to INB
National Bank, Indianapolis, Indiana, as Trustee under a Trust
Indenture dated
as of the date of this Agreement, between the City and the Trustee.
<PAGE>
TABLE OF CONTENTS
Section Page
RECITALS................................... .................
1
AGREEMENT.......................................................
1
ARTICLE I
Definitions and Exhibits
1.1. Terms Defined..............................................
2
1.2. Rules of Interpretation....................................
3
1.3. Exhibits...................................................
4
ARTICLE II
The Loan and The Project
2.1. Municipality's Representations, Warranties and Covenants...
4
2.2. Company's Representations, Warranties and Covenants........
4
2.3. The Project................................................
7
ARTICLE III
The Bonds, Use of Proceeds, The Note
3.1. Agreement to Issue Bonds...................................
7
3.2. Disbursements from Construction Fund.......................
8
3.3. Company is Required to Pay in the Event Construction Fund
is Insufficient............................................
8
3.4. Investment of Construction Fund and Bond Fund Moneys.......
8
3.5. Covenants with Respect to Arbitrage........................
9
3.6. Loan Payments and Other Amounts Payable....................
9
3.7. Obligation of Company Unconditional........................
11
3.8. Letter of Credit and Alternate Letter of Credit............
12
ARTICLE IV
Particular Covenants of the Company
4.1. Consent to Assignment to Trustee...........................
12
4.2. Payment of Expenses of Issuance of Bonds...................
12
4.3. Company to Maintain its Existence; Conditions Under
Which Exceptions Permitted.................................
13
4.4. Further Assurances and Corrective Instruments..............
13
4.5. Covenants of Company with Respect to Use of Bond Proceeds..
13
4.6. Indemnification of Municipality and Trustee................
13
4.7. Certificate of No Default..................................
13
4.8. Insurance..................................................
14
4.9. Taxes and Liabilities......................................
14
4.10 Company to Furnish Notice of Fixed Interest Rate and
Mandatory Redemption Dates.................................
14
4.11. Notice of Adjustment Dates, Rate Determination Dates,
Rate Change Dates, Interest Payment Dates and LOC
Termination Tender Dates...................................
14
ARTICLE V
Maintenance, Taxes and Insurance
5.1. Maintenance and Modifications of Project by Company.........
14
5.2. Taxes, Other Governmental Charges and Utility Charges.......
14
5.3. Insurance Required..........................................
15
5.4. Application of Net Proceeds of Insurance....................
15
5.5. Additional Provision Respecting Insurance...................
15
ARTICLE VI
Damage, Destruction and Condemnation
6.1. Damage and Destruction......................................
16
6.2. Condemnation................................................
16
ARTICLE VII
Prepayment of Note
7.1. Optional Prepayment of Note.................................
16
7.2. Mandatory Prepayment of Note in the Event of a
Determination of Taxability.................................
17
7.3. Purchase of Bonds...........................................
17
7.4. Extraordinary Event Prepayment of the Note..................
17
7.5. Notice of Prepayment........................................
17
ARTICLE VIII
Events of Default and Remedies
8.1. Events of Default...........................................
18
8.2. Remedies on Default.........................................
19
8.3. Application of Moneys.......................................
19
8.4. Remedies Cumulative.........................................
20
8.5. Delay or Omission Not a Waiver..............................
20
8.6. Remedies Subject to Provisions of Law.......................
20
ARTICLE IX
Supplements and Amendments to this Agreement
9.1. Supplements and Amendments to this Agreement................
20
ARTICLE X
Miscellaneous
10.1. Binding Effect.............................................
20
10.2. Severability...............................................
20
10.3. Amounts Remaining in Bond Fund.............................
20
10.4. Amendments, Changes and Modifications......................
20
10.5. Execution in Counterparts..................................
21
10.6. Notices....................................................
21
10.7. References to Bonds Ineffective After Bonds are Paid.......
21
10.8. Agreement for Benefit of Parties Hereto....................
21
10.9. Waiver.....................................................
21
10.10 Captions and Table of Contents.............................
21
10.11 Survival of Covenants, Representations and warranties......
21
10.12 Applicable Law.............................................
22
10.13 Holidays...................................................
22
EXHIBIT A: Description of Project
EXHIBIT B: Form of Note
LOAN AGREEMENT
This LOAN AGREEMENT has been executed as of December 1, 1989, by
and between
THERMOPLASTICS, INC., an Indiana corporation (the "Company"), and
the CITY OF
MISHAWAKA, INDIANA (the "Municipality").
RECITALS
1. Definitions of certain of the terms used in these Recitals are
set out in
Article I hereof and Article I of the Indenture.
2. The Company is pursuing the acquisition, construction,
installation and
equipping of the Project which is to be located on the Project
Site.
3. To finance a portion of the costs of the Project, the Company is
borrowing
from the Municipality funds derived from the sale of the Bonds, and
the Company,
as evidence of its obligation to repay the funds, is issuing to the
Municipality
its Note.
4. Pursuant to IC 36-7-11.9 and IC 36-7-12, the Municipality is
obtaining funds
to loan to the Company through the sale of $3,500,000 aggregate
principal amount
of City of Mishawaka, Indiana Economic Development Revenue Bonds,
Series 1989
(Elco Industries, Inc./Thermoplastics, Inc. Project).
5. Pursuant to a Trust Indenture dated as of the date of this
Agreement, between
the Municipality and INB National Bank, Indianapolis, Indiana, as
Trustee, the
Municipality will issue the Bonds and, as security for the payment
of the Bonds
and the performance of the obligations of the Municipality and the
Company under
the Indenture and the Note, the Municipality will assign the Note
and its rights
under this Agreement (except the right to receive payment for its
expenses, the
right to receive indemnities and rights relating to any amendments
to this
Agreement) to the Trustee and the Company will cause to be issued
to the Trustee
an irrevocable direct pay letter of credit of The Mitsui Bank,
Limited, dated
December 14, 1989. The Bonds will be payable solely out of the
revenues and other
amounts derived from the Note and under this Agreement and from the
Letter of
Credit and shall not, in any respect, be a general obligation of,
an indebtedness
of, or constitute a charge against the general credit of the
Municipality, the
State of Indiana, or any political subdivision thereof.
AGREEMENT
In consideration of the premises and the mutual covenants contained
herein, the
Company and the Municipality agree as follows:
ARTICLE I
Definitions and Exhibits
Section 1.1. Terms Defined. As used in this Agreement, the
following terms shall
have the following meanings unless the context otherwise requires:
"Act" means IC 36-7-11.9 and IC 36-7-12, as from time to time
amended.
"Agreement" means this Loan Agreement and any amendment and
supplement thereto.
"Agreement Term" means the period commencing on the date of this
Agreement and,
subject to the provisions of this Agreement, ending on such date as
the Bonds
have been fully paid and retired or provision for such payment made
as provided
in the Indenture.
"Authorized Company Representative" means any officer designated to
act on behalf
of the Company by written certificate furnished to the Municipality
and the
Trustee containing the specimen signature of the person and signed
on behalf of
the Company by its President, any of its Vice Presidents, its Chief
Financial
Officer, its Secretary or any of its Assistant Secretaries.
The certificate may designate an alternate or alternates. The
Authorized Company
Representative may be an employee of the Company.
"Bonds" means the $3,500,000 aggregate principal amount of the City
of Mishawaka,
Indiana Economic Development Mortgage Revenue Bonds, Series 1989
(Elco
Industries, Inc./Thermoplastics, Inc. Project).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Mishawaka Economic Development Commission,
a development
commission created by the Municipality pursuant to the Act.
"Company" means Thermoplastics, Inc., an Indiana corporation, and
its successors
and assigns.
"Counsel" means an attorney-at-law (who may be counsel to the
Trustee, the
Municipality or the Company).
"Debt Service Fund" means the fund created in Section 402 of the
Indenture.
"Indenture" means the Trust Indenture, dated as of the date of this
Agreement,
between the Municipality and INB National Bank, Indianapolis,
Indiana, as
Trustee, relating to the Bonds, and any indenture supplemental
thereto.
"Letter of Credit" means the irrevocable direct pay letter of
credit of The
Mitsui Bank, Limited dated December 14, 1989 issued to the Trustee
for the
benefit of the bondholders under a Reimbursement Agreement among
said Bank, the
Trustee and the Company dated as of December 1, 1989.
"Loan" means the $3,500,000 loan in principal amount by the
Municipality to the
Company of the proceeds from the sale of the Bonds.
"Municipality" or "Issuer" means the City of Mishawaka, Indiana,
and any
successor.
"Net Proceeds" means, when used with respect to any insurance
proceeds or any
condemnation award, the amount remaining after deducting all
expenses (including
attorneys' fees) incurred in the collection of such proceeds or
award from the
gross proceeds thereof.
"Note" or "Promissory Note" means the Note of the Company in
substantially the
form of Exhibit B hereto and any Note issued in exchange therefor.
"Project" means the expansion of and the acquisition, construction,
and equipping
of certain economic development facilities, all as set forth on
Exhibit A
attached hereto.
"Project Cost" means and includes all those costs related to the
Project which
are permitted to be financed under the Code, the Act, this
Agreement and the
Indenture and which do not result in a loss of the exclusion from
gross income
for federal income tax purposes of the interest on the
Bonds under the Code.
"Project Fund" means the fund created in Section 302 of the
Indenture.
"Reimbursement Agreement" means the Reimbursement Agreement between
the Company
and The Mitsui Bank, Limited dated as of December 1, 1989, under
which the Letter
of Credit will be issued.
"Trustee" means the trustee at the time serving under the
Indenture.
Section 1.2. Rules of Interpretation. For all purposes of this
Agreement, except
as otherwise expressly provided or unless the context otherwise
requires:
(a) "This Agreement" means this instrument as originally executed
and as it may
from time to time be supplemented or amended.
(b) The words "herein," "hereof" and "hereunder" and other words of
similar
import refer to this Agreement as a whole and not to any particular
Article,
Section or other subdivision.
(c) The terms defined in this Article have the meanings assigned to
them in this
Article and include the plural as well as the singular.
(d) All accounting terms not otherwise defined herein have the
meanings assigned
to them in accordance with generally accepted accounting
principles.
(e) Any terms not defined herein but defined in the Indenture shall
have the same
meaning herein.
(f) The terms defined elsewhere in this Agreement shall have the
meanings therein
prescribed for them.
Section 1.3. Exhibits. The following Exhibits are a part of this
Agreement:
Exhibit A: Description of the Project.
Exhibit B: Form of Note, form of Note Registrar's Certificate of
Validation and
form of Assignment.
ARTICLE II
The Loan and The Project
Section 2.1. Municipality's Representations. Warranties and
Covenants.
(a) The Municipality represents and warrants that:
(i) The Municipality is a duly organized and existing municipal
corporation and
political subdivision of the State of Indiana, with full power and
authority
under the Act to enter into the transactions contemplated by this
Agreement and
to carry out its obligations hereunder.
(ii) The Municipality has duly authorized the issuance, execution
and delivery
of the Bonds and the execution and delivery of this Agreement.
(b) The Municipality covenants that:
(i) The Municipality shall not take any action to interfere with
any obligation
it may have with respect to the Bonds, the proceedings authorizing
the Bonds or
this Agreement.
(ii) The Municipality shall provide funds from the proceeds from
the sale of the
Bonds for the financing of a portion of the costs of the Project,
and shall
secure the payment of the Bonds by assigning this Agreement (except
the right to
receive payment for its expenses, the right to receive indemnities
and rights
relating to any amendment of this Agreement) and the Note to the
Trustee pursuant to the Indenture.
Section 2.2. Company's Representations. Warranties and Covenants.
The Company
makes the following representations and warranties (all as of the
date on which
this Agreement has been executed) and in addition, makes the
following covenants:
(a) It is a duly organized and validly existing corporation in good
standing
under the laws of the State of Indiana and is duly qualified to
transact business
in Indiana, has the power and authority to own its properties and
assets and to
carry on its business as now being conducted and as now
contemplated, and has
full power and authority to issue the Note and to execute and
deliver this
Agreement, the Reimbursement Agreement and all other agreements
contemplated by
this Agreement to which the Company is a party; all actions
necessary for the
execution and delivery of the Note, this Agreement and the
Indenture have been
taken; and the Note will be a valid and binding obligation of the
Company.
(b) The execution, delivery and performance of this Agreement, the
Note and the
Reimbursement Agreement will not conflict with or result in a
breach of, or a
default under, the Company's Articles of Incorporation, By-Laws, or
any material
agreement or instrument to which the Company is a party or by which
it is bound
(excepting, however such agreements or instruments with respect to
which the
Company has been required to and has obtained waivers or consents)
or result in
the creation or imposition of any lien, charge or encumbrance upon
any of the
property or assets of the Company, except for the lien of the
Indenture and
liens, charges or encumbrances in favor of The Mitsui Bank, Limited
to secure the
obligations of the Company under the Reimbursement Agreement.
(c) At least 95% of the proceeds from the Bonds (including any
income earned on
the investment of such proceeds) will be used for the acquisition
of land,
construction of an addition to and expansion of the Company's
existing
manufacturing facility and the acquisition and installation of
machinery and
equipment for the Project. No more than 2% of the proceeds of the
Bonds will
be used for the costs of issuance of the Bonds, including any
broker's,
underwriter's or placement agent's discount or other compensation.
Costs of
issuance paid from the Bond proceeds together with any other
expenditures which
are not described in the first sentence of this subsection will be
not more than
5% of the proceeds of the Bonds. No part of the proceeds are to be
used by the
Company, directly or indirectly, as working capital or to finance
inventory.
(d) The Project and all components thereof (other than land) will
consist of
property of a character subject to the allowance for depreciation
under the Code.
(e) The indication of interest by the Issuer on the date of
adoption of the
inducement resolution to issue its Bonds and lend the proceeds to
the Company for
the purposes set forth herein has encouraged the Company to acquire
and construct
the Project, and will promote diversification of economic
development and create
new or preserve existing job opportunities in the area. The
Project, or any
components thereof which is to be paid for out of the proceeds of
the Bonds, had
not been acquired, constructed, equipped, furnished or
rehabilitated by the
Company prior to the adoption of the inducement resolution of the
Common Council
of the Issuer with respect to the Project.
(f) The sum of the following does not exceed $10,000,000:
(i) the aggregate face amount of any outstanding issues of
obligations (other
than the Bonds) exempt from taxation under Sections 103 and 144 of
the Code, the
proceeds from which were or will be used primarily with respect to
the Project
or other facilities (a) located within the County of Cass (but not
in any
incorporated municipality) or within the Municipality and (b) the
principal user
of which is or will be the Company or any other principal user of
the Project or
related person or persons within the meaning of Section 144 of the
Code;
(ii) the aggregate principal amount of the Bonds; and
(iii) the sum of all capital expenditures (within the meaning of
Section 144(a)
of the Code (and, pursuant to said section, specifically excluding
capital
expenditures made from the proceeds of bonds described in paragraph
(i) and (ii)
above)) relating to the facilities described in subsection (i) and
made during
the period beginning three years prior to the date on which the
Bonds are
issued and ending on the date on which the Bonds are issued.
(g) The "average maturity" of the Bonds (taking into account their
issue prices)
does not exceed 120% of the "average reasonably expected economic
life" of the
facilities to be financed with the proceeds of the Bonds (taking
into account the
respective cost of such facilities), all as determined in
accordance with the
provisions of Section 147(b) of the Code.
(h) No portion of the proceeds of the Bonds will be used to provide
any facility
the primary purpose of which is retail food and beverage service,
automobile
sales or services, or the provision of recreation or entertainment,
any private
or commercial golf course, country club, massage parlor, tennis
club, skating
facility (including roller skating, skateboard and ice skating),
racquet sports
facility (including any handball or racquetball court), hot tub
facility, suntan
facility, racetrack, airplane, sky box or other private luxury box,
health club
facility, facility used for gambling, or facility used for the sale
of alcoholic
beverages.
(i) The Bonds are not and shall not be "federally guaranteed" as
defined in
Section 149(b) of the Code.
(J) No portion of the proceeds of the Bonds will be used to acquire
land (or an
interest therein) or to acquire any property (or an interest
therein) where the
first use of such property is not pursuant to such acquisition.
(k) The aggregate authorized face amount of the Bonds allocated to
any "test
period beneficiary," as such term is defined in Section 144 of the
Code, when
increased by the outstanding tax-exempt industrial development
bonds of such
beneficiary, does not and shall not exceed $40,000,000.
(1) The execution, delivery and performance by the Company of this
Loan Agreement
and the Note do not require the consent or approval of, the giving
of notice of,
the registration with, or the taking of any other action in respect
of, any
federal, state or other governmental authority or agency, not
previously obtained
or performed.
(m) No litigation, arbitration proceedings or governmental
proceedings are
pending or threatened against the Company which would, if adversely
determined,
materially and adversely affect the right and power of the Company
to execute and
deliver this Loan Agreement and all documents and instruments
related hereto or
contemplated hereby to which the Company is a party or signatory.
(n) Except with respect to future capital expenditures, the Company
will take no
action which would (and will omit no action reasonably within its
power, the
omission of which would) cause the interest on the Bonds to become
includable for
Federal income tax purposes in the gross income of any Bondholder,
other than a
Bondholder who is a "substantial user" of the Project or a "related
person"
within the meaning and for the purpose of Section 147 of the Code.
While this
Agreement does not restrict the Company as to future capital
expenditures (and
such expenditures, if sufficiently large, could cause the interest
on the bonds
to become includable in gross income for Federal income tax
purposes), the
Company presently believes and expects that it will comply with the
applicable
Code limitations on future capital expenditures.
Section 2.3. The Project. The Company shall cause the Project to be
acquired,
constructed, installed and equipped with all reasonable dispatch in
accordance
with the Company's specifications and directions. It is the
Company's present
intention to use the Project, or to cause it to be used, throughout
the term of
this Agreement as an Economic development facility" within the
meaning of the
Act. The failure or inability of the Company to use the Project, or
to cause it
to be used, for the intended purposes shall not affect in any way
the Company's
obligations under this Agreement or the Note and shall not be
deemed a breach or
default under this Agreement as long as the use does not affect the
validity of
the Bonds or result in the interest on the Bonds becoming
includable for Federal
income tax purposes in the gross income of a Bondholder.
ARTICLE III
The Bonds, Use of Proceeds, The Note
Section 3.1. Agreement to Issue Bonds. In order to provide funds to
make the
Loan, the Municipality shall issue the Bonds and sell them to the
purchaser or
purchasers thereof and deposit the proceeds with the Trustee as
follows:
(a) Into the Debt Service Fund, the accrued interest, if any, paid
by the
purchasers of the bonds; and
(b) Into the Project Fund, the balance of the proceeds.
Section 3.2. Disbursements from Project Fund. The Indenture
authorizes the
Trustee to make payments from the Project Fund to pay Project Costs
and to
reimburse the Company for Project Costs paid by it. Payments shall
be made upon
receipt of requisitions signed by an Authorized Company
Representative stating:
(a) the requisition number, (b) the name and address of the person,
firm or
corporation to whom payment is due or to whom the Company has made
payment for
which reimbursement is to be made, (c) the amount to be paid, and
(d) that each
obligation has been properly incurred, is a Project Cost that is a
proper charge
against the Project Fund, and has not been the basis of any
previous withdrawal.
The requisition shall be accompanied by copies of such invoices,
cancelled checks
(or other evidence of payment) and similar documentation as the
Trustee may
reasonably request.
After the Trustee has paid all amounts requisitioned from the
Project Fund and
has received a certificate from the Company stating that the
Project has been
completed, or that the Project cannot or will not be completed for
the reasons
specified therein, any balance in the Project Fund shall, subject
to compliance
with the Act, be transferred to the Purchase Fund and disbursed in
accordance
with the provisions of the Indenture relating thereto; provided,
that at least
95% of the amount actually expended has been expended on property
of a character
subject to the allowance for depreciation under the Code
("qualified
facilities"). If such balance, plus any amounts actually expended
other than on
qualified facilities, exceeds the permissible 5% insubstantial
amount of the Bond
proceeds, the Company shall so notify the Trustee in writing, which
written
notification shall include detailed instructions as to the
disposition of such
balance, including instructions that the Trustee shall deposit such
excess into
a special escrow account within the Purchase Fund and detailed
instructions
pursuant to which the Trustee shall invest and use any amount so
deposited to
redeem or retire the Bonds, or portions thereof, in accordance with
Internal Revenue Service Rev. Proc. 79-5 and Rev. Proc. 81-22 and
any subsequent
amendments, modifications or replacements thereof at the earliest
redemption date
occurring after such deposit.
Section 3.3. Company is Required to Pay in the Event Project Fund
is
Insufficient. In the event the moneys in the Project Fund
available for payment
of the Project Costs should not be sufficient to pay the costs of
acquiring,
constructing, installing and equipping the Project in full, the
Company shall
complete the Project and pay that portion of the costs of the
Project in excess
of the moneys available in the Construction Fund.
Section 3.4. Investment of Project Fund and Debt Service Fund
Moneys. Moneys held
as part of the Debt Service Fund shall be invested by the Trustee
at the
direction of the Company in direct obligations of the United States
of America
or in other obligations backed by the full faith and credit of the
United States
of America. Subject to the provisions of Section 405 of the
Indenture, any moneys
held as part of the Construction Fund shall be invested by the
Trustee at the
direction of the Company in (a) obligations of the United States of
America, or
(b) obligations the principal and interest of which are guaranteed
by the United
States of America, or (c) obligations of any agency of the United
States of
America, or (d) certificates of deposit or bankers acceptances
issued by, or
interest bearing time or demand deposits with, any bank, trust
company or
national banking association (including the Trustees any affiliate
of the Trustee
and any paying agent) having a combined capital and surplus of at
least
$10,000,000, or (e) contracts with any entity meeting the
requirements specified
in (d) above for the purchase and sale of Obligations of the type
specified in
(a) or (b) above (including contracts with the Trustee, any
affiliate of the
Trustee and any paying agent), or (f) commercial paper which has
been classified
for rating purposes by Moody's Investors Service, Inc., as Prime-2
or by Standard
and Poor's Corporation as A-2 (other than commercial paper of the
Company or any
"related person"), or (g) obligations the interest on which is
excludable from
gross income for Federal income tax purposes and that are rated at
least "A"
"MIG"-2" or Prime-2 by Moody's Investor's Service, Inc., or "A" or
"A-2" by
Standard and Poor's Corporation or an equivalent rating by any
other national
rating agency, or (h) funds, mutual funds, common trust funds or
any similar
entity whose investments consist of the foregoing.
Section 3.5. Covenants with Respect to Arbitrage. The Company and
the
Municipality covenant to each other and to and for the benefit of
the holders of
the Bonds that no use will be made of the proceeds from the issue
and sale of the
Bonds which, if such use could have been reasonably expected on the
date of issue
of the Bonds, would have caused the Bonds to be classified as
arbitrage bonds
within the meaning of Section 103(b)(2) of the Code. As long as any
Bonds are
outstanding, the Municipality and the Company shall not violate the
requirements
of the Code relating to arbitrage bonds, and any regulations
thereunder including
the requirement of Section 148 of the Code relating to the rebate
of certain
amounts to the United States government. The Company will provide
to the Trustee
instructions relating to the permissible investment of Bond
proceeds and
instructions and computations (using investment information
provided by the
Trustee) relating to the amount required to be rebated to the
United States, all
in conformity with Section 148 of the Code. The Company reserves
the right,
however, to make a ny investment of proceeds permitted under the
laws of the
State of Indiana, if the sections of the Code relating to arbitrage
bonds or the
regulations thereunder are repealed or relaxed or are held void by
final
judgment of a court of competent jurisdiction, so long as the
investment would
not result in making the interest on the Bonds includable in the
gross income of
the holders thereof for purposes of Federal income taxation. In
making
investments, the Company may rely on an opinion of counsel of
recognized
competence in such matters. The Trustee may make any and all such
investments
through its own bond department.
Section 3.6 Loan Payments and Other Amounts Payable.
(a) Concurrently with the sale of the Bonds, the Company shall
execute and
deliver the Note to the Municipality, pursuant to which the Company
shall make
payments sufficient to pay when due (whether at maturity, upon call
for
redemption, by acceleration or otherwise) the principal of and
premium, if any,
and interest on the Bonds. The Note shall be issued as a fully
registered note
substantially in the form attached hereto as Exhibit B. The Trustee
shall act as
Note Registrar and shall cause books for the registration and for
the transfer
of the Note to be kept at its principal office. Upon surrender for
transfer of
the Note at the Principal Office of the Trustee, endorsed for
transfer by the
registered owner or accompanied by an assignment executed by the
registered owner
or his authorized attorney, the Trustee shall validate and deliver
in the name
of the transferee a new Note which shall have been executed by the
Company. The
person in whose name the Note is registered shall be deemed the
absolute owner
thereof for all purposes, and references to the holder of the Note
shall mean the
registered owner thereof. The obligation of the Company to make any
payment in
respect of the loan made hereunder shall be reduced by the amount
of any
reduction under the Indenture of the corresponding payment to be
made by the
Issuer thereunder including any reduction due to payments made by
the Bank to the
Trustee in respect of the principal of premium, if any, or interest
on the Bonds
when due pursuant to the Letter of Credit.
(b) The Company shall pay or cause to be paid to the Tender Agent
as agent for
the Trustee amounts equal to the amounts to be paid to Owners of
Bonds pursuant
to Section 403 of the Indenture, on the dates the purchase price of
Bonds
delivered to the Tender Agent is to be paid from the sources
described in Section
403 of the Indenture. The obligation of the Company to make the
payments required
to be made under this Section 3.6 shall be reduced by the amount of
any moneys
otherwise available for such payment, including particularly, any
payment made
by the Bank to the Trustee in respect of the purchase price of
Bonds pursuant to
the Letter of Credit.
(c) The Company shall also pay when due (i) the reasonable and
necessary fees and
expenses of the Trustee (including any reasonable and necessary
fees and expenses
in its capacity as Note Registrar) the Tender Agent and any paying
agent for
services in connection with the Bonds as specified in Section 802
of the
Indenture and (ii) the reasonable and necessary fees and expenses
of the
Municipality, including reasonable attorneys' fees, in connection
with any
default of the Company under this Agreement or the Note.
(d) If the Company fails to make any of the payments required in
this Section 3.6
or in the Note, all unpaid items or installments shall continue as
an obligation
of the Company until fully paid, and the Company shall pay the same
with interest
thereon (to the extent permitted by law) until paid at a per annum
rate of
interest equal to the per annum rate then in effect on the Bonds.
(e) All payments under this Section 3.6, other than with respect.to
(b) above,
shall be made by the Company directly to the Trustee or as directed
by the
Trustee in immediately available funds and the Trustee shall
deposit all such
payments into the Debt Service Fund, provided that payments under
Section 3.6(c)
shall be made by the Company directly to the person entitled
thereto. The amount
of any money in the Debt Service Fund which is either proceeds from
the sale of
any Bonds or earnings on investments made pursuant to the
provisions of the
Indenture which has been set aside by the Trustee, at the request
of the Company,
for payments of principal, whether at maturity or upon redemption,
of the Bonds
shall be credited against the obligation of the Company to pay the
principal of
the Note. The amount of any money in the Debt Service Fund which is
either
proceeds from the sale of any Bonds or earnings on investments made
pursuant to
the provisions of the Indenture which has been set aside by the
Trustee for
payments of interest on the Bonds shall be credited against the
obligation of the
Company to pay interest on the Note. The principal amount of any
Bonds purchased
by the Company and delivered to the Trustee, or purchased by the
Trustee and
cancelled, shall be credited against the obligation of the Company
to pay the
principal of the Note.
(f) If on any principal or interest payment date the balance in the
Debt Service
Fund is insufficient to make the required payments of principal of
and premium,
if any, and interest on the Bonds on that date, the Company upon
notice shall pay
forthwith any deficiency to the Trustee.
(g) The Company shall not be obligated to make any further payments
under this
Section 3.6, and the Company's liability to make payments under
this Section 3.6
shall cease, at any time that the entire principal of and premium,
if any, and
interest on the Bonds shall have been fully paid in accordance with
their terms
and the provisions of Section 1101 of the Indenture (including,
without
limitation, principal, interest to maturity or earliest redemption
date, as the
case may be, expenses of redemption, redemption premiums, and fees
and expenses
of the Municipality, the Trustee, the Tender Agent, and any paying
agent and any
other costs and fees required to be paid by the Company pursuant to
this
Agreement), or at any time that there shall be in the Debt Service
Fund an amount
sufficient to pay or redeem the Bonds in accordance with the
provisions
of Section 1101 of the Indenture (including, without limitation,
principal,
interest to maturity or earliest redemption date, as the case may
be, expenses
of redemption and redemption premiums, and fees and expenses of the
Municipality,
the Trustee and any paying agent and any other costs and fees
required to be paid
by the Company pursuant to this Agreement) and all other
requirements of Section
1101 of the Indenture have been satisfied in full.
Section 3.7. Obligation of Company Unconditional. The obligation of
he Company
to make the payments and to perform and observe its other
agreements pursuant to
this Agreement and the Note shall be absolute and unconditional and
shall not be
subject to reduction or delay by set-off, counterclaim, abatement
or otherwise.
Until such time as the principal of and premium, if any, and
interest on the
Bonds shall have been fully paid or provision for the payment
thereof shall
have been made in accordance with Section 1101 of the Indenture
(including,
without limitation, principal, interest to maturity or earliest
redemption date,
as the case may be, expenses of redemption, redemption premiums,
and fees and
expenses of the Municipality, the Trustee, the Tender Agent, and
any paying agent
and any other costs and fees required to be paid by the Company
pursuant to this
Agreement), and all other requirements of Section 1101 of the
Indenture have been
satisfied in full, the Company (a) shall not suspend or discontinue
any payments
pursuant to this Agreement or the Note, (b) shall perform and
observe all its
other agreements contained in this Agreement and the Note, and (c)
except as
provided in Article VII hereof, shall not terminate this Agreement
or the Note
for any cause. Nothing contained in this Agreement shall be
construed to release
the Municipality from the performance of any of its obligations;
and in the event
the Municipality shall fail to perform any such agreement on its
part, the
Company may institute such action against the Municipality as the
Company may
deem necessary to compel performance, provided that no such action
shall (i)
violate the agreements on the part of the Company contained in the
first sentence
of this Section 3.7 or (ii) diminish the amounts required to be
paid by the
Company pursuant to Section 3.6 hereof.
Section 3.8. Letter of Credit and Alternate Letter of Credit.
(a) From the date of issuance of the Bonds to and including the
fifth anniversary
of the issuance of the Bonds or the effective date of the Fixed
Interest Rate,
the Company shall provide security for payment of the principal of
and interest
on the Bonds and for payment of the purchase price of Bonds
delivered to the
Tender Agent pursuant to Section 202(d) or Section 503 of the
Indenture by
causing the Letter of Credit to be delivered to the Trustee. The
Company hereby
authorizes and directs the Trustee to draw moneys under the Letter
of Credit, in
accordance with its terms and the terms of the Indentures to the
extent necessary
to pay the principal of, premium if any, and interest on the Bonds
when due and
to pay the purchase price of Bonds as provided in the Indenture.
(b) The Company may, at its election and with the consent of the
Bank provide for
one or more extensions of the Letter of Credit beyond its then
stated date of
expiration. At any time prior to the Trustee's giving of notice of
redemption of
Bonds pursuant to Section 202(e) of the Indenture, the Company may
provide for
the delivery of an Alternate Letter of Credit which must have a
term of at least
one year from its date of delivery provided that the Company must
furnish to the
Trustee written evidence from Moody's if the Bonds are rated by
Moody's, and S&P,
if the Bonds are rated by S&P, to the effect that it has reviewed
such Alternate
Letter of Credit and that its substitution for the Letter of Credit
then in
effect will not, of itself, result in a reduction or withdrawal of
its ratings
of the Bonds from those which then prevail, accompanied by an
opinion of Bond
Counsel that the delivery of such Alternate Letter of Credit is
permitted under
the Indenture and this Agreement and will not adversely affect the
exemption from
federal income taxation of interest on the Bonds.
ARTICLE IV
Particular Covenants of the Company
Section 4.1. Consent to Assignment to Trustee. The Company
acknowledges and
consents to the assignment of the Note and of the Municipality's
rights hereunder
(except the right to receive payment for its expenses, the right to
receive
indemnities and rights relating to any amendments to this
Agreement) to the
Trustee pursuant to the Indenture. Except as otherwise provided
herein, the
Company shall pay to the Trustee all amounts payable under this
Agreement and the
Note, and the Company acknowledges that the Trustee may enforce the
rights,
remedies and privileges granted to the Municipality hereunder.
Section 4.2. Payment of Expenses of Issuance of Bonds. In addition
to its payment
obligations under Section 3.6 of this Agreement, the Company shall
pay for all
the reasonable costs and shall be liable and pay for any recording
expenses,
legal fees, printing expenses and other fees and expenses
reasonably incurred or
to be incurred by or on behalf of the Commission, the Municipality
and the
Trustee in connection with or as an incident to the issuance and
sale of the
Bonds or any amendment or supplement to this
Agreement or the Indenture.
Section 4.3. Company to Maintain its Existence: Conditions Under
Which Exceptions
Permitted. The Company shall during the term of this Agreement
maintain its
corporate existence and will be duly qualified to transact business
in the State
of Indiana and shall not voluntarily take, or omit to take, any
action that would
cause the Company to be dissolved, nor shall the Company sell,
lease transfer or
otherwise dispose of all or substantially all of its assets or
consolidate with
or merge into another corporation or permit one or more other
corporations to
consolidate with or merge into it; except that the Company may
consolidate with
or merge into another corporation incorporated and existing under
the laws of the
United States of America or one of the states of the United States
of America or
permit one or more other corporations to consolidate with or merge
into it or
sell or otherwise transfer to another such other corporation all or
substantially
all of its assets as an entirety and may thereafter dissolve,
provided, that
immediately after such action there is no default under the Note,
this Agreement
or the Indenture, and further provided that if the Company is not
the surviving,
resulting or transferee corporation ("the Survivor"), the Survivor
is (a)
qualified to do business in the State of Indiana and (b) shall
expressly assume
and agree to perform all of the Company's obligations under this
Agreement, the
Note and the Indenture.
Section 4.4. Further Assurances and Corrective Instruments. The
Municipality and
the Company shall execute and deliver, or cause to be executed and
delivered,
such supplements hereto and further instruments as may reasonably
be required for
carrying out the intention of or facilitating the performance of
this Agreement.
Section 4.5. Covenants of Company with Respect to Use of Bond
Proceeds.
The Municipality is issuing the Bonds pursuant to an exemption
contained in the
Code. It is the intention of the parties that the interest on the
Bonds remain
excludable from gross income for purposes of federal income
taxation and to that
end the Company covenants with the Municipality and with the
Trustee for the
benefit of the future holders of the Bonds, that it will never,
insofar as it is
able, permit Bond proceeds to be expended or utilized in such a
manner as to
cause the loss of the exclusion claimed other than as a result of
previously
unanticipated capital expenditures.
Section 4.6. Indemnification of Municipality and Trustee. The
Company shall
indemnify and hold the Municipality and the Trustee harmless
against any claim,
loss, liability or expense incurred without negligence or bad faith
or willful
misconduct on the part of the Municipality or the Trustee arising
out of or in
connection with this Agreement, the Note or the Indenture,
including reasonable
attorneys' fees and the costs and expense of defense against any
such claim
or liability.
Section 4.7. Certificate of No Default. The Company shall annually
furnish to the
Trustee a certificate of the President, a Vice-President or the
Chief Financial
Officer of the Company that after reasonable investigation he has
no knowledge
of the occurrence of any event of default under this Agreement or
the Indenture
(or of any event that with the lapse of time or the giving of
notice would
constitute an event of default), or if such officer shall have
obtained knowledge
of any such event of default, he shall disclose the same in such
certificate and the nature thereof.
Section 4.8. Insurance. Subject to Article V of this Agreement,
the Company
shall maintain such insurance as may be required by law and such
other insurances
to such extent and against such hazards and liabilities, as is
customarily
maintained by companies similarly situated.
Section 4.9. Taxes and Liabilities. Subject to Article V of this
Agreement, the
Company shall pay when due all taxes, assessments and other
liabilities including
trade accounts, except such as are being contested in good faith
and by
appropriate proceedings and for which appropriate reserves have
been established
and, as to trade accounts, subject to industry practices .
Section 4.10. Company to Furnish Notice of Fixed Interest Rate and
Mandators
Redemption Dates. The Company agrees that, upon the determination
of a Fixed
Interest Rate for the Series 1989 Bonds pursuant to the Indenture,
the Company
shall cause notice of (i) the specific mandatory redemption dates
or serial
maturities of such Series 1989 Bonds and (ii) the Fixed Interest
Rate applicable
to such Series 1989 Bonds, to be given to the Issuer, the Trustee,
the Paying
Agent, if any, and the Remarketing Agent in accordance with the
Indenture.
Section 4.11. Notice of Adjustment Dates. Rate Determination Dates.
Rate Change
Dates. Interest Payment Dates and LOC Termination Tender Dates.
The Company
shall, or shall cause the Remarketing Agent to, make the
designations and give
the written notices to the Persons to whom the Company or the
Remarketing Agent
are therein required to give notice, as provided in Sections 202
and 209 of the
Indenture. In addition, the Company shall, if required, deliver to
the Trustee
the opinions of Bond Counsel referred to in Sections 202 and 209 of
the
Indenture.
ARTICLE V
Maintenance, Taxes and Insurance
Section 5.1. Maintenance and Modifications of Project by Company.
The Company
shall, during the Agreement Term and at its own expense (a) keep
the Project and
the Project Site in as reasonably safe condition as its operations
shall permit,
and (b) keep the Project in good repair and in good operating
condition, making
from time to time all necessary repairs thereto (including external
and
structural repairs) and renewals and replacements thereof. Subject
to the
provisions of this Agreement and the Indenture, the Company may,
also at its own
expense, make from time to time any additions, modifications or
improvements to
the Project, including specifically additions and expansions to the
Project, as
it may deem desirable for its business purposes that do not
materially adversely
affect the structural integrity of the Project or substantially
reduce its value.
Section 5.2. Taxes. Other Governmental Charges and Utility Charges.
The Company
shall promptly pay, as the same become due, all taxes and
governmental charges
of any kind whatsoever that may at any time be lawfully assessed or
levied
against or with respect to the Project or the Project Site, or any
interest
therein or any machinery, equipment or other property Installed or
bought by the
Company therein or thereon (including, without limiting the
generality of the
foregoing, any taxes levied upon or with respect to the revenues,
income or
profits of the Company from the Project which if not paid, will
become a lien on
the Project or the Project Site prior to or on a parity with the
lien of the
Indenture and including all ad valorem taxes lawfully assessed upon
the Project
or the Project Site), all utility and other charges incurred in the
operation,
maintenance, use, occupancy and upkeep of the Project or the
Project Site and all
assessments and charges lawfully made by any governmental body for
public
improvements that may be secured by lien on the Project or the
Project Site.
The Company may, at its expense and in its own name and behalf, in
good faith
contest by appropriate proceedings any such taxes, assessments and
other charges
and, in the event of any such contest, may permit the taxes,
assessments or other
charges so contested to remain unpaid during the period of such
contest and any
appeal therefrom, provided during such period enforcement of any
such contested
item shall be effectively stayed and appropriate reserves shall be
established.
Section 5.3. Insurance Required. The Company shall insure or cause
to be insured
during the Agreement Term the Project and the Project Site, against
such risks
as are customarily insured against by businesses of like size and
type, paying
as the same become due all premiums in respect thereto, Including
but not
necessarily limited to comprehensive general public liability
insurance to the
extent of $1,000,000 per occurrence against liability for bodily
injury,
including death resulting therefrom, and damage to property
including loss of use
thereof occurring on or in any way related to the Project or the
Project Site or
any part thereof and worker's compensation and occupational disease
coverage as
required by the laws of the State of Indiana.
Section 5.4. Application of Net Proceeds of Insurance. The Net
Proceeds of the
insurance carried pursuant to the provisions of Section 5.3 hereof
shall be paid
and applied as provided in Section 6.1 hereof.
Section 5.5. Additional Provision Respecting Insurance. All
insurance required
in Section 5.3 hereof shall be taken out and maintained in
generally recognized
responsible insurance companies selected by the Company and
qualified to do
business in the State of Indiana. All policies evidencing such
insurance shall
provide for payment to the Company.
A certificate, or certificates, of the insurers that such insurance
Is in force
and effect, together with copies of the insurance policies, shall
be deposited
promptly with the Trustee upon request and, prior to the expiration
of any such
policy, the Company shall furnish the Trustee upon request with
evidence
satisfactory to the Trustee that the policy has been renewed or
replaced, or
is no longer required by this Agreement. The insurance herein
required may be
contained in blanket policies now or hereafter maintained by the
Company.
ARTICLE VI
Damage, Destruction and Condemnation
Section 6.1. Damage and Destruction. Unless the Company shall have
its option
to prepay the Note in full pursuant to the provisions of Section
7.4 hereof, if
prior to full payment of the Bonds (or provision for payment
thereof having been
made in accordance with the provisions of the Indenture) the
Project is destroyed
(in whole or in part) or is damaged by fire or other casualty, the
Company (a)
shall promptly repair, rebuild or restore the property damaged or
destroyed to
substantially the same condition as it existed prior to the event
causing such
damage or destruction, with such changes, alterations and
modifications
(including the substitution and addition of other property) as may
be desired by
the Company and as will not impair operating unity or productive
capacity or the
character of the Project, and (b) shall apply for such purpose so
much as may be
necessary of any Net Proceeds of insurance resulting from such
claims for
losses, as well as any additional moneys of the Company necessary
therefor.
Section 6.2. Condemnation. Unless the Company shall have exercised
its option
to prepay the Note in full pursuant to the provisions of Section
7.4 hereof, in
the event that title to, or the temporary use of, the Protect or
the Project Site
or any part thereof shall be taken under the exercise of the power
of eminent
domain by any governmental body or by any person, firm or
corporation acting
under governmental authority, the Company shall be obligated to
continue to
make payments on the Note and all other payments specified herein.
The Company
and the Trustee shall cause the Net Proceeds received by them or
either of them
from any award made in such eminent domain proceedings to be paid
to and held by
the Trustee in a separate trust account, and to be applied, at the
option of the
Company, in one or more of the following ways as shall be directed
in writing by
the Company:
(a) The prompt repair, restoration, relocation, modification or
improvement of
the Project and the Project Site, to substantially the same
condition as existed
prior to the exercise of said power of eminent domain, or
(b) Redemption of the Bonds pursuant to Section 7.4 hereof.
Unless the Company shall have exercised its option to prepay the
Note in full
pursuant to the provisions of Section 7.4 hereof within the time
period set forth
therein, the condemnation award should be applied as provided in
(a) above.
ARTICLE VII
Prepayment of Note
Section 7.1. Optional Prepayment of Note. Prior to the Conversion
Date and so
long as the Bonds are in a Short Period (as defined in the
Indenture), the
Company may, at its option, prepay
the Note in whole or in part (but in whole multiples of $100,000)
at any time by
paying to the Trustee a sum sufficient, together with other funds
in the Debt
Service Fund and available for that purpose, to pay (a) the
principal of, and
interest on that portion of the Bonds then outstanding to be
redeemed, and (b)
all reasonable and necessary fees and expenses of the Trustee, the
Tender Agent,
the Remarketing Agent, and any paying agent accrued and to accrue
through the
redemption date. After the Conversion Date or at any time prior
thereto when the
Bonds are in an Adjustment Period other than a Short Period (as
defined in the
Indenture), the Company may prepay the loan made hereunder, in
whole or in art,
on any Interest Payment Date, upon 45 days' written notice to the
Trustees in a
principal amount equal to 100% of the principal amount of Bond to
be redeemed on
such Interest Payment Date, plus a premium on such principal amount
equal to the
premium to be paid in connection with the redemption of the Bonds
as provided in
Section 501(A)(2) of the Indenture plus accrued interest to the
redemption date.
Section 7.2. Mandatory Prepayment of Note in the Event of a
Determination of
Taxability. The Company shall prepay the amounts due under this
Agreement and
the Note in whole prior to the expiration of this Agreement and
prior to the full
payment (or provision for full payment) of the Bonds on the
earliest practicable
date (selected by the Trustee) within one hundred eighty (180) days
following a
Determination of Taxability (as defined in the Indenture). In the
event of an
obligation to prepay under this Section 7.2, the Company shall pay
to the
Trustee a sum sufficient, together with other funds deposited into
the Debt
Service Fund and available for the purpose, to pay the principal
and interest on
the principal of all the Bonds then outstanding and all reasonable
and necessary
fees and expenses of the Trustee and any paying agent accrued and
to accrue
through final payment of the Bonds.
Section 7.3. Purchase of Bonds. The Company may at any time, and
from time to
time, furnish moneys to the Trustee accompanied by a notice
directing such moneys
to be provided to the Tender Agent to be applied, at such time as
they constitute
Eligible Moneys, to the purchase of Bonds delivered pursuant to
Section 202(d)
or 503 of the Indenture, which Bonds shall, at the direction of the
Company, be
delivered to the Trustee for cancellation.
Section 7.4. Extraordinary Event Prepayment of the Note. The
Company may, at its
option, prepay the Note in whole but not in part, without
redemption premium,
within one year following the occurrence of any of the events
specified in
Article VI of this Agreement by paying the Trustee a sum
sufficient, together
with other funds in the Debt Service Fund and available for that
purpose, to pay
(a) the principal of and interest upon all of the Bonds then
outstanding, and
(b) all reasonable and necessary fees and expenses of the Trustee
and the paying
agent accrued and to accrue through the redemption date.
Section 7.5. Notice of Prepayment. To exercise prepayment under
this Article
VII, the Company shall give written notice to the Trustee at the
time specified
in the Indenture.
ARTICLE VIII
Events of Default and Remedies
Section 8.1. Events of Default. The occurrence and continuance of
any of the
following events shall constitute an "event of default" hereunder:
(a) Default in the due and punctual payment of any installment of
principal of
(whether at stated maturity, upon required prepayment acceleration
or otherwise)
or any payment of interest or redemption premium on the Note;
(b) Failure by the Company to pay the Tender Price with respect to
the purchase
price of the Bonds on the date such purchase price is to be paid.
(c) The dissolution or liquidation of the Company unless such
dissolution or
liquidation is permitted by this Agreement;
(d) Failure by the Company to observe and perform any covenant,
condition or
agreement in this Agreement on its part to be observed or performed
excluding,
however, any covenant, condition or agreement that, if not
observed, would result
in an event of default as described in Section 8.1(a), (b) or (c)
for a period
of thirty days after written notice, specifying the failure and
requesting that
it be remedied, given to the Company by the Trustee, unless the
Trustee agrees
in writing to an extension of the time prior to its expiration;
provided,
however, that with respect to this clause (d), if such failure of
performance
shall be such that it cannot be corrected within such period, it
shall not
constitute an event of default during the 90 day period beginning
31 days after
the delivery of the above described notice (but shall, if not
corrected,
constitute an Event of Default thereafter) if: (i) such failure of
performance,
in the reasonable opinion of the Trustee, is correctable without
material adverse
effect on the Bonds; (ii) corrective action is instituted by or on
behalf of the
Company within such period; and (iii) such corrective action is
diligently
pursued until such failure of performance is corrected. The Trustee
may request
(and may rely upon) from the Company or the Municipality a
certificate to the
effect that the Company or the Municipality has instituted
corrective action and
will diligently pursue such action and believes that its failure of
performance
can be corrected through such action.
(e) A decree or order shall have been entered by a court of
competent
jurisdiction constituting an order for relief under the Bankruptcy
Code or
adjudging the Company insolvent or approving as properly filed a
petition seeking
reorganization of the Company under the Bankruptcy Code or any
other federal or
state law relating to bankruptcy or insolvency or appointing a
receiver or
decreeing or ordering the winding up or liquidation of the affairs
of the Company
or the sequestration of a substantial part of the property of the
Company, and
any such decree or order shall remain in force undischarged and
unstayed for
period of ninety days.
(f) The Company shall file a petition seeking relief under the
Bankruptcy Code
or shall suffer the imposition of an order thereunder or shall
institute or
consent to the institution of bankruptcy or insolvency proceedings
against it or
shall file a petition or answer or consent seeking reorganization
or relief
(other than as a creditor) under the Bankruptcy Code or any other
federal
or state law relating to bankruptcy or insolvency or shall consent
to the filing
of any such petition or shall consent to the appointment of a
receiver or shall
make an assignment for the benefit of creditors or shall admit in
writing its
inability to pay its debts generally as they become due or shall
fail to pay its
debts generally as they become due, or action shall be taken by the
Company
in furtherance of any of the aforesaid purposes.
(g) If the Trustee receives notice from the Bank on or before the
date or dates
specified in the Letter of Credit or Alternate Letter of Credit
following a
drawing on the Letter of Credit or Alternate Letter of Credit for
interest that
it will not reinstate to the stated amount of its Letter of Credit
or Alternate
Letter of Credit an amount to cover such interest.
(h) Receipt of Written Notice from the Bank that an Event of
Default as defined
in the Reimbursement Agreement has occurred and that the Letter of
Credit or
Alternate Letter of Credit, as the case may be, will expire not
less than 30 days
after such notice.
Section 8.2. Remedies on Default. Whenever any Event of Default
referred to in
Section 8.1 shall have happened and be continuing, the Trustee:
(a) Shall to the extent that the Indenture so requires or permits,
declare the
Note and all amounts payable thereunder, whether by acceleration of
maturity or
otherwise, to be immediately due and payable.
(b) The Trustee may take whatever action may appear necessary or
desirable to
collect the amounts due and to become due under this Agreement and
the Note, or
to enforce performance and observance of any obligation, agreement
or covenant
of the Company under this Agreement and the Note.
Section 8.3. Application of Moneys. All moneys collected by the
Trustee under Section 8.2 shall be applied as follows:
FIRST: To pay any sums required to be paid by the Company pursuant
to this
Agreement, the Note, the Indenture or the Bonds other than
principal, premium and
interest on the Note or the Bonds, including specifically any
amounts required
to be paid to the United States of America pursuant to Section
148(f) of the
Code.
SECOND: To pay the whole amount then due, owing and unpaid upon the
Note for
principal, premium, if any, and interest in accordance with Section
705 of the
Indenture. Payment shall be made upon presentation of the Note and
the notation
on the Note of the payment, if partially paid, or the surrender and
cancellation
of the Note, if fully paid.
THIRD: To pay the Company, its successors or assigns, upon the
written request
of the Company or to whosoever may be lawfully entitled to receive
the same upon
its written request, or as any court of competent jurisdiction may
direct.
Section 8.4. Remedies Cumulative. No remedy granted by this
Agreement is
intended to be exclusive of any other remedy. All available
remedies shall be
cumulative.
Section 8.5. Delay or Omission Not a Waiver. No delay or omission
of the Trustee
to exercise any right or power accruing upon any Event of Default
shall impair
the right or power, or shall be construed to be a waiver of the
Event of Default
or an acquiescence therein. Every power and remedy may be
exercised as often as
the Trustee deems expedient.
Section 8.6. Remedies Subject to Provisions of Law. All rights,
remedies and
powers provided by this Article may be exercised only to the extent
that their
exercise does not violate any applicable provision of law. All the
provisions
of this Article are intended to be subject to all applicable
mandatory provisions
of law which may be controlling and to be limited to the extent
necessary so that
they will not render this Agreement invalid or unenforceable under
the provisions
of any applicable law.
ARTICLE IX
Supplements and Amendments to this Agreement
Section 9.1. Supplements and Amendments to this Agreement.
Reference is made to
Article X of the Indenture.
ARTICLE X
Miscellaneous
Section 10.1. Binding Effect. This Agreement shall inure to the
benefit of and
shall be binding upon the Municipality, the Company and their
respective
successors and assigns.
Section 10.2. Severability. In the event any provision of this
Agreement shall
be held invalid or unenforceable by any court of competent
jurisdictions that
holding shall not invalidate or render unenforceable any other
provisions hereof.
Section 10.3. Amounts Remaining in Debt Service Fund. Any amounts
remaining in
the Debt Service Fund upon expiration or termination of this
Agreement in
accordance with the Indenture shall belong to and be paid to the
Company by the
Trustee.
Section 10.4. Amendments. Changes and Modifications. After the
Bonds are issued
and before they are paid in full (or provision for payment in full
is made), this
Agreement may not be amended, assigned or terminated without the
written consent
of the Trustee.
Section 10.5. Execution in Counterparts. This Agreement may be
executed in
several counterparts, each of which shall be an original.
Section 10.6. Notices. All notices, certificates, payments or
other
Communications hereunder shall be sufficiently given and shall be
deemed given
vixen delivered or mailed by registered or certified mail, postage
prepaid, or
overnight express mail addressed as follows: if to the
Municipality, at the City
Hall, 600 E. Third Street, Mishawaka, Indiana 46544, Attention of
its City-Clerk;
if to the Company, at 1400 South Industrial Drive, Mishawaka,
Indianapolis 46544,
Attention of its President; or to such other address as may
hereafter be
furnished by notice.
Section 10.7. References to Bonds Ineffective After Bonds are Paid.
Upon payment
in full of the Bonds (or provision for payment thereof having been
made in
accordance with the provisions of the Indenture) and payment of nil
fees and
charges of the Municipality, Trustee, Tender Agent, and any .paying
agent, all
references in this Agreement to the Bonds and the Trustee shall be
ineffective
and neither the Trustee nor the holders of the Bonds shall
thereafter have any
rights hereunder, except those that shall have theretofore vested.
Section 10.8. Agreement for Benefit of Parties Hereto. Nothing in
this
Agreement, express or implied, is intended to give to any person
other than the
parties hereto and the holder of the Note, any right, remedy or
claim under or
by reason of this Agreement.
Section 10.9. Waiver. No waiver of any of the provisions of this
Agreement shall
be effective and binding unless set forth in a written notice and
no waiver of
one provision shall be deemed or shall constitute a waiver of any
other provision
hereof (whether or not similar) nor shall such waiver constitute a
continuing
waiver or a waiver of such provision in any other Instance.
Section 10.10. Captions and Table of Contents. The captions herein
and the Table
of Contents are inserted only as a matter of convenience and do not
in any way
define, limit, construe or describe the scope or intent of this
Agreement or any
section thereof or in any other way affect this Agreement.
Section 10.11. Survival of Covenants. Representations and
Warranties. All
covenants, representations and warranties made by the Company and
the
Municipality contained herein or in any other document, certificate
or instrument
delivered in connection with the sale of any of the Bonds shall be
continuing and
shall survive delivery of the Bonds and the other transactions
contemplated by
this Agreement and the Indenture.
Section 10.12. Applicable Law. This Agreement shall be governed by
and construed
in accordance with the laws of the State of Indiana.
Section 10.13. Holidays. Where a date of payment on the Note is
not A Business
Day, then payment may be made on the first Business Day thereafter.
IN WITNESS WHEREOF, the Municipality and the Company have caused
this Agreement
to be executed all as of the date first above written.
CITY OF MISHAWAKA, INDIANA
(SEAL) By:
Robert C. Beutter, Mayor
ATTEST:
Janet A. Opfel, City Clerk
THERMOPLASTICS, INC.
By:
August F. DeLuca
ATTEST:
Kenneth L. Heal, Secretary
<PAGE>
EXHIBIT A
(Description of the Project)
The Project is an addition to and expansion of the Company's
existing
manufacturing facility in Mishawaka, Indiana, more particularly
described as
follows:
Description Estimated Cost
Land - 2.9 acres $ 30,000
Parking lot 25,000
(1) Building - 30,000 sq. ft. 558,000
Peripherals (ventilation,
landscaping, fencing, etc.) 37,000
-----------
$ 650,000
Plastic injection molding
machines, including
associated robotics,
grinders, loaders and
hoppers 2,850,000
----------
$3,500,000
<PAGE>
EXHIBIT B
(Form of Note)
THERMOPLASTICS, INC.
PROMISSORY NOTE
FOR VALUE RECEIVED, Thermoplastics, Inc. (the "Company"), an
Indiana Corporation,
promises to pay to The City of Mishawaka, Indiana, or registered
assigns, on or
before 2 o'clock p.m. (Mishawaka time) (a) on October 1, 2003, a
sum which,
together with other moneys available therefor in the Debt Service
Fund under the
Trust Indenture (the Indenture") dated as of December 1, 1989,
between the City
of Mishawaka, Indiana (the Municipality"), and INB National bank.
as trustee (the
"Trustee"), will equal the principal amount of the Bonds (defined
below) which
becomes due on that date; (b) on the first business day of each
month commencing
January 2, 1990, a sum which, together with other moneys available
therefor in
the Debt Service Fund under the Indenture, will equal the Interest
which becomes
due on the Bonds outstanding on that date; (,) on the dates fixed
for redemption
or tender of the Bonds in whole or in part, the principal of and
premium, if any,
and interest on the Bonds to be redeemed to the date fixed for
redemption; and
(d) immediately upon a declaration of acceleration of the maturity
of the Bonds
by the Trustee, the Principals interest and premium, if any, to the
date of
declaration of acceleration.
All payments of principal, premium, if any, and interest are to be
made directly
to the Trustee (or subsequent registered owner) for the account of
the
Municipality in immediately available funds. This Note is security
for the
payment of the Municipality's Economic Development Revenue Bonds,
Series 1989
(Elco Industries, Inc./Thermoplastics, Inc. Project) issued
pursuant to tile
Indenture (the "Bonds"). All of the terms, conditions and
provisions of tile
Indenture are incorporated into this Note by reference.
This Note is issued pursuant to the Loan Agreement (the
"Agreement") dated as of
December 1, 1989, between the Municipality and the Company and is
entitled to the
benefits, and is subject to the conditions, thereof. The obligation
of the
Company to make the payments required under this Note is absolute
and
unconditional without any defense or right of setoff, counterclaim
or
recoupment by reason of any default by the Municipality under the
Agreement or
under any other agreement between the Company and the Municipality
or out of any
indebtedness or liability at any time owing to the Company by the
Municipality
or for any other reason.
This Note is subject to prepayment under the terms and conditions,
and in the
amounts, provided in Article VII of the Agreement.
This Note is transferable only upon the books of the Trustee kept
for that
purpose at its principal office in its capacity as Note Registrar,
upon surrender
for transfer of this Note at the principal office of the Trustee,
endorsed for
transfer by the registered owner or accompanied by an assignment
executed by the
registered owner or his authorized attorney. Upon such surrender
for transfer,
the Trustee shall validate and deliver in the name of the
transferee a new Note
which shall have been executed by the Company.
If the Company fails to make any of the payments under this Note,
the amount
unpaid shall continue as an obligation of the Company until fully
paid and shall
bear interest (to the extent permitted by law) until paid at a per
annum rate of
interest equal to the per annum rate then in effect on the Bonds.
If an "Event of Default" occurs under Section 8.1 of the Agreement,
the principal
of this Note may be declared due and payable as provided in Article
VIII of the
Agreement.
Where a date of payment is not a business day in the City of
Indianapolis,
Indiana, Rockford, Illinois, Chicago, Illinois, or New York, New
York, then
payment may be made on the first business day thereafter.
All amounts payable under the terms of this Note are payable
without relief from
valuation and appraisement laws and with attorneys' fees. The maker
and any
endorsers waive demand, presentment for payment, protest, notice of
protest And
notice of non-payment or dishonor and consent to any and all
extensions of time
for payment without notice.
All terms used in this Note which are defined in the Agreement and
not in this
Note shall have the meanings assigned to them in the Agreement.
IN WITNESS WHEREOF, the Company has caused this Note to be executed
and delivered
this day of December, 1989.
THERMOPLASTICS, INC.
By:
ATTEST:
Kenneth L. Heal, Secretary
Exhibit 10.13
ELCO INDUSTRIES, INC.
1988 PERFORMANCE SHARE PLAN
Section 1. History and Purpose.
1.1 Establishment.
Elco Industries, Inc. (the "Company"), a Delaware corporation, hereby
establishes a long-term incentive plan for executives known as the Elco
Industries, Inc. 1988 Performance Share Plan (the "Plan") effective as of
October 27, 1988 (the "effective date").
1.2 Purpose.
The purpose of this Plan is to direct the attention of executives to the long-
term performance of the Company, by relating rewards to the Company's long-term
success. This Plan is also designed to retain, reward, and motivate individuals
by providing a means of capital accumulation.
Section 2. Definitions.
2.1 Definitions.
Whenever used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the Compensation Committee of the Board or such other
committee of the Board specifically empowered to take actions of the Committee
as contemplated by the Plan. No person, while a member of the Committee, shall
be eligible to receive Stock under this Plan, and no person shall become a
member of the Committee if, within one year prior to becoming a member, that
person shall have been eligible for selection as a person to whom Stock could
have been granted pursuant to the Plan, or Stock or options could have been
granted pursuant to any other plan of the Company or a Subsidiary; provided
that the provisions of this sentence shall not apply in the case of an
individual who is eligible to participate in any such other plan if the
Committee or the Board determines in good faith that such individual is
"disinterested" with respect to this Plan notwithstanding his eligibility
under such other plan. An individual shall automatically cease to be a
Committee member at the time such individual ceases to be a member of the
Board or ceases to be disinterested.
(c) "Company" means Elco Industries, Inc., a Delaware corporation.
(d) "Event of Control" means the acquisition by an entity or group
of entities, other than the Company or any of its subsidiaries, of direct or
indirect control or beneficial ownership of 30 percent or more of the Stock of
the Company.
(e) "Employee" means a regular salaried employee (including officers and
directors who are also salaried employees) of the Company or any of its
Subsidiaries, or any branch or division thereof.
(f) "Fair Market Value" means the last sale price as quoted on the National
Market System; except that for valuation purposes upon the occurrence of an
Event of Control, the Fair Market Value shall be the greatest of (a) the
highest of the prices per share paid for the stock by the person or group
which obtains control, (b) the value at the time of offer of the cash,
securities and other assets offered by such person or group in exchange for
the Stock as determined by the Committee, over the Performance Period.
(g) "Participant" means an Employee designated by the Committee to participate
in this Plan.
(h) "Performance Award" mean the Fair Market Value of the Target Award
determined on the last day of the Performance Period and adjusted by the
level of Company performance, as measured by the performance criteria
established by the Committee, over the Performance Period.
(i) "Performance Period" means a period, specified by the Committee, over which
the Target Award is to be earned. A new Performance Period shall commence at
the beginning of each Year.
(j) "Performance Share" means a contingent unit that is valued on the basis of
the Fair Market Value of the Stock.
(k) "Stock" means the common stock, $5.00 par value, of the Company.
(l) "Subsidiary" means any corporation, a majority of the voting stock of which
is directly or indirectly owned by the Company.
(m) "Target Award" means the initial award of Performance Shares granted to the
Participant at the commencement of the Performance Period.
(n) "Year" means the twelve-month period beginning each July 1 and ending each
June 30.
2.2 Gender.
Except when otherwise indicated by the context, any masculine terminology when
used in this Plan shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
Section 3.
Stock Subject to the Plan.
3.1 Number.
The total number of shares of Stock available for distribution under this Plan
shall not exceed 240,000, subject to such adjustment as may be made pursuant to
Section 3.2. These shares may consist, in whole or in part, of authorized but
unissued Stock or treasury Stock, not reserved for any other purpose.
3.2 Adjustment in Capitalization.
In the event of any change in the outstanding shares of Stock by reason of a
stock dividend or split, recapitalization, reclassification, merger,
consolidation, combination or exchange of shares or other increase or decrease
in the number of shares of Stock outstanding effected without the receipt of
consideration by the Company, the aggregate number of Performance Shares and
shares of Stock available for distribution under this Plan shall be
appropriately adjusted by the Committee, whose determination shall be
conclusive, provided, however, that fractional shares shall be rounded to the
nearest whole share. No adjustment shall be made in connection with the
issuance by the Company of any warrants, rights, or options to acquire
additional shares of Stock or of securities convertible into Stock.
Section 4. Participation.
4.1 Participation.
Participation in the Plan shall be limited to those executive Employees who are
key to the Company's long-term financial success. Participation shall not be
automatic but shall be determined annually upon nomination by the Company's
Chief Executive Officer and approval by the Committee. In making such
determinations, the Committee may take into account the nature of the
services rendered or expected to be rendered by such executive Employees or
classes of executive Employees, their present and potential contributions to
the Company's or its Subsidiaries' success and such other factors as the
Committee in its discretion shall deem relevant. The selection of
Participants shall be determined before the start of the Performance Period
and communicated to Participants as soon as practicable.
Section 5. Award Grants.
5.1 Target Awards.
Coincident with the nomination for participation in the Plan, each Participant
shall be granted a Target Award, expressed as a percentage of current annual
base salary and converted into Performance Shares at the Fair Market Value on
the first day of the Performance Period, provided, however, that fractional
Performance Shares shall be disregarded. This Target Award shall be based on
the recommendation of the Company's Chief Executive Officer and approval of the
Committee.
5.2 Communication of Award.
Written notice of a Participant's Target Award shall be given to the Participant
as soon as practicable after approval of the Target Award by the Committee.
5.3 Partial Awards.
Employees who become eligible to participate in the Plan during a Performance
Period normally shall not commence participation until the beginning of the next
Performance Period. The Committee, however, may permit Participants to
participate in a prior Year's Performance Period with a reduced Target Award.
Normally, this reduced Target Award shall be determined on a pro rata basis.
Section 6. Performance Period.
6.1 Performance Criteria.
The Committee shall establish, prior to the beginning of each Performance
Period, a target level of Company performance at which 100 percent of the
Target Award shall be earned. The measure of Company performance utilized
shall be determined at the sole discretion of the Committee. The Committee
shall also establish a range of performance levels above and below this
target performance level at which a greater or lesser portion of the Target
Award shall be earned. Once established, this range of performance levels
may not be altered for the duration of the Performance Period, unless the
Committee determines that an acquisition, disposition, merger, capital or
debt adjustment, or similar occurrence has materially and unduly influenced
the Company's ability to meet the performance goals.
6.2 Communication of Performance Criteria.
Written notice of the performance criteria established for a given Performance
Period shall be given to each Participant as soon as practicable following the
approval of the criteria by the Committee.
6.3 Earn-Out of Awards.
Performance Awards shall be earned and payable only if, and to the extent that,
actual Company performance, as reflected by the Company's financial statements,
at the end of the Performance Period equals or exceeds the minimum performance
level established by the Committee.
Section 7. Payment of Awards.
7.1 Amount of Payment.
The Performance Award shall be determined with reference to both the
Participant's Target Award and the level of Company performance as measured by
the performance criteria established by the Committee pursuant to Section 6.1.
In no event, however, shall the Performance Award exceed 100 percent of the
Participant's annual base salary for the final Year of the Performance Period.
7.2 Timing of Payment.
Payment of Performance Awards shall be made as soon as practicable following the
release of the Company's audited financial statements for the end of the final
Year of the Performance Period.
7.3 Form of Payment.
Performance Awards shall be calculated as a dollar amount, which dollar amount
shall be paid in cash or Stock or a combination thereof as the Committee in its
sole discretion shall determine. The number of shares of Stock to be issued
shall be calculated by dividing the dollar amount of the Performance Award less
cash received, by the Fair Market Value of the Stock on the second business day
following the date on which the Company announces its fiscal year-end results
for the final Year of the Performance Period.
Section 8. Termination of Employment.
8.1 Termination of Employment.
Except as otherwise provided in Sections 8.2 and 11.1, in the event a
Participant's employment with the Company and all of its subsidiaries is
terminated for any reason, all rights and unpaid Performance Awards under this
Plan shall be immediately forfeited.
8.2 Termination of Employment Due to Death, Disability, or Retirement.
If, prior to the end of a Performance Period, a Participant's employment with
the Company and all of its subsidiaries is terminated by reason of death,
disability or retirement, the Committee may, in its discretion, pay to the
Participant all or any portion of the Performance Award for such Performance
Period. The portion of a Performance Award, if any, which is payable under
this subsection shall be paid to the Participant or, in the event of the
death of the Participant, the Participant's designated beneficiary, or in the
absence of such designation, to the Participant's estate at such time and in
such form as the Committee shall, in its sole discretion, determine. The
Committee shall determine whether a Participant's termination of employment
is due to death, disability or retirement.
Section 9. Rights of Employees and Participants.
9.1 Employment.
Nothing in this Plan shall interfere with or limit in any way the right of the
Company or any of its Subsidiaries to terminate any Employee's or Participant's
employment at any time, with or without cause, or to adjust his compensation,
and nothing in this Plan shall confer upon any Employee or Participant any
right to continue in the employ of the Company or any of its Subsidiaries.
9.2 Nontransferability.
No right or interest of any Participant in this Plan shall be assignable or
transferable, or subject to any lien, directly, by operation of law, or
otherwise, including execution, levy, garnishment, attachment, pledge, and
bankruptcy. Upon any attempt to assign, transfer, levy, pledge or otherwise
dispose of any right or interest in this Plan, contrary to the provisions
hereof, or upon the levy of any attachment or similar process upon any right
or interest conferred hereby, such right or interest shall immediately become
null and void. In the event of a Participant's death, payment of any amounts
due under this Plan shall be made to the Participant's designated
beneficiary, or in the absence of such designation, to the Participant's estate.
9.3 Stockholder Rights.
A Participant shall not have any dividend, voting or other stockholder rights by
reason of a grant of a Target Award prior to the issuance of any shares of Stock
in payment of all or any portion of a Performance Award.
Section 10. Administration.
10.1 Administration.
The Committee shall be responsible for the administration of the Plan. The
Committee is authorized to interpret the Plan; to prescribe, amend, and rescind
rules and regulations relating to the Plan; to provide for conditions and
assurances deemed necessary or advisable to protect the interests of the
Company; and to make all other determinations necessary or advisable for the
administration of the Plan, but only to the extent not contrary to the express
provisions of the Plan. The Committee shall determine, within the limits of the
express provisions of the Plan, the Employees to whom, and the time or times at
which, participation shall be extended, and the amount of the Participant's
Target Award. The Committee shall also be responsible for the establishment of
the Company's performance criteria and ranges, and determining the length of
Performance Periods. The determinations of the Committee and each
interpretation or other action made or taken pursuant to the provisions of
the Plan by the Committee shall be final, binding and conclusive for all
purposes and upon all persons interested in the Plan.
10.2 Actions by the Committee.
The Committee shall hold its meetings at such times and places as it may
determine and may make such rules and regulations for the conduct of its
business as it considers advisable. A majority of the members of the
Committee shall constitute a quorum and any action taken by a majority of the
members present at a meeting at which a quorum of members is present shall be
considered an action of the Committee. The Committee also may take fully
effective actions by a written instrument signed by a majority of the members
of the Committee. The Committee may select one of its members as its
Chairman and may appoint a secretary of the Committee (who need not be a
member of the Committee).
10.3 Indemnification.
No member of the Committee shall be liable, in the absence of bad faith, for any
act or omission with respect to his service on the Committee relating to the
Plan. Service on the Committee shall constitute service as a member of the Board
so that members of the Committee shall be entitled to indemnification and
reimbursement as members of the Board to the full extent provided for at any
time by law, the Company's Certificate of Incorporation, the Company's
by-laws and in any insurance policy or other agreement intended for the
benefit of the Board.
Section 11. Merger, Consolidation, and Event of Control.
11.1 Merger, Consolidation and Event of Control.
If the stockholders of the Company shall approve the dissolution or liquidation
of the Company or shall approve a merger or consolidation of the Company in
which the Company is not the surviving corporation, or there shall have
occurred an Event of Control, all Performance Periods shall, notwithstanding
any provisions to the contrary, end as of the effective date of such
dissolution, liquidation, merger, consolidation or Event of Control.
Performance Awards shall be paid as if Target Awards are 100 percent earned
for each such Performance Period and shall be paid, notwithstanding the
provisions of Section 7.2, as soon as practicable after the effective date of
such dissolution, liquidation, merger, consolidation or Event of Control.
Section 12. General Provisions.
12.1 Requirements of Law.
The issuance of Stock and the payment of cash pursuant to this Plan shall be
subject to all applicable laws, rules and regulations, and shares shall not be
issued nor cash payments made except upon approval of proper government
agencies or stock exchanges as may be required.
12.2 Governing Law.
The Plan, and all agreements hereunder, shall be construed in accordance with
and governed by the laws of the State of Illinois.
12.3 No Strict Construction.
No rules of strict construction shall be applied against the Company, the
Committee or any other person in the interpretation of any of the terms of this
Plan or any rule or procedure established by the Committee.
12.4 Successors.
This Plan is binding on and will inure to the benefit of any successor to the
Company, whether by way of merger, consolidation, purchase or otherwise.
12.5 Designation of Beneficiaries. Each Participant from time to
time may name any person (who may be named concurrently, contingently or
successively) to whom the Participant's Performance Awards under the Plan are to
be paid if the Participant dies before he receives all of such Performance
Awards. Each such beneficiary designation will revoke all prior designations
by the Participant, shall not require the consent of any previously named
beneficiary, shall be in a form prescribed by the Committee, and will be
effective only when filed with the Committee during the Participant's lifetime.
If a Participant fails to designate a beneficiary before his death, as provided
above, or if the beneficiary designated by a Participant dies before the date of
the Participant's death, the Committee shall pay the Participant's Performance
Awards to the Participant's estate.
12.6 Facility of Payment.
When a person entitled to a Performance Award under the Plan is under a legal
disability or, in the Committee's opinion, is in any way incapacitated so as to
be unable to manage his affairs, the Committee may direct the payment of his
Performance Awards to such person's legal representative, or to a relative or
friend of such person for such person's benefit, or the Committee may direct the
application of such Performance Awards for the benefit of such person in such
manner as the Committee considers advisable. Any payments made in accordance
with the preceding sentence shall be a full and complete discharge of any
liability for such payment under the Plan.
12.7 No Funding.
Each Participant is and shall remain an unsecured creditor of the Company
with respect to any amounts owed to him under this Plan. If the Company should
set aside amounts for the purpose of making payments under this Plan, such
amounts shall be solely for the Company's own account and shall not in any way
be considered to create a fund or trust for the benefit of the Participant or
his beneficiaries.
12.8 Withholding Taxes.
The Company shall have the right to deduct from all payments under this Plan an
amount necessary to satisfy any Federal, state, or local withholding tax
requirements.
12.9 Taxes.
If, for any reason, any part or all of the amounts payable to the Participant
pursuant to this Plan would constitute an "excess parachute payment" within
the meaning of Section 208G(b)(1) of the Internal Revenue Code of 1986, as
amended, the Committee shall reduce such of the amounts payable to the
Participant as it deems necessary to avoid the imposition of any excise tax on
excess parachute payments pursuant to Section 4999 of the Internal Revenue Code
of 1986, as amended.
Section 13. Amendment, Modification, and Termination of the Plan.
13.1 Amendment, Modification, and Termination of the Plan.
The Board, upon recommendation of the Committee, at any time may terminate,
amend or modify the Plan, provided, however, that no such action of the
Board, without approval of the stockholders, may:
(a) Increase the total amount of Stock which may be awarded under the Plan,
except as provided in Section 3.2 of the Plan.
(b) Change the class of Employees eligible to participate in the Plan.
(c) Withdraw the administration of the Plan from the Committee.
(d) Permit any person, while a member of the Committee, to be eligible to
participate in the Plan.
(e) Materially increase the cost of the Plan.
(f) Extend the duration of the Plan.
Unless the Plan is earlier terminated, the Plan will terminate and no Target
Awards will be granted after October 26, 1998. No termination of the Plan
shall, without the Participant's consent, alter a Participant's right to earn
any Target Award previously granted to him or to be paid for the Performance
Award determined with reference to such Target Award in accordance with the
terms of the Plan. Following the termination of the Plan, the Committee
shall continue to have its full powers under the Plan except with respect to
the granting of Target Awards under the Plan.
--------------------
AGREEMENT AND PLAN OF MERGER
AMONG
TEXTRON INC.,
E.I. TEXTRON INC.,
AND
ELCO INDUSTRIES, INC.
DATED AS OF SEPTEMBER 12, 1995
--------------------
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TABLE OF CONTENTS
Page
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ARTICLE I THE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 The Offer. . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 Company Actions. . . . . . . . . . . . . . . . . . . . . .3
ARTICLE II THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . .5
Section 2.2 Effective Time . . . . . . . . . . . . . . . . . . . . . .5
Section 2.3 Effects of the Merger. . . . . . . . . . . . . . . . . . .5
Section 2.4 Certificate of Incorporation and Bylaws; Directors and
Officers. . . . . . . . . . . . . . . . . . . . . . . . .5
Section 2.5 Conversion of Securities . . . . . . . . . . . . . . . . .6
Section 2.6 Exchange of Certificates . . . . . . . . . . . . . . . . .6
Section 2.7 Dissenting Company Common Shares . . . . . . . . . . . . .7
Section 2.8 Merger Without Meeting of Stockholders . . . . . . . . . .8
Section 2.9 No Further Ownership Rights in Common Stock. . . . . . . .8
Section 2.10 Closing of Company Transfer Books. . . . . . . . . . . . .8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT. . . . . . . . . . . . .8
Section 3.1 Organization, Standing and Power . . . . . . . . . . . . .8
Section 3.2 Authority; Non-Contravention . . . . . . . . . . . . . . .8
Section 3.3 Schedule 14D-9, Information and Proxy Statements . . . . 10
Section 3.4 Financing. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.5 Brokers and Finders. . . . . . . . . . . . . . . . . . . 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . . . . . . . . 11
Section 4.1 Organization, Standing and Power . . . . . . . . . . . . 11
Section 4.2 Capital Structure. . . . . . . . . . . . . . . . . . . . 11
Section 4.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.4 Other Interests. . . . . . . . . . . . . . . . . . . . . 12
Section 4.5 Authority; Non-Contravention . . . . . . . . . . . . . . 12
Section 4.6 SEC Documents. . . . . . . . . . . . . . . . . . . . . . 14
Section 4.7 Offer Documents and Proxy Statement. . . . . . . . . . . 15
Section 4.8 Absence of Certain Events. . . . . . . . . . . . . . . . 15
Section 4.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . 16
Section 4.10 Compliance with Applicable Law . . . . . . . . . . . . . 16
Section 4.11 Employee Plans . . . . . . . . . . . . . . . . . . . . . 17
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Section 4.12 Employment Relations and Agreement . . . . . . . . . . . 19
Section 4.13 Limitation on Business Conduct . . . . . . . . . . . . . 19
Section 4.14 Environmental Laws and Regulations . . . . . . . . . . . 20
Section 4.15 Patents, Trademarks, Copyrights. . . . . . . . . . . . . 20
Section 4.16 Takeover Statutes. . . . . . . . . . . . . . . . . . . . 21
Section 4.17 Acquiring Person . . . . . . . . . . . . . . . . . . . . 21
Section 4.18 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4.19 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V REPRESENTATIONS AND WARRANTIES REGARDING SUB. . . . . . . . . . . 22
Section 5.1 Organization and Standing. . . . . . . . . . . . . . . . 22
Section 5.2 Capital Structure. . . . . . . . . . . . . . . . . . . . 22
Section 5.3 Authority; Non-Contravention . . . . . . . . . . . . . . 23
ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS. . . . . . . . . . . . 23
Section 6.1 Conduct of Business by the Company Pending the Merger. . 23
Section 6.2 Acquisition Proposals. . . . . . . . . . . . . . . . . . 26
Section 6.3 Annual Meeting of Stockholders . . . . . . . . . . . . . 27
Section 6.4 Conduct of Business of Sub Pending the Merger. . . . . . 27
ARTICLE VII ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . . . 27
Section 7.1 Company Stockholder Approval; Proxy Statement. . . . . . 27
Section 7.2 Access to Information; Confidentiality . . . . . . . . . 28
Section 7.3 Fees and Expenses. . . . . . . . . . . . . . . . . . . . 29
Section 7.4 Company Stock Options. . . . . . . . . . . . . . . . . . 30
Section 7.5. Performance Shares . . . . . . . . . . . . . . . . . . . 30
Section 7.6 Reasonable Best Efforts. . . . . . . . . . . . . . . . . 30
Section 7.7 Public Announcements . . . . . . . . . . . . . . . . . . 31
Section 7.8 Indemnification; Directors and Officers Insurance. . . . 31
Section 7.9 Employees. . . . . . . . . . . . . . . . . . . . . . . . 32
Section 7.10 Board Representation . . . . . . . . . . . . . . . . . . 33
Section 7.11 Notification of Certain Matters. . . . . . . . . . . . . 34
Section 7.12 Okabe. . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.13 Nagoya Notification. . . . . . . . . . . . . . . . . . . 34
ARTICLE VIII CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . 34
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger. . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . 35
Section 9.1 Termination. . . . . . . . . . . . . . . . . . . . . . . 35
Section 9.2 Effect of Termination. . . . . . . . . . . . . . . . . . 36
Section 9.3 Amendment. . . . . . . . . . . . . . . . . . . . . . . . 37
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Section 9.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 9.5 Procedure for Termination, Amendment or Waiver . . . . . 37
ARTICLE X GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 37
Section 10.1 Non-Survival of Representations and Warranties . . . . . 37
Section 10.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 10.3 Interpretation . . . . . . . . . . . . . . . . . . . . . 38
Section 10.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . 39
Section 10.5 Entire Agreement; No Third-Party Beneficiaries . . . . . 39
Section 10.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . 39
Section 10.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . 39
Section 10.8 Severability . . . . . . . . . . . . . . . . . . . . . . 39
Section 10.9 Enforcement of this Agreement. . . . . . . . . . . . . . 39
Section 10.10 Incorporation of Exhibits. . . . . . . . . . . . . . . . 40
EXHIBIT A CONDITIONS OF THE OFFER. . . . . . . . . . . . . . . . . . . . . .A-1
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<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 12, 1995 (this
"Agreement"), among Textron Inc., a Delaware corporation ("Parent"), E. I.
Textron Inc., a Delaware corporation ("Sub") and a wholly owned subsidiary of
Parent, and Elco Industries, Inc., a Delaware corporation (the "Company") (Sub
and the Company being hereinafter collectively referred to as the "Constituent
Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company have approved the acquisition of the Company by Parent pursuant to a
tender offer (the "Offer") by Sub for all of the outstanding shares of Common
Stock, par value $5.00 per share ("Common Stock"), of the Company together with
the associated Rights (as hereafter defined) at a price of $36.00 per share, net
to the seller in cash, without interest, followed by a merger (the "Merger") of
Sub with and into the Company all upon the terms and subject to the conditions
set forth herein;
WHEREAS, the Board of Directors of the Company has adopted resolutions
approving the Offer and the Merger and recommending that the Company's
stockholders accept the Offer; and
WHEREAS, pursuant to the Merger, each issued and outstanding share of
Common Stock not owned directly or indirectly by Parent or the Company, except
shares of Common Stock held by holders who comply with the provisions of
Delaware law regarding the right of stockholders to dissent from the Merger and
require appraisal of their shares of Common Stock, will be converted into the
right to receive the per share consideration paid pursuant to the Offer.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, Parent,
Sub and the Company hereby agree as follows:
ARTICLE I
THE OFFER
Section 1.1 THE OFFER. (a) Subject to the provisions of this
Agreement, within five business days after the first public announcement of this
Agreement, Sub
<PAGE>
shall, and Parent shall cause Sub to, commence, within the meaning of Rule 14d-2
under the Exchange Act (as hereinafter defined), the Offer. The obligation of
Sub to, and of Parent to cause Sub to, commence the Offer and accept for
payment, and pay for, any shares of Common Stock (and the associated Rights)
tendered pursuant to the Offer shall be subject to the conditions set forth in
Exhibit A. The Offer shall initially expire 20 business days after the date of
its commencement, unless this Agreement is terminated in accordance with Article
IX, in which case the Offer (whether or not previously extended in accordance
with the terms hereof) shall expire on such date of termination. Without the
prior written consent of the Company, Sub shall not (i) impose conditions to the
Offer in addition to those set forth in Exhibit A, (ii) modify or amend the
conditions set forth in Exhibit A or any other term of the Offer in a manner
adverse to the holders of shares of Common Stock, (iii) waive or amend (below
50.01% of the outstanding shares of Common Stock on a fully diluted basis) the
Minimum Condition (as defined in Exhibit A), (iv) reduce the number of shares of
Common Stock subject to the Offer, (v) reduce the price per share of Common
Stock to be paid pursuant to the Offer, (vi) except as provided in the following
sentence, extend the Offer, if all of the Offer conditions are satisfied or
waived, or (vii) change the form of consideration payable in the Offer.
Notwithstanding the foregoing, Sub may, without the consent of the Company,
extend the Offer at any time, and from time to time, (i) if at the then
scheduled expiration date of the Offer any of the conditions to Sub's obligation
to accept for payment and pay for shares of Common Stock shall not have been
satisfied or waived, until the such time as such conditions are satisfied or
waived; (ii) for any period required by any rule, regulation, interpretation or
position of the SEC (as hereinafter defined) or its staff applicable to the
Offer; or (iii) if all Offer conditions are satisfied or waived but the number
of shares of Common Stock tendered is less than 90% of the then outstanding
number of shares of Common Stock, for an aggregate period of not more than 10
business days (for all such extensions) beyond the latest expiration date that
would be permitted under clause (i) or (ii) of this sentence. So long as this
Agreement is in effect and the Offer conditions have not been satisfied or
waived, Sub shall, and Parent shall cause Sub to, cause the Offer not to expire.
Subject to the terms and conditions of the Offer (but subject to the right of
termination in accordance with Article IX), Sub shall, and Parent shall cause
Sub to, pay for all shares of Common Stock validly tendered and not withdrawn
pursuant to the Offer as soon as practicable after the expiration of the Offer.
(b) On the date of commencement of the Offer, Parent and Sub shall
file with the Securities and Exchange Commission (the "SEC") a Tender Offer
Statement on Schedule 14D-1 with respect to the Offer, which shall contain an
offer to purchase and a related letter of transmittal (such Schedule 14D-1 and
the documents therein pursuant to which the Offer will be made, together with
any supplements or amendments thereto, the "Offer Documents"). The Company and
its counsel shall be given an opportunity to review and comment upon the Offer
Documents prior to the filing thereof with the SEC.
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<PAGE>
The Offer Documents shall comply as to form in all material respects with the
requirements of the Securities Exchange Act of 1934, as amended (including the
rules and regulations promulgated thereunder, the "Exchange Act"), and on the
date filed with the SEC and on the date first published, sent or given to the
Company's stockholders, the Offer Documents shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that no
representation is made by Parent or Sub with respect to information supplied by
the Company for inclusion in the Offer Documents. Each of Parent, Sub and the
Company agrees promptly to correct any information provided by it for use in the
Offer Documents if and to the extent that such information shall have become
false or misleading in any material respect, and each of Parent and Sub further
agrees to take all steps necessary to cause the Offer Documents as so corrected
to be filed with the SEC and to be disseminated to holders of shares of Common
Stock, in each case as and to the extent required by applicable federal
securities laws. Parent and Sub agree to provide the Company and its counsel in
writing with any comments Parent, Sub or their counsel may receive from the SEC
or its staff with respect to the Offer Documents promptly upon receipt of such
comments.
Section 1.2 COMPANY ACTIONS. (a) The Company hereby approves of
and consents to the Offer and represents that the Board of Directors of the
Company at a meeting duly called and held has duly adopted resolutions
(i) approving this Agreement, the Offer and the Merger, (ii) determining that
the terms of the Offer and Merger are fair to, and in the best interests of, the
Company and its stockholders, and (iii) recommending that the Company's
stockholders accept the Offer and tender their shares of Common Stock and
approve the Merger and this Agreement. The Company hereby consents to the
inclusion in the Offer Documents of such recommendation of the Board of
Directors of the Company. The Company represents that its Board of Directors
has received the written opinion (the "Fairness Opinion") of The Chicago
Dearborn Company (the "Financial Advisor") that the proposed consideration to be
received by the holders of shares of Common Stock pursuant to the Offer and the
Merger is fair to such holders from a financial point of view. The Company has
been authorized by the Financial Advisor to permit, subject to the prior review
and consent by the Financial Advisor (such consent not to be unreasonably
withheld), the inclusion of the Fairness Opinion (or a reference thereto) in the
Offer Documents, the Schedule 14D-9 (as hereinafter defined) and the Proxy
Statement (as hereinafter defined).
(b) On the date the Offer Documents are filed with the SEC, the
Company shall file with the SEC a Solicitation/Recommendation Statement on
Schedule 14D-9 with respect to the Offer (such Schedule 14D-9, as amended from
time to time, the "Schedule 14D-9") containing the recommendations described in
paragraph (a) above and shall mail the Schedule 14D-9 to the stockholders of the
Company as required by Rule
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<PAGE>
14D-9 promulgated under the Exchange Act. To the extent practicable, the
Company shall cooperate with Parent in mailing or otherwise disseminating the
Schedule 14D-9 with the appropriate Offer Documents to the Company's
stockholders. Parent and its counsel shall be given an opportunity to review
and comment upon the Schedule 14D-9 prior to the filing thereof with the SEC.
The Schedule 14D-9 shall comply as to form in all material respects with the
requirements of the Exchange Act and, on the date filed with the SEC and on the
date first published, sent or given to the Company's stockholders, shall not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by the Company with respect to
information supplied by Parent or Sub for inclusion in the Schedule 14D-9. Each
of the Company, Parent and Sub agrees promptly to correct any information
provided by it for use in the Schedule 14D-9 if and to the extent that such
information shall have become false or misleading in any material respect, and
the Company further agrees to take all steps necessary to cause the Schedule
14D-9 as so corrected to be filed with the SEC and disseminated to the holders
of shares of Common Stock, in each case as and to the extent required by
applicable federal securities laws. The Company agrees to provide Parent and
Sub and their counsel in writing with any comments the Company or its counsel
may receive from the SEC or its staff with respect to the Schedule 14D-9
promptly after the receipt of such comments.
(c) In connection with the Offer, the Company shall cause its
transfer agent to promptly furnish Sub with a list of the holders of Common
Stock and mailing labels containing the names and addresses of the record
holders of Common Stock as of a recent date and of those persons becoming record
holders subsequent to such date, together with copies of all lists of
stockholders, security position listings (including shares of Common Stock held
by depositories) and computer files and all other information in the Company's
possession or control regarding the beneficial owners of Common Stock, and shall
furnish to Sub such information and assistance (including updated lists of
stockholders, security position listings and computer files) as Sub may
reasonably request in communicating the Offer to the Company's stockholders.
Parent and Sub shall treat the foregoing information provided by the Company
pursuant to this Section 1.2(c) as "Information" under (and as defined in) that
certain letter agreement, dated September 1, 1995 (as amended, modified or
supplemented, the "Confidentiality Agreement") between the Company and Parent.
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<PAGE>
ARTICLE II
THE MERGER
Section 2.1 THE MERGER. Upon the terms and subject to the
conditions hereof, and in accordance with the General Corporation Law of the
State of Delaware, as amended (the "DGCL"), Sub shall be merged with and into
the Company at the Effective Time (as hereinafter defined). Following the
Merger, the separate corporate existence of Sub shall cease and the Company
shall continue as the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all the rights and obligations of Sub in accordance
with the DGCL.
Section 2.2 EFFECTIVE TIME. The Merger shall become effective when
the Certificate of Merger or, if applicable, the Certificate of Ownership and
Merger (each, the "Certificate of Merger"), executed in accordance with the
relevant provisions of the DGCL, are accepted for record by the Secretary of
State of the State of Delaware. When used in this Agreement, the term
"Effective Time" shall mean the later of the date and time at which the
Certificate of Merger is accepted for record or such later time established by
the Certificate of Merger. The filing of the Certificate of Merger shall be
made as soon as reasonably practicable (but not later than the third business
day) after the satisfaction or waiver of the conditions to the Merger set forth
herein.
Section 2.3 EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in the DGCL.
Section 2.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND
OFFICERS. (a) The Certificate of Incorporation of Sub, as in effect immediately
prior to the Effective Time, shall be amended to change the name of Sub to "Elco
Industries, Inc." and, as so amended, the Certificate of Incorporation and the
Bylaws of Sub shall be the Certificate of Incorporation and the Bylaws of the
Surviving Corporation until thereafter changed or amended as provided therein or
by applicable law.
(b) The directors of Sub at the Effective Time shall, from and after
the Effective Time, be the initial directors of the Surviving Corporation until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal, in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws.
(c) The officers of the Company at the Effective Time and such other
persons as designated by Parent shall, from and after the Effective Time, be the
initial officers of the Surviving Corporation until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal, in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
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<PAGE>
Section 2.5 CONVERSION OF SECURITIES. As of the Effective Time, by
virtue of the Merger and without any action on the part of any stockholder of
the Company:
(a) All shares of Common Stock that are held in the treasury of
the Company or by any wholly owned Subsidiary (as hereinafter defined)
of the Company and any shares of Common Stock owned by Parent, Sub or
any other wholly owned Subsidiary of Parent shall be canceled and no
consideration shall be delivered in exchange therefor.
(b) Each share of Common Stock (together with the associated
Rights) issued and outstanding immediately prior to the Effective Time
(other than shares to be canceled in accordance with Section 2.5(a)
and other than Dissenting Company Common Shares (as defined in Section
2.7)) shall be converted into the right to receive from the Surviving
Corporation in cash, without interest, the per share consideration in
the Offer (the "Merger Consideration"). All such shares of Common
Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and each holder of a certificate
or certificates (the "Certificates") representing any such shares
shall cease to have any rights with respect thereto, except the right
to receive the Merger Consideration.
(c) Each issued and outstanding share of the capital stock of
Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, par value $.01 per share, of the
Surviving Corporation.
Section 2.6 EXCHANGE OF CERTIFICATES. (a) PAYING AGENT. Prior to
the Effective Time, Parent shall appoint a commercial bank or trust company to
act as paying agent hereunder (the "Paying Agent") for the payment of the Merger
Consideration upon surrender of Certificates. All of the fees and expenses of
the Paying Agent shall be borne by Parent.
(b) SURVIVING CORPORATION TO PROVIDE FUNDS. Parent shall take all
steps necessary to enable and cause the Surviving Corporation to provide the
Paying Agent with cash in amounts necessary to pay for all of the shares of
Common Stock pursuant to Section 2.5 (determined as though there are no
Dissenting Company Common Shares), when and as such amounts are needed by the
Paying Agent.
(c) EXCHANGE PROCEDURES. As soon as practicable after the Effective
Time, the Paying Agent shall mail to each holder of record of a Certificate,
other than Parent, the Company and any wholly owned Subsidiary of Parent or the
Company, (i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
actual delivery of the Certificates to the Paying Agent and shall be in a form
and have such other provisions as Parent may
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reasonably specify) and (ii) instructions for the use thereof in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent or to such other
agent or agents as may be appointed by the Surviving Corporation, together with
such letter of transmittal, duly executed, and such other documents as may
reasonably be required by the Paying Agent, the holder of such Certificate shall
be entitled to receive in exchange therefor the amount of cash into which the
shares of Common Stock theretofore represented by such Certificate shall have
been converted pursuant to Section 2.5, and the Certificates so surrendered
shall forthwith be canceled. No interest will be paid or will accrue on the
cash payable upon the surrender of any Certificate. If payment is to be made to
a person other than the person in whose name the Certificate so surrendered is
registered, it shall be a condition of payment that such Certificate shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by reason
of the transfer of such Certificate or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.6, each Certificate (other than
Certificates representing Dissenting Company Common Shares and Certificates
representing any shares of Common Stock owned by Parent or any wholly owned
Subsidiary of Parent or held in the treasury of the Company or by any wholly
owned Subsidiary of the Company) shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the amount of
cash, without interest, into which the shares of Common Stock theretofore
represented by such Certificate shall have been converted pursuant to Section
2.5. Notwithstanding the foregoing, none of the Paying Agent, the Surviving
Corporation or any party hereto shall be liable to a former stockholder of the
Company for any cash or interest delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
Section 2.7 DISSENTING COMPANY COMMON SHARES. Notwithstanding any
provision of this Agreement to the contrary, if required by the DGCL but only to
the extent required thereby, shares of Common Stock which are issued and
outstanding immediately prior to the Effective Time and which are held by
holders of such shares of Common Stock who have properly exercised appraisal
rights with respect thereto in accordance with Section 262 of the DGCL (the
"Dissenting Company Common Shares") will not be exchangeable for the right to
receive the Merger Consideration, and holders of such shares of Common Stock
will be entitled to receive payment of the appraised value of such shares of
Common Stock in accordance with the provisions of such Section 262 unless and
until such holders fail to perfect or effectively withdraw or lose their rights
to appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such right, such
shares of Common Stock will thereupon be treated as if they had been converted
into and have become exchangeable for, at the Effective Time, the right to
receive the Merger Consideration,
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without any interest thereon. The Company will give Parent prompt notice of any
demands received by the Company for appraisals of shares of Common Stock. The
Company shall not, except with the prior written consent of Parent, make any
payment with respect to any demands for appraisal or offer to settle or settle
any such demands.
Section 2.8 MERGER WITHOUT MEETING OF STOCKHOLDERS.
Notwithstanding the foregoing in this Article II, in the event that Sub, or any
other direct or indirect subsidiary of Parent, shall acquire at least 90 percent
of the outstanding shares of Common Stock, the parties hereto agree to take all
necessary and appropriate action to cause the Merger to become effective as soon
as practicable after the expiration of the Offer without a meeting of
stockholders of the Company, in accordance with Section 253 of the DGCL.
Section 2.9 NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK. From and
after the Effective Time, the holders of shares of Common Stock which were
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Common Stock except as otherwise provided
in this Agreement or by applicable law. All cash paid upon the surrender of
Certificates in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to the shares of Common
Stock.
Section 2.10 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective
Time, the stock transfer books of the Company shall be closed and no transfer of
shares of Common Stock shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged as provided in this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 3.1 ORGANIZATION, STANDING AND POWER. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted.
Section 3.2 AUTHORITY; NON-CONTRAVENTION. Parent has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Parent and the consummation by Parent of the transactions contemplated hereby
have
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been duly authorized by all necessary corporate action on the part of Parent.
This Agreement has been duly executed and delivered by Parent and (assuming the
valid authorization, execution and delivery of this Agreement by the Company)
constitutes a valid and binding obligation of Parent enforceable against Parent
in accordance with its terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby and compliance
with the provisions hereof will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or to the loss of a material benefit under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties or
assets of Parent or any of its Subsidiaries under, any provision of (i) the
Certificate of Incorporation or Bylaws of Parent (true and complete copies of
which have been delivered to the Company) or the comparable charter or
organization documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent or any
of its Subsidiaries or (iii) subject to the government filings and other matters
referred to in the following sentence, any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Parent or any of its
Subsidiaries or any of their respective properties or assets, other than, in the
case of clauses (ii) or (iii), any such conflicts, violations, defaults, rights,
losses, liens, security interests, charges or encumbrances that, individually or
in the aggregate, would not have a Material Adverse Effect (as defined below) on
Parent, materially impair the ability of Parent or Sub to perform their
respective obligations hereunder or prevent the consummation of any of the
transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any domestic (federal and state), foreign
or supranational court, commission, governmental body, regulatory or
administrative agency, authority or tribunal (a "Governmental Entity") is
required by or with respect to Parent or any of its Subsidiaries in connection
with the execution and delivery of this Agreement by Parent or Sub or is
necessary for the consummation of the Offer, the Merger and the other
transactions contemplated by this Agreement, except for (i) in connection or in
compliance with the Exchange Act, (ii) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and appropriate documents
with the relevant authorities of other states in which the Company is qualified
to do business, (iii) such filings and consents, if any, as may be required
under any environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval triggered by the Offer, the Merger
or the transactions contemplated by this Agreement, (iv) such filings and
approvals as may be required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "Improvements Act"), (v) such filings and approvals
as may be required by any applicable state securities or "blue sky" laws or
state takeover laws, (vi) such filings, consents, approvals, orders,
registrations, declarations and filings as may be required under the laws of any
foreign country in which Parent or
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any of its Subsidiaries conducts any business or owns any assets, and (vii) such
other consents, orders, authorizations, approvals, registrations, declarations
and filings the failure of which to be obtained or made would not, individually
or in the aggregate, have a Material Adverse Effect on Parent, materially impair
the ability of Parent or Sub to perform their respective obligations hereunder
or prevent the consummation of any of the transactions contemplated hereby. For
purposes of this Agreement, (a) "Material Adverse Change" or "Material Adverse
Effect" means, when used with respect to Parent, Sub or the Company, as the case
may be, any change or effect, either individually or in the aggregate, that is
materially adverse to the business, assets, financial condition or results of
operations of Parent and its Subsidiaries taken as a whole, Sub, or the Company
and its Subsidiaries taken as a whole, as the case may be, and (b) "Subsidiary"
means any corporation, partnership, joint venture or other legal entity of which
Parent or the Company, as the case may be (either alone or through or together
with any other Subsidiary), owns, directly or indirectly, 50% or more of the
stock or other equity interests the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
Section 3.3 SCHEDULE 14D-9, INFORMATION AND PROXY STATEMENTS. None
of the information to be supplied by Parent or Sub for inclusion or
incorporation by reference in the Offer Documents, the Schedule 14D-9, the
information statement, if any, filed by the Company in connection with the Offer
pursuant to Rule 14F-1 promulgated under the Exchange Act (the "Information
Statement"), or the proxy statement (together with any amendments or supplements
thereto, the "Proxy Statement") relating to the Stockholder Meeting (as defined
in Section 7.1) will (i) in the case of the Offer Documents, the Schedule 14D-9
and the Information Statement, at the respective times such documents are filed
with the SEC and are first published, sent or given to the Company's
stockholders, or (ii) in the case of the Proxy Statement, at the time of the
mailing of the Proxy Statement, at the time of the Stockholder Meeting and at
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 3.4 FINANCING. Parent or Sub has sufficient funds
available to enable it to purchase all outstanding shares on a fully diluted
basis of Common Stock pursuant to the Offer and the Merger and to pay all fees
and expenses related to the transactions contemplated by this Agreement.
Section 3.5 BROKERS AND FINDERS. Except for the fees and expenses
payable to Dillon, Read & Co. Inc. by Parent, neither Parent nor Sub has
employed any investment banker, broker, finder, consultant or intermediary in
connection with the transactions contemplated by this Agreement which would be
entitled to any investment
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banking, brokerage, finder's or similar fee or commission in connection with
this Agreement or the transactions contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 4.1 ORGANIZATION, STANDING AND POWER. The Company and each
of its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to carry on its business as now
being conducted. The Company and each of its Subsidiaries is duly qualified to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or held under lease or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
and in good standing would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
Section 4.2 CAPITAL STRUCTURE. The authorized capital stock of the
Company consists of 20,000,000 shares of Common Stock and 250,000 shares of
Preferred Stock, par value $1.00 per share ("Preferred Stock"). At the close of
business on September 8, 1995, (i) 4,982,869 shares of Common Stock were issued
and outstanding, (ii) 225,000 shares of Common Stock were reserved for issuance
upon the exercise of outstanding Company Stock Options (as defined in Section
7.4) and (iii) 4,766 shares of Common Stock were held by the Company in its
treasury. As of the date hereof there are no shares of Preferred Stock
outstanding. All outstanding shares of capital stock of the Company are validly
issued, fully paid and nonassessable and not subject to preemptive rights. As
of September 8, 1995, there were 153,875 Company Stock Options outstanding, in
the aggregate, under the Company's 1991 Stock Option Plan and the 1992 Stock
Option Plan for Non-employee Directors (the "Stock Plans") to acquire 153,875
shares of Common Stock. Except for such Company Stock Options and rights issued
pursuant to the Company Rights Agreement (as defined in Section 4.17) and as set
forth in the Company Disclosure Letter (as defined below), there are no options,
warrants, rights, commitments, agreements, arrangements or undertakings of any
kind to which the Company or any of its Subsidiaries is a party or by which any
of them is bound obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of the Company or of any of its
Subsidiaries. The Company Disclosure Letter sets forth the aggregate exercise
price for all outstanding Company Stock Options as of September 8, 1995. Since
September 8, 1995, no shares of the Company's capital stock have been
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issued other than pursuant to the exercise of Company Stock Options already in
existence on such date and the Company has not granted any stock options for any
capital stock of the Company.
Section 4.3 SUBSIDIARIES. Except as set forth in the letter from
the Company to Parent dated the date hereof, which letter relates to this
Agreement and is designated therein as the Company Disclosure Letter (the
"Company Disclosure Letter"), all of the outstanding capital stock of, or
ownership interests in, each Subsidiary of the Company is owned by the Company,
directly or indirectly, free and clear of any security interests, liens, claims,
pledges, options, rights of first refusal, agreements, charges or other
encumbrances of any nature ("Liens") or any other limitation or restriction
(including any restriction on the right to vote or sell the same, except as may
be provided as a matter of law). Except as set forth in the Company Disclosure
Letter, there are no (i) securities of the Company or any of its Subsidiaries
convertible into or exchangeable for, (ii) options or other rights to acquire
from the Company or any of its Subsidiaries, or (iii) other contracts,
understandings, arrangements or obligations (whether or not contingent)
providing for the issuance or sale, directly or indirectly, in each case, with
respect to any capital stock or other ownership interests in, or any other
securities of, any Subsidiary of the Company. There are no outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any outstanding shares of capital stock or other
ownership interest in any Subsidiary of the Company nor are there any
irrevocable proxies with respect to any shares of the capital stock of any of
the Company's Subsidiaries. All of the shares of capital stock of each
Subsidiary of the Company are validly existing, fully paid and nonassessable.
Except for statutory and regulatory restrictions or as disclosed in the Company
Disclosure Letter, there are no restrictions which prevent or limit the payment
of dividends by any of the Company's Subsidiaries.
Section 4.4 OTHER INTERESTS. Except for the Company's interest in
its Subsidiaries or as set forth in the Company Disclosure Letter, neither the
Company nor its Subsidiaries owns directly or indirectly any equity interest or
equity investment in, nor is the Company or any of its Subsidiaries subject to
any obligation or requirement to provide for or to make any equity investment
in, any corporation, limited liability company, partnership, joint venture,
business, trust or entity.
Section 4.5 AUTHORITY; NON-CONTRAVENTION. The Board of Directors
of the Company has approved this Agreement and determined that the Offer and the
Merger are fair and in the best interests of the Company and its stockholders
and the Company has all requisite corporate power and authority to enter into
this Agreement and, subject to approval of the Merger by the stockholders of the
Company (if required), to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement by the Company and the consummation by
the Company of the transactions contemplated
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hereby have been duly authorized by all necessary corporate action on the part
of the Company, subject to such approval of the Merger by the stockholders of
the Company (if required). This Agreement has been duly executed and delivered
by the Company and (assuming the valid authorization, execution and delivery of
this Agreement by Parent and Sub) constitutes a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
Except as set forth in the Company Disclosure Letter, the execution and delivery
of this Agreement do not, and the consummation of the transactions contemplated
hereby and compliance with the provisions hereof will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation, contractually require any offer to purchase or
any prepayment of any debt, contractually require the payment of (or result in
the vesting of) any severance, golden parachute, change of control or similar
type of payment, or give rise to the loss of a material benefit under, or result
in the creation of any lien, security interest, charge or encumbrance upon any
of the properties or assets of the Company or any of its Subsidiaries under, any
provision of (i) the Certificate of Incorporation or Bylaws of the Company (true
and complete copies of which as of the date hereof have been delivered to
Parent) or the comparable charter or organization documents of any of its
Subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to the Company or any of its Subsidiaries or (iii) subject
to the governmental filings and other matters referred to in the following
sentence and approval of this Agreement by the Company's stockholders (if
required), any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of clauses (ii) or
(iii), any such conflicts, violations, defaults, rights, offers, prepayments,
payments, losses, liens, security interests, charges or encumbrances that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company, materially impair the ability of the Company to perform its
obligations hereunder or prevent the consummation of any of the transactions
contemplated hereby. Copies of all contracts, agreements, instruments or other
documents referred to in the Company Disclosure Letter pursuant to this Section
4.5 will be promptly furnished to Parent after the date of this Agreement. The
Company Disclosure Letter lists the amounts payable or that will or may become
payable to directors, officers or employees or former directors, officers or
employees of the Company and its Subsidiaries under each such contract,
agreement, instrument or other document referred to in the Company Disclosure
Letter pursuant to this Section 4.5, except as noted in such Company Disclosure
Letter. No filing or registration with, or authorization, consent or approval
of, any Governmental Entity is required by or with respect to the Company or any
of its Subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated hereby, except for (i) in connection or in
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compliance with the provisions of the Exchange Act, (ii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business, (iii) such filings and consents, if any, as
may be required under any environmental, health or safety law or regulation
pertaining to any notification, disclosure or required approval triggered by the
Offer, the Merger or the transactions contemplated by this Agreement, (iv) such
filings and approvals as may be required under the Improvements Act, (v) such
filings in connection with any state or local tax which is attributable to the
beneficial ownership of the Company's or its Subsidiaries' real property, if any
(collectively, the "Gains Taxes"), (vi) such filings and approvals as may be
required by any applicable state securities or "blue sky" laws or state takeover
laws, (vii) such filings, consents, approvals, orders, registrations and
declarations as may be required under the laws of any foreign country in which
the Company or any of its subsidiaries conducts any business or owns any assets,
and (viii) such other consents, orders, authorizations, registrations,
approvals, declarations and filings the failure of which to be obtained or made
would not, individually or in the aggregate, have a Material Adverse Effect on
the Company, materially impair the ability of Company to perform its obligations
hereunder or prevent the consummation of any of the transactions contemplated
hereby.
Section 4.6 SEC DOCUMENTS. (a) Since July 1, 1993, the Company has
filed all documents with the SEC required to be filed under the Securities Act
of 1933, as amended (including the rules and regulations promulgated thereunder
the "Securities Act"), or the Exchange Act (such documents filed with the SEC on
or before September 8, 1995 being the "Company SEC Documents"). As of their
respective dates, (i) the Company SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and (ii) none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Company has
delivered to Parent its draft Annual Report on Form 10-K for the fiscal year
ended June 30, 1995 (the "1995 Draft 10-K") including audited consolidated
balance sheets and statements of income, changes in stockholders' equity, and
cash flow and notes thereto as of and for the fiscal year ended June 30, 1995
(the "1995 Financial Statements"). The financial statements of the Company
included in the Company SEC Documents and the 1995 Financial Statements comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied
on a consistent basis during the periods involved (except as may be indicated
therein or in the notes thereto) and fairly present the consolidated
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financial position of the Company and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of their operations and changes in
financial position for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein). The Form 10-K of the Company as of and for the fiscal year
ended June 30, 1995 to be filed by the Company with the SEC will not differ in
any material respect from the 1995 Draft 10-K.
(b) Except as set forth in the Company SEC Documents, the 1995 Draft
10-K, the 1995 Financial Statements or the Company Disclosure Letter, neither
the Company nor any of its Subsidiaries has any liability or obligation of any
nature (whether accrued, absolute, contingent or otherwise) which would be
required to be reflected on a balance sheet, or in the notes thereto, prepared
in accordance with generally accepted accounting principles, except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since July 1, 1995 which would not, individually
or in the aggregate, have a Material Adverse Effect on the Company.
(c) The Company has heretofore made available or promptly will make
available to Parent a complete and correct copy of any amendments or
modifications which have not yet been filed with the SEC to agreements,
documents or other instruments which previously have been filed with the SEC
pursuant to the Exchange Act.
Section 4.7 OFFER DOCUMENTS AND PROXY STATEMENT. None of the
information supplied or to be supplied by the Company for inclusion or
incorporation by reference in the Offer Documents or the Schedule 14D-9, the
Information Statement, if any, the Proxy Statement, if any, or any amendment or
supplement thereto, will (i) in the case of the Offer Documents, the Schedule
14D-9 and the Information Statement, at the respective times such documents are
filed with the SEC or first published, sent or given to the Company's
stockholders, or (ii) in the case of the Proxy Statement, at the time of the
mailing of the Proxy Statement and at the time of the Stockholder Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect
to the Company, its officers and directors or any of its Subsidiaries should
occur which is required to be described in an amendment of, or a supplement to,
the Proxy Statement or the Offer Documents, such event shall be so described,
and such amendment or supplement shall be promptly filed with the SEC and, as
required by law, disseminated to the stockholders of the Company. The Proxy
Statement will comply as to form in all material respects with the requirements
of the Exchange Act.
Section 4.8 ABSENCE OF CERTAIN EVENTS. Since July 1, 1995, the
Company and its Subsidiaries have operated their respective businesses only in
the ordinary course
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consistent with past practice and, except as contemplated by this Agreement or
disclosed in the Company SEC Documents, the 1995 Draft 10-K, the 1995 Financial
Statements or the Company Disclosure Letter, there has not occurred (i) any
Material Adverse Change in the Company; (ii) any change by the Company or any of
its Subsidiaries in its accounting methods, principles or practices; (iii) any
amendments or changes in the Certificate of Incorporation or Bylaws of the
Company; (iv) any revaluation by the Company or any of its Subsidiaries of any
of their respective assets, including, without limitation, write-offs of
accounts receivable, other than in the ordinary course of the Company's and its
Subsidiaries' businesses consistent with past practices; (v) any damage,
destruction or loss with respect to the property or assets of the Company or its
Subsidiaries which resulted in, or is reasonably likely to result in, a Material
Adverse Effect on the Company; (vi) except for regular quarterly dividends of
$.15 per share declared and paid in accordance with past practice, any
declaration, setting aside or payment of any dividend or other distribution with
respect to any shares of capital stock of the Company, or any repurchase,
redemption or other acquisition by the Company or any of its Subsidiaries of any
outstanding shares of capital stock or other securities of, or other ownership
interests in, the Company; (vii) any grant of any severance or termination pay
to any director, executive officer or key employee of the Company or any of its
Subsidiaries, except as required under the severance agreements disclosed in the
Company Disclosure Letter pursuant to Section 4.12; (viii) any entry into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any director, executive officer or key
employee of the Company or any of its Subsidiaries; (ix) any increase in
benefits payable under any existing severance or termination pay policies or
employment agreements with any director, executive officer or key employee of
the Company or any of its Subsidiaries except in the ordinary course of business
consistent with past practice; or (x) any increase in compensation, bonus or
other benefits payable to directors, executive officers or key employees of the
Company or any of its Subsidiaries except in the ordinary course of business
consistent with past practice.
Section 4.9 LITIGATION. Except as set forth in the Company SEC
Documents, the 1995 Draft 10-K or the Company Disclosure Letter, there are no
actions, suits, proceedings, investigations or reviews pending against the
Company or its Subsidiaries or, to the knowledge of the Company, threatened
against the Company or its Subsidiaries, at law or in equity, or before or by
any federal or state commission, board, bureau, agency, regulatory or
administrative instrumentality or other Governmental Entity or any arbitrator or
arbitration tribunal, that are reasonably likely to have a Material Adverse
Effect on the Company.
Section 4.10 COMPLIANCE WITH APPLICABLE LAW. The Company and its
Subsidiaries hold all permits, licenses, variances, exceptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the
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"Company Permits"), except for failures to hold such permits, licenses,
variances, exemptions, orders and approvals which do not, individually or in the
aggregate, have, and are not reasonably likely to have, a Material Adverse
Effect on the Company. The Company and its Subsidiaries are conducting their
businesses in compliance with the terms of the Company Permits, except where the
failure so to comply does not have a Material Adverse Effect on the Company.
Except for those matters referred to in Section 4.14, the businesses of the
Company and its Subsidiaries are not being, and have not been, conducted in
violation of any law, Company Permit, ordinance or regulation of any
Governmental Entity except for violations which, individually or in the
aggregate, do not and are not reasonably likely to have a Material Adverse
Effect on the Company.
Section 4.11 EMPLOYEE PLANS. (a) The Company and each Subsidiary
has complied with and performed all contractual obligations and all obligations
under applicable federal, state and local laws, rules and regulations required
to be performed by it under or with respect to any of the Company Benefit Plans
(as defined below) or any related trust agreement or insurance contract, other
than where the failure to so comply or perform does not have, nor is reasonably
likely to have, a Material Adverse Effect on the Company. All contributions and
other payments required to be made by the Company and its Subsidiaries to any
Company Benefit Plan prior to the date hereof have been made, other than where
the failure to so contribute or make payments will not have a Material Adverse
Effect on the Company, and all accruals required to be made under any Company
Benefit Plan have been made. There is no claim, dispute, grievance, charge,
complaint, restraining or injunctive order, litigation or proceeding pending,
or, to the best knowledge of the Company and its Subsidiaries, threatened or
anticipated (other than routine claims for benefits) against or relating to any
Company Benefit Plan or against the assets of any Company Benefit Plan, which is
reasonably likely to have a Material Adverse Effect on the Company. Neither the
Company nor any of its Subsidiaries has communicated generally to employees or
specifically to any employee regarding any future increase of benefit levels (or
future creations of new benefits) with respect to any Company Benefit Plan
beyond those reflected in the Company Benefit Plans, which benefit increases or
creations, either individually or in the aggregate, will have or are reasonably
likely to have, a Material Adverse Effect on the Company. Neither the Company
nor any of its Subsidiaries presently sponsors, maintains, contributes to, nor
is the Company or its Subsidiaries required to contribute to, nor has the
Company or any of its Subsidiaries ever sponsored, maintained, contributed to,
or been required to contribute to, any employee pension benefit plan within the
meaning of section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), other than those plans described in note 7 to the
financial statements included in the 1995 Draft 10-K.
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(b) With respect to each Company Benefit Plan subject to Title IV of
ERISA, (i) no termination of any Company Benefit Plan has occurred pursuant to
which all liabilities have not been satisfied in full, and no event has occurred
and no condition exists that could reasonably be expected to result in the
Company or Subsidiary incurring a liability under Title IV of ERISA or could
constitute grounds for terminating any Pension Plan; (ii) each such Company
Benefit Plan which is subject to Part 3 of Subtitle B of Title I of ERISA or
Section 412 of the Code, has been maintained in compliance with the minimum
funding standards of ERISA and the Code and no such Company Benefit Plan has
incurred any "accumulated funding deficiency," as defined in Section 412 of the
Code and Section 302 of ERISA, whether or not waived; (iii) neither the Company
or any Subsidiary has sought or received a waiver of its funding requirements
with respect to any Company Benefit Plan and all contributions payable with
respect to each Pension Plan have been timely made; (iv) no reportable event,
within the meaning of Section 4043 of ERISA, and no event described in Section
4062 or 4063 of ERISA, has occurred with respect to any Company Benefit Plan;
and (v) the aggregate accumulated benefit obligations of each Company Benefit
Plan subject to Title IV of ERISA (as of the date of the most recent actuarial
valuation prepared for such Company Benefit Plan) do not exceed the fair market
value of the assets of such Company Benefit Plan (as of the date of such
valuation).
(c) Neither the Company nor any of its Subsidiaries has incurred, nor
has any event occurred which has imposed or is reasonably likely to impose upon
the Company or any of its Subsidiaries, any withdrawal liability (complete or
partial within the meanings of sections 4203 or 4205 of ERISA, respectively) in
respect of any multiemployer plan (within the meaning of section 3(37) or
4001(a)(3) of ERISA) (a "Multiemployer Plan"), which withdrawal liability has
not been satisfied or discharged in full or which, either individually or in the
aggregate, will cause, or is reasonably likely to cause, a Material Adverse
Effect on the Company.
(d) The execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby will not result in the
imposition of any federal excise tax under section 4975 of the Code with respect
to any Company Benefit Plan by virtue of such Company Benefit Plan's
relationship with The Paul Revere Corporation or any of its subsidiaries (which
include the words "Paul Revere" in their name).
(e) Except as set forth in the Company Disclosure Letter, neither the
Company nor any Subsidiary maintains or contributes (or has maintained or
contributed to) any Company Benefit Plan which provides, or has a liability to
provide, life insurance, medical, severance, or other employee welfare benefit
to any employee upon his retirement or termination of employment, except as may
be required by Section 4980B of the Code.
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(f) (i) "Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workers' compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, including, but not limited to, any "employee benefit
plan" within the meaning of section 3(3) of ERISA and (ii) "Company Benefit
Plan" means any employee pension benefit plan and any Plan, other than a
Multiemployer Plan, established by the Company or any of its Subsidiaries or to
which the Company or any of its Subsidiaries contributes or has contributed
(including any such Plans not now maintained by the Company or any of its
Subsidiaries or to which the Company or any of its Subsidiaries does not now
contribute, but with respect to which the Company or any of its Subsidiaries has
or may have any liability). Copies of all Plans (and, if applicable, related
trust agreements) and all amendments thereto and written interpretations thereof
and the most recent Forms 5500 required to be filed with respect thereto will be
promptly furnished to Parent after the date of this Agreement. The Company
Disclosure Letter sets forth each Plan with respect to which benefits will be
accelerated, vested, increased or paid as a result of the transactions
contemplated by this Agreement.
Section 4.12 EMPLOYMENT RELATIONS AND AGREEMENT. (a) Except as
would not constitute a Material Adverse Effect on the Company, (i) each of the
Company and its Subsidiaries is in compliance in all material respects with all
federal, state or other applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours; (ii) as of
the date of this Agreement, there is no labor strike, dispute, slowdown or
stoppage actually pending or, to the best knowledge of the Company or its
Subsidiaries, threatened against or involving the Company or any of its
Subsidiaries; (iii) no collective bargaining agreement is being negotiated as of
the date of this Agreement by the Company or any of its Subsidiaries; and (iv)
the Company and its Subsidiaries taken as a whole have not experienced any
material labor difficulty during the last three years.
(b) Except as set forth in the Company Disclosure Letter, neither the
Company nor any of its Subsidiaries has any written, or to the knowledge of the
Company, any binding oral, employment, severance, "change of control",
collective bargaining or similar agreements ("Employment Agreements"). Copies
of all Employment Agreements and all amendments thereto have been previously
furnished to Parent.
Section 4.13 LIMITATION ON BUSINESS CONDUCT. Except as set forth in
the Company Disclosure Letter, neither the Company nor its Subsidiaries is a
party to, or has any obligation under, any contract or agreement, written or
oral, which contains any covenants currently or prospectively limiting in any
material respect the freedom of the
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Company or any of its Subsidiaries to engage in any line of business or to
compete with any entity.
Section 4.14 ENVIRONMENTAL LAWS AND REGULATIONS. (a) The Company and
its Subsidiaries are in compliance with all applicable Environmental Laws,
except as otherwise disclosed in the Company SEC Documents, the 1995 Draft 10-K
or the Company Disclosure Letter and except for non-compliance which
individually or in the aggregate would not have a Material Adverse Effect on the
Company. The term "Environmental Laws" means any federal, state, local or
foreign statute, ordinance, rule, regulation, policy, permit, consent, approval,
license, judgment, order, decree, injunction or other authorization, relating
to: (A) pollution or protection of human health or safety, health or safety of
employees, sanitation, or the environment (including, without limitation,
ambient air, surface water, ground water, land surface or subsurface strata),
(B) Releases (as defined in 42 U.S.C. Section 9601(22)) or threatened Releases
of Hazardous Material (as hereinafter defined) into the environment or (C) the
generation, treatment, storage, disposal, use, handling, manufacturing,
transportation or shipment of Hazardous Material.
(b) During the period of ownership or operation by the Company and
its Subsidiaries of any of their respective current or previously owned or
leased properties, there have been no Releases of Hazardous Material in, on,
under or affecting such properties or any surrounding site, and none of the
Company or its Subsidiaries has disposed of any Hazardous Material or any other
substance in a manner that has led, or could reasonably be anticipated to lead,
to a Release, except as otherwise disclosed in the Company SEC Documents, the
1995 Draft 10-K or the Company Disclosure Letter and except in each case for
those which individually or in the aggregate are not reasonably likely to have a
Material Adverse Effect on the Company. Except as disclosed in the Company SEC
Documents, the 1995 Draft 10-K, the 1995 Financial Statements or the Company
Disclosure Letter, neither the Company nor its Subsidiaries has received any
notice that it is a "potentially responsible person" under any Environmental
Laws. The term "Hazardous Material" means any pollutants, contaminants,
hazardous substances, hazardous chemicals, toxic substances, hazardous wastes,
infectious and medical wastes, radioactive materials, petroleum (including crude
oil or any fraction thereof), natural gas, synthetic gas and mixtures thereof,
PCBs, or materials containing PCBs in excess of 50 ppm, asbestos and/or
asbestos-containing materials or solid wastes, including but not limited to
those defined in any Environmental Law and all regulations promulgated under
each and all amendments thereto, or any other federal, state or local
environmental law, ordinance, regulations, rule or order.
Section 4.15 PATENTS, TRADEMARKS, COPYRIGHTS. Except as set forth
in the Company Disclosure Letter, the Company or its Subsidiaries own or possess
adequate licenses or other valid rights to use all material patents, patent
rights, trademarks,
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trademark rights, trade names, trade name rights, copyrights, know-how and other
proprietary information used or held for use in connection with the business of
the Company or any of its Subsidiaries as currently being conducted and, to the
knowledge of the Company, there are no assertions or claims challenging the
validity of any of the foregoing, except where the failure to own or possess, or
where such assertions or claims, would not have a Material Adverse Effect on the
Company.
Section 4.16 TAKEOVER STATUTES. The Board of Directors of the
Company has taken all appropriate action so that neither Parent nor Sub will be
an "interested stockholder" within the meaning of Section 203 of the DGCL or
Article Tenth of the Company's Certificate of Incorporation by virtue of
Parent's or Sub's entry into this Agreement and the consummation of the
transactions contemplated hereunder.
Section 4.17 ACQUIRING PERSON. The Company has taken all necessary
actions to ensure that, for the purposes of the Rights Agreement of the Company
dated as of January 20, 1988, as amended June 24, 1988 and September 12, 1995
(the "Company Rights Agreement"), neither Parent nor Sub will become an
"Acquiring Person", the execution of this Agreement does not, and the
commencement or consummation of the Offer, the Merger and the other transactions
contemplated hereunder (including a tender offer by Parent or Sub at a higher
cash price per share for all outstanding shares of Common Stock and associated
Rights pursuant to this Agreement), will not result in the grant of any rights
to any person under the Company Rights Agreement or enable or require any
outstanding rights to be exercised, distributed or triggered, and that the
Rights (as defined in the Company Rights Agreement) will expire without any
further force or effect as of the Effective Time. This Agreement, the Offer and
the Merger have been duly approved by the "Continuing Directors" (as defined in
the Company Rights Agreement) in resolutions specifically referring to, INTER
ALIA, Subsection 1(a) of the Company Rights Agreement. Other than Parent or Sub
(and their affiliates), the Company (or its Board of Directors) has not exempted
(or taken any other action tantamount to exempting) any person or entity from
the potential application of the Company Rights Agreement, except that Okabe
Company Ltd. ("Okabe") and its affiliates are permitted to beneficially own up
to 21% of the outstanding shares of Common Stock without triggering the
potential application of the Company Rights Agreement.
Section 4.18 TAXES. Except as set forth in the Company Disclosure
Letter, (i) the Company and each Subsidiary have filed all material Tax Returns
required to have been filed on or before the date hereof, which returns are true
and complete in all material respects and all Taxes shown due thereon have been
paid; (ii) no issues that have been raised in writing by the relevant taxing
authority in connection with the examination of the Tax Returns referred to in
clause (i) are currently pending; and (iii) all deficiencies asserted or
assessments made as a result of any examination of the Tax Returns referred to
in clause (i) by a taxing authority have been paid in full or are being
contested in good
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faith by the Company or such Subsidiary. For purposes of this Agreement (a)
"Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any federal,
state, local or foreign income, gross receipts, property, sales, use, license,
excise, franchise, employment, payroll, premium, withholding, alternative or
added minimum, ad valorem, transfer or excise tax, or any other tax, custom,
duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, imposed by any governmental
authority, and (b) "Tax Return" means any return, report or similar statement
required to be filed with respect to any Tax (including any attached schedules),
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax.
Section 4.19 BROKERS. No broker, investment banker or other person,
other than The Chicago Dearborn Company, the fees and expenses of which will be
paid by the Company, is entitled to any broker's, finder's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company. A copy of the
engagement letter between The Chicago Dearborn Company and the Company setting
forth the fees and expenses to be paid by the Company in connection with the
transactions contemplated by this Agreement has been provided to Parent, and
does not bind Parent and its Subsidiaries (including, after consummation of the
Offer, the Company and its Subsidiaries) other than with respect to
indemnification and contribution and the payment of such fees and expenses.
ARTICLE V
REPRESENTATIONS AND WARRANTIES REGARDING SUB
Parent and Sub jointly and severally represent and warrant to the
Company as follows:
Section 5.1 ORGANIZATION AND STANDING. Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Sub was organized solely for the purpose of acquiring the Company and
engaging in the transactions contemplated by this Agreement and has not engaged
in any business since it was incorporated which is not in connection with the
acquisition of the Company and this Agreement.
Section 5.2 CAPITAL STRUCTURE. The authorized capital stock of Sub
consists of 1,000 shares of common stock, par value $1.00 per share, all of
which are validly issued and outstanding, fully paid and nonassessable and are
owned by Parent free and clear of all Liens.
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Section 5.3 AUTHORITY; NON-CONTRAVENTION. Sub has the requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement,
the performance by Sub of its obligations hereunder and the consummation of the
transactions contemplated hereby have been duly authorized by its Board of
Directors and Parent as its sole stockholder, and, except for the corporate
filings required by state law, no other corporate proceedings on the part of Sub
are necessary to authorize this Agreement and the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by Sub
and (assuming the due authorization, execution and delivery hereof by the
Company) constitutes a valid and binding obligation of Sub enforceable against
Sub in accordance with its terms.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER.
Except as otherwise expressly contemplated by this Agreement or as set forth in
the Company Disclosure Letter, during the period from the date of this Agreement
through the earlier of the time that the change in composition of the Board of
Directors of the Company contemplated by Section 7.10 has occurred and the
Effective Time, the Company shall, and shall cause its Subsidiaries (except with
respect to the Company's 50% joint venture with Nagoya Screw Manufacturing Co.
Ltd. (the "Joint Venture"), in which case the Company shall use all reasonable
efforts to cause the Joint Venture) to, in all material respects carry on their
respective businesses in, and not enter into any material transaction other than
in accordance with, the regular and ordinary course and, to the extent
consistent therewith, use its reasonable best efforts to preserve intact their
current business organizations, keep available the services of their current
officers and employees and preserve their relationships with customers,
suppliers and others having business dealings with them. Without limiting the
generality of the foregoing, and except as otherwise expressly contemplated by
this Agreement (including the time period specified above) or as set forth in
the Company Disclosure Letter, the Company shall not, and shall not permit any
of its Subsidiaries (except with respect to the Joint Venture, in which case the
Company shall use all reasonable efforts to cause the Joint Venture not) to,
without the prior written consent of Parent:
(a) (x) declare, set aside or pay any dividends on, or make any
other actual, constructive or deemed distributions in respect of, any
of its capital stock, or otherwise make any payments to stockholders
of the Company in their capacity as such, other than (1) quarterly
dividends of $.15 per share declared and payable consistent with past
practices and
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(2) dividends payable to the Company declared by any of the Company's
Subsidiaries, (y) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (z)
purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other
securities;
(b) issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of its capital stock, any other voting securities
or equity equivalent or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting
securities or convertible securities or equity equivalent (other than,
in the case of the Company, the issuance of Common Stock during the
period from the date of this Agreement through the Effective Time upon
the exercise of Company Stock Options outstanding (as set forth in
Section 4.2) on the date of this Agreement in accordance with their
current terms);
(c) amend or change its charter or bylaws or amend, change or
waive (or exempt any person or entity from the effect of) the Company
Rights Agreement, except in connection with the exercise of its
fiduciary duties by the Board of Directors of the Company as set forth
in Section 6.2 of this Agreement;
(d) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or
equity in, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any assets, in each
case that are material, individually or in the aggregate, to the
Company and its Subsidiaries taken as a whole, except for purchases of
inventory in the ordinary course of business consistent with past
practice;
(e) sell, lease or otherwise dispose of, or agree to sell, lease
or otherwise dispose of, any of its assets that are material,
individually or in the aggregate, to the Company and its Subsidiaries
taken as a whole, except sales of inventory in the ordinary course of
business consistent with past practice;
(f) make any commitment or enter into any contract or agreement
except (x) in the ordinary course of business consistent with past
practice or
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(y) for capital expenditures to be made in fiscal 1996 as identified in the
Company's Capital Expenditure Budget previously delivered to Parent;
(g) incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or guarantee
any debt securities of others, except for borrowings or guarantees
incurred in the ordinary course of business consistent with past
practice, or make any loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any
wholly owned Subsidiary of the Company and other than in the ordinary
course of business consistent with past practice;
(h) alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or
ownership of any Subsidiary of the Company;
(i) except as may be required as a result of a change in law or
in generally accepted accounting principles, change any of the
accounting principles or practices used by it;
(j) revalue any of its assets, including, without limitation,
writing down the value of its inventory or writing off notes or
accounts receivable, other than in the ordinary course of business;
(k) make any tax election or settle or compromise any material
income tax liability;
(l) settle or compromise any pending or threatened suit, action
or claim relating to the transactions contemplated hereby;
(m) pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved
against in, or contemplated by, the financial statements (or the notes
thereto) of the Company or incurred in the ordinary course of business
consistent with past practice;
(n) increase in any manner the compensation or fringe benefits
of any of its directors, officers and other key employees or pay any
pension or retirement allowance not required by any existing plan or
agreement to any such employees, or become a party to, amend or commit
itself to any pension, retirement, profit-sharing or welfare benefit
plan or agreement or employment agreement with or for the benefit of
any employee, other than
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increases in the compensation of employees who are not officers or
directors of the Company made in the ordinary course of business consistent
with past practice, or (except pursuant to the terms of preexisting plans
or agreements) accelerate the vesting of any compensation or benefit;
(o) except in connection with the exercise of its fiduciary
duties by the Board of Directors of the Company as set forth in
Section 6.2, waive, amend or allow to lapse any term or condition of
any confidentiality or "standstill" agreement to which the Company or
any Subsidiary is a party; or
(p) take, or agree in writing or otherwise to take, any of the
foregoing actions or any action which would make any of the
representations or warranties of the Company contained in this
Agreement untrue or incorrect as of the date when made.
Section 6.2 ACQUISITION PROPOSALS. From and after the date of this
Agreement and prior to the Effective Time, except as provided below, the Company
agrees (a) that neither the Company nor its Subsidiaries shall, and the Company
shall direct and use its reasonable best efforts to cause its officers,
directors, employees and authorized agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
or any of its Subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its stockholders)
with respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of, any equity securities or all or any significant
portion of the assets of, the Company or its Subsidiaries (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or engage in
any negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any person or entity relating to an Acquisition
Proposal, or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal; (b) that it will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any person
or entity conducted heretofore with respect to any of the foregoing and will
take the necessary steps to inform the person or entity referred to above of the
obligations undertaken in this Section 6.2; and (c) that it will notify Parent
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, it, but need not disclose the identity
of the other party or the terms of its proposals; PROVIDED, HOWEVER, that
nothing contained in this Section 6.2 shall prohibit the Board of Directors of
the Company from (i) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
proposal in writing to engage in an Acquisition Proposal transaction which the
Board of Directors of
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the Company in good faith determines represents a financially superior
transaction for the stockholders of the Company as compared to the Offer and the
Merger if, and only to the extent that, (A) the Board of Directors determines,
after consultation with Skadden, Arps, Slate, Meagher & Flom, that failure to
take such action would be inconsistent with the compliance by the Board of
Directors with its fiduciary duties to stockholders imposed by law, (B) prior to
or concurrently with furnishing such information to, or entering into
discussions or negotiations with, such a person or entity, the Company provides
written notice to Parent to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such a person or entity, and (C)
the Company keeps Parent informed of the status (including the identity of such
person or entity and terms of any proposal) of any such discussions or
negotiations; and (ii) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
Nothing in this Section 6.02 shall (x) permit the Company to terminate this
Agreement, (y) permit the Company to enter into any agreement with respect to an
Acquisition Proposal during the term of this Agreement, or (z) affect any other
obligation of any party under this Agreement.
Section 6.3 ANNUAL MEETING OF STOCKHOLDERS. The Company shall
defer and/or postpone the holding of its Annual Meeting of Stockholders (the
"Company Annual Meeting") indefinitely pending consummation of the Merger unless
the Company is otherwise required to hold the Company Annual Meeting by an order
from a court of competent jurisdiction.
Section 6.4 CONDUCT OF BUSINESS OF SUB PENDING THE MERGER. During
the period from the date of this Agreement through the Effective Time, Sub shall
not engage in any activities of any nature except as provided in or contemplated
by this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 COMPANY STOCKHOLDER APPROVAL; PROXY STATEMENT. (a) If
approval or action in respect of the Merger by the stockholders of the Company
is required by applicable law, the Company shall (i) if appropriate, call a
meeting of its stockholders (the "Stockholder Meeting") for the purpose of
voting upon the Merger and shall use its reasonable best efforts to obtain
stockholder approval of the Merger, (ii) hold the Stockholder Meeting as soon as
practicable following the purchase of shares of Common Stock pursuant to the
Offer, and (iii) recommend to its stockholders the approval of the Merger
through its Board of Directors, but subject in each case to the fiduciary duties
of its Board of Directors under applicable law as determined by the Board of
Directors in good faith after consultation with Skadden, Arps, Slate, Meagher &
Flom.
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The record date for the Stockholder Meeting shall be a date subsequent to the
date Parent or Sub becomes a record holder of Common Stock purchased pursuant to
the Offer.
(b) If required by applicable law, the Company will, as soon as
practicable following the expiration of the Offer, prepare and file a
preliminary Proxy Statement or, if applicable, an Information Statement with the
SEC with respect to the Stockholder Meeting and will use its reasonable best
efforts to respond to any comments of the SEC or its staff and to cause the
Proxy Statement to be cleared by the SEC. The Company will notify Parent of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement or the
Merger. The Company shall give Parent and its counsel the opportunity to review
the Proxy Statement prior to its being filed with the SEC and shall give Parent
and its counsel the opportunity to review all amendments and supplements to the
Proxy Statement and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC. Each
of the Company and Parent agrees to use its reasonable best efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC. As promptly as practicable after the Proxy
Statement has been cleared by the SEC, the Company shall mail the Proxy
Statement to the stockholders of the Company. If at any time prior to the
approval of this Agreement by the Company's stockholders there shall occur any
event that should be set forth in an amendment or supplement to the Proxy
Statement, the Company will prepare and mail to its stockholders such an
amendment or supplement.
(c) The Company shall use its reasonable best efforts to obtain the
necessary approvals by its stockholders of the Merger, this Agreement and the
transactions contemplated hereby.
(d) Parent agrees, subject to applicable law, to cause all shares of
Common Stock purchased pursuant to the Offer and all other shares of Common
Stock owned by Sub or any other Subsidiary or affiliate of Parent to be voted in
favor of the approval of the Merger.
Section 7.2 ACCESS TO INFORMATION; CONFIDENTIALITY. The Company
shall, and shall cause each of its Subsidiaries to, afford to Parent, and to
Parent's accountants, counsel, financial advisers and other representatives,
reasonable access and permit them to make such inspections as they may
reasonably require during normal business hours during the period from the date
of this Agreement through the Effective Time to all their respective properties,
books, contracts, commitments and records and, during such period, the Company
shall, and shall cause each of its Subsidiaries to, furnish promptly to Parent
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(i) a copy of each report, schedule, registration statement and other document
filed by it during such period pursuant to the requirements of federal or state
laws and (ii) all other information concerning its business, properties and
personnel as Parent may reasonably request. Except as required by Section 6.2,
the Company shall not be required to supply to Parent, or to Parent's
accountants, counsel, financial advisors or other representatives, any
information relating to indications of interest from, or discussions with, any
other potential acquirors of the Company which were received or conducted prior
to the date hereof, except to the extent necessary for use in the Offer
Documents, the Schedule 14D-9 and the Proxy Statement. The Confidentiality
Agreement shall remain in effect, except as modified as contemplated by this
Agreement.
Section 7.3 FEES AND EXPENSES. (a) Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses.
(b) The Company agrees that if this Agreement is terminated pursuant
to (i) Section 9.1(d)(i) or (iv) and at the time of such termination (x) the
Minimum Condition has not been satisfied and (y) an Acquisition Proposal
existed; (ii) Section 9.1(b)(ii); (iii) Section 9.1(c) and at the time of such
termination an Acquisition Proposal existed; or (iv) Section 9.1(a) or Section
9.1(d)(i) and at the time of such termination any person, entity or group (as
defined in Section 13(d)(3) of the Exchange Act) (other than Parent or any of
its affiliates) shall have become the beneficial owner of more than 20% of the
outstanding shares of Common Stock and such person, entity or group (or any
affiliate of such person, entity or group) thereafter shall consummate an
Acquisition Proposal at any time on or prior to the date which is six months
after such termination of this Agreement with a value per share of Common Stock
of at least $36.00 (with appropriate adjustments for reclassifications of
capital stock, stock dividends, stock splits, reverse stock splits and similar
events), then the Company shall pay to Parent the sum of (a) $5 million, plus
(b) the amount of all documented costs and expenses (not to exceed $2.5 million)
incurred by Parent, Sub or their affiliates in connection with this Agreement or
the transactions contemplated hereby. Such payment shall be made as promptly as
practicable but in no event later than two business days following termination
of this Agreement pursuant to the immediately preceding sentence, or, in the
case of clause (iv) of the immediately preceding sentence, upon consummation of
such Acquisition Proposal, and shall be made by wire transfer of immediately
available funds to an account designated by Parent. If the Company fails to pay
such amount when due in accordance with the immediately preceding sentence,
Parent shall be entitled to the payment from the Company, in addition to such
amount, of any legal fees and expenses incurred in collecting such amount and
interest thereon at the rate of 10% per annum.
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Section 7.4 COMPANY STOCK OPTIONS. (a) The Company shall (i)
terminate the Stock Plans immediately prior to the Effective Time without
prejudice to the holders of Company Stock Options (as hereinafter defined) and
(ii) grant no additional Company Stock Options after the date hereof.
(b) At the Effective Time (i) each outstanding option to purchase
shares of Common Stock (including options granted to directors of the Company,
each, a "Company Stock Option") granted under the Stock Plans, whether or not
exercisable, and whether or not vested, shall become fully exercisable and
vested and (ii) each Company Stock Option which is then outstanding shall be
canceled. In consideration of such cancellation, the Surviving Corporation shall
deliver on or promptly after the Effective Time to each holder thereof cash in
an amount per share subject to such canceled Company Stock Option equal to the
excess of the Merger Consideration over the exercise price per share of such
Company Stock Option. The Company shall use its best efforts to cause each
holder of a Company Stock Option to execute an agreement with the Company, prior
to the Effective Time, consenting to the payment described in the preceding
sentence as consideration for the cancellation of any Company Stock Options held
by such holder. No payment shall be made by the Surviving Corporation with
respect to any Company Stock Option having an exercise price equal or greater
than the Merger Consideration. The committee that administers each of the Stock
Plans shall determine and take all necessary action so that the right to receive
the cash consideration referred to in this Section 7.4(b) shall be the only
right of each holder of a Company Stock Option on and after the Effective Time.
Section 7.5. PERFORMANCE SHARES. (a) The Company shall (i)
terminate the Company's 1988 Performance Share Plan (the "Performance Share
Plan") immediately prior to the Effective Time and without prejudice to the
holders of Performance Shares (as defined in the Performance Share Plan) and
(ii) grant no additional Performance Shares from and after the date hereof.
(b) At the Effective Time, all outstanding Performance Shares shall
be cancelled and all Performance Awards (as defined in the Performance Share
Plan) shall be deemed 100 percent earned for the relevant Performance Period and
shall be paid in cash by the Surviving Corporation as soon as practicable after
the Effective Time.
Section 7.6 REASONABLE BEST EFFORTS. Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties agrees to use
its reasonable best efforts to take, or cause to be taken, all actions
(including entering into transactions), and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger, and the other transactions contemplated by this
Agreement, including (a) the prompt making of their respective filings and
thereafter
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the making of any other required submission under the Improvements Act with
respect to the Offer and the Merger, (b) the obtaining of all additional
necessary actions or non-actions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from any Governmental
Entity, (c) the obtaining of all necessary consents, approvals or waivers from
third parties, (d) the defending of any lawsuits or other legal proceedings,
whether judicial or administrative, challenging this Agreement or the
consummation of the transactions contemplated hereby, including seeking to have
any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed, and (e) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by this Agreement; PROVIDED, HOWEVER, that neither Parent, Sub nor the Company
shall be required to take any action pursuant to clauses (b), (c), (d) or (e)
above that would in any event have a Material Adverse Effect on either Parent or
the Company; and PROVIDED, FURTHER, HOWEVER, that neither Parent, Sub nor any of
their affiliates shall be required to enter into any transaction or take any
other action that would require a waiver of, or that is inconsistent with
satisfaction of, the conditions of the Offer set forth in clauses (a)(iii), (iv)
or (v) in Exhibit A hereto.
Section 7.7 PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand,
and the Company, on the other hand, will consult with each other before issuing
any press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law or by obligations pursuant to any listing
agreement with any national securities exchange.
Section 7.8 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. (a)
From and after the Effective Time, Parent agrees to, and to cause the Surviving
Corporation to, indemnify and hold harmless all past and present officers,
directors, employees and agents (the "Indemnified Parties") of the Company and
of its Subsidiaries to the full extent such persons may be indemnified by the
Company pursuant to the Company's Certificate of Incorporation and Bylaws as in
effect as of the date hereof for acts and omissions occurring at or prior to the
Effective Time and shall advance reasonable litigation expenses incurred by such
persons in connection with defending any action arising out of such acts or
omissions, provided that such persons provide the requisite affirmations and
undertaking, as set forth in the Company's Bylaws as in effect prior to the
Effective Time.
(b) Any Indemnified Party will promptly notify Parent and the
Surviving Corporation of any claim, action, suit, proceeding or investigation
for which such party may seek indemnification under this Section; PROVIDED,
HOWEVER, that the failure to
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furnish any such notice shall not relieve Parent or the Surviving Corporation
from any indemnification obligation under this Section except to the extent
Parent or the Surviving Corporation is prejudiced thereby. In the event of any
such claim, action, suit, proceeding, or investigation, (x) the Surviving
Corporation will have the right to assume the defense thereof, and the Surviving
Corporation will not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred thereafter
by such Indemnified Parties in connection with the defense thereof, except that
all Indemnified Parties (as a group) will have the right to retain one separate
counsel, reasonably acceptable to such Indemnified Party and Parent, at the
expense of the indemnifying party if the named parties to any such proceeding
include both the Indemnified Party and the Surviving Corporation and the
representation of such parties by the same counsel would be inappropriate due to
a conflict of interest between them, (y) the Indemnified Parties will cooperate
in the defense of any such matter, and (z) the Surviving Corporation will not be
liable for any settlement effected without its prior written consent. In
addition, Parent will provide, or cause the Surviving Corporation to provide,
for a period of not less than six years after the Effective Time, the Company's
current directors and officers an insurance and indemnification policy that
provides coverage for events occurring at or prior to the Effective Time (the
"D&O Insurance") that is no less favorable than the existing policy or, if
substantially equivalent insurance coverage is unavailable, the best available
coverage; PROVIDED, HOWEVER, that Parent and the Surviving Corporation shall not
be required to pay an annual premium for the D&O Insurance in excess of
$105,000, but in such case shall purchase as much such coverage as possible for
such amount.
(c) This Section 7.8 is intended to benefit the Indemnified Parties
and shall be binding on all successors and assigns of Parent, Sub, the Company
and the Surviving Corporation. Parent hereby guarantees the performance by the
Surviving Corporation of the indemnified obligations pursuant to this Section
7.8.
Section 7.9 EMPLOYEES. (a) To the extent permitted by law, for a
period of one year following the Effective Time, Parent shall cause the
Surviving Corporation to provide the current and former non-union employees of
the Company and its Subsidiaries employee benefits no less favorable, in
aggregate value, than those provided by the Company on the date hereof to those
employees, it being understood that (i) neither Parent nor the Surviving
Corporation will be obligated to provide an employee stock ownership plan to
such employees or to continue any one or more of such benefits, (ii) that for
purposes of this Section 7.9 "employee benefits" include benefits provided under
any "employee benefit plan" (as defined under section 3(3) of ERISA) of the
Company and its Subsidiaries but do not include benefits or compensation
provided under the Individual Agreements referenced in Section 7.9(b) herein,
and (iii) neither Parent nor the Surviving Corporation will be obligated to
provide any benefits which are payable pursuant to a "change in control", except
as otherwise provided in this Agreement.
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(b) Parent and the Surviving Corporation hereby agree to honor
(without modification) and assume the employment agreements, severance
agreements and individual benefit arrangements listed on the Company Disclosure
Letter, all as in effect at the Effective Time (the "Individual Agreements"),
but neither Purchaser nor Surviving Corporation shall have any obligation to
enter into any new or replacement employment agreements, severance agreements,
or individual benefit agreements with any employee, officer or director. The
Surviving Corporation shall pay for customary out placement services to any
executive officer of the Company whose employment is terminated by the Surviving
Corporation and who is entitled to payments under an existing severance
agreement, on the same basis as out placement services are provided to executive
officers of the Parent or its Subsidiaries of a comparable level.
Section 7.10 BOARD REPRESENTATION. (a) Promptly upon the purchase
of shares of Common Stock pursuant to the Offer, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, on the
Board of Directors of the Company as will give Parent, subject to compliance
with Section 14(f) of the Exchange Act, representation on the Board of Directors
equal to the product of (a) the total number of directors on the Board of
Directors and (b) the percentage that the number of shares of Common Stock
purchased by Parent bears to the number of shares of Common Stock outstanding,
and the Company shall, upon request by Parent, promptly increase the size of the
Board of Directors and/or exercise its reasonable best efforts to secure the
resignations of such number of directors as is necessary to enable Parent's
designees to be elected to the Board of Directors and shall cause Parent's
designees to be so elected. The Company shall take, at its expense, all action
required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this Section 7.10 and shall include in the Schedule 14D-9 or
otherwise timely mail to its stockholders such information with respect to the
Company and its officers and directors as is required by Section 14(f) and Rule
14f-1 in order to fulfill its obligations under this Section 7.10. Parent will
supply to the Company in writing and be solely responsible for any information
with respect to itself and its nominees, officers, directors and affiliates
required by Section 14(f) and Rule 14f-1.
(b) Following the election of designees of Sub pursuant to this
Section 7.10, prior to the Effective Time, any amendment of this Agreement or
the Certificate of Incorporation or By-Laws of the Company, any termination of
this Agreement by the Company, any extension by the Company of the time for the
performance of any of the obligations or other acts of Parent or Sub or waiver
of any of the Company's rights hereunder shall require the concurrence of a
majority of the directors of the Company then in office who are directors as of
the date hereof or persons designated by such directors and neither were
designated by Sub nor are employees of the Company ("CONTINUING DIRECTORS").
Prior to the Effective Time, the Company and Sub shall use all
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reasonable efforts to ensure that the Company's Board of Directors at all times
includes at least three Continuing Directors.
Section 7.11 NOTIFICATION OF CERTAIN MATTERS. The Company shall
give prompt notice to Parent and Sub, and Parent and Sub shall give prompt
notice to the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Time and (ii) any material failure
of the Company, Parent or Sub, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, that the delivery of any notice pursuant to this Section
7.10 shall not cure such breach or non-compliance or limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
Section 7.12 OKABE. The Company shall use its reasonable efforts to
encourage Okabe Company Limited to tender its shares of Common Stock to Sub in
the Offer.
Section 7.13 NAGOYA NOTIFICATION. Promptly following the date
hereof, the Company shall notify Nagoya Screw Manufacturing Co. Ltd. ("Nagoya")
of the transactions contemplated by this Agreement in accordance with
Section 6.2 of the Joint Venture Agreement dated as of June 14, 1989 between the
Company and Nagoya.
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) STOCKHOLDER APPROVAL. If approval of the Merger by the
holders of the Common Stock is required by applicable law, the Merger
shall have been approved by the requisite vote of such holders.
(b) NO ORDER. No Governmental Entity or court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or
entered any law, rule, regulation, executive order, decree or
injunction which prohibits or has the effect of prohibiting the
consummation of the Merger; PROVIDED, HOWEVER, that, prior to invoking
this provision, the Company, Parent and Sub shall use their reasonable
best efforts (subject to the other
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terms and conditions of this Agreement) to have any such order, decree or
injunction vacated.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after any approval by the
stockholders of the Company:
(a) by mutual written consent of Parent and the Company;
(b) by the Company if:
(i) the Offer has not been timely commenced (except as a result
of actions or omissions by the Company) in accordance with Section 1.1(a);
or
(ii) there is an Acquisition Proposal which the Board of
Directors of the Company in good faith determines represents a financially
superior transaction for the stockholders of the Company as compared to the
Offer and the Merger and the Board of Directors of the Company determines,
after consultation with Skadden, Arps, Slate, Meagher & Flom, that failure
to terminate this Agreement would be inconsistent with the compliance by
the Board of Directors with its fiduciary duties to stockholders imposed by
law; PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant
to this clause shall not be available (i) if the Company has breached in
any material respect its obligations under Section 6.2, or (ii) if, prior
to or concurrently with any purported termination pursuant to this clause,
the Company shall not have paid the fee contemplated by Section 7.3(b);
and, in each case, unless the Company has provided Parent and Sub with one
business day's prior written notice of its intent to so terminate this
Agreement together with a summary of the material terms and conditions of
such offer; or
(iii) there has been a breach by Parent or Sub of any
representation or warranty that would have a material adverse effect on
Parent's or Sub's ability to perform its obligations under this Agreement
and which breach has not been cured within twenty business days following
receipt by Parent or Sub of notice of the breach; or
(iv) Parent or Sub fails to comply in any material respect with
any of its material obligations or covenants contained herein, including,
without
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limitation, the obligation of Sub to purchase shares of Common Stock
pursuant to the Offer, unless such failure results from a breach of the
Company of any obligation, representation, or warranty hereunder, which has
not been cured within twenty business days following Company's receipt of
notice of the breach;
(c) by Parent if the Board of Directors of the Company shall
have failed to recommend, or shall have withdrawn, modified or amended
in any material respect its approval or recommendations of the Offer
or the Merger or shall have resolved to do any of the foregoing; or
(d) by either Parent or the Company if:
(i) the Merger has not been effected on or prior to the close of
business on March 31, 1996; PROVIDED, HOWEVER, that the right to terminate
this Agreement pursuant to this clause shall not be available (y) to Parent
if Sub or any affiliate of Sub acquires shares of Common Stock pursuant to
the Offer, or (z) to any party whose failure to fulfill any obligation of
this Agreement has been the cause of, or resulted in, the failure of the
Merger to have occurred on or prior to the aforesaid date; or
(ii) any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the transactions contemplated by this
Agreement and such order, decree, ruling or other action shall have become
final and nonappealable; or
(iii) upon a vote at a duly held meeting or upon any
adjournment thereof, the stockholders of the Company shall have failed to
give any approval required by applicable law; or
(iv) as the result of the failure of any of the conditions set
forth in Exhibit A hereto, the Offer shall have terminated or expired in
accordance with its terms without Sub having purchased any shares of Common
Stock pursuant to the Offer; PROVIDED, HOWEVER, that the right to terminate
this Agreement pursuant to this Section 9.1(d)(iv) shall not be available
to any party whose failure to fulfill any of its obligations under this
Agreement results in the failure of any such condition.
Section 9.2 EFFECT OF TERMINATION. In the event of termination of
this Agreement by either Parent or the Company, as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent or Sub or their respective officers or
directors (except as set forth in the last sentence of Section 7.2 and except
for Section 7.3, which shall survive the
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termination); PROVIDED, HOWEVER, that nothing contained in this Section 9.2
shall relieve any party hereto from any liability for any breach of this
Agreement.
Section 9.3 AMENDMENT. This Agreement may be amended by the
parties hereto, by or pursuant to action taken by their respective Boards of
Directors, at any time before or after any approval of the Merger by the
stockholders of the Company but, after the purchase of shares of Common Stock
pursuant to the Offer, no amendment shall be made which decreases the Merger
Consideration or which in any way materially adversely affects the rights of
such stockholders, without the further approval of such stockholders. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
Section 9.4 WAIVER. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein which may legally be waived. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
Section 9.5 PROCEDURE FOR TERMINATION, AMENDMENT OR WAIVER. A
termination of this Agreement pursuant to Section 9.1, an amendment of this
Agreement pursuant to Section 9.3 or a waiver pursuant to Section 9.4 shall, in
order to be effective, require (a) in the case of Parent or Sub, action by its
Board of Directors or the duly authorized designee of its Board of Directors and
(b) in the case of the Company, action by its Board of Directors.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None
of the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the termination of this
Agreement in accordance with Article IX or the Effective Time; PROVIDED,
HOWEVER, that termination of this Agreement shall not relieve any party hereto
from any liability for any knowing or willful breach by such party of its
representations or warranties.
Section 10.2 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
sent by overnight courier or telecopied (with a confirmatory copy sent by
overnight courier) to the parties at
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the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Sub, to:
Textron Inc.
40 Westminster Street
Providence, RI 02903
Attn: Executive Vice President
and General Counsel
Fax: 401-457-3666
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attn: Charles M. Nathan, Esq.
Fax: 212-859-4000
(b) if to the Company, to:
Elco Industries, Inc.
1111 Samuelson Road
P.O. Box 7009
Rockford, Illinois 61125
Attn: John Lutz, Chief Executive Officer
Fax: 815-395-8270
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
333 W. Wacker Drive
Chicago, Illinois 60606
Attn: William R. Kunkel, Esq.
Fax: 312-407-0411
Section 10.3 INTERPRETATION. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." As
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used in this Agreement, "business day" shall have the meaning ascribed thereto
in Rule 14d-1(c)(6) under the Exchange Act.
Section 10.4 COUNTERPARTS. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 10.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, including the documents and instruments referred to herein, (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) except for the provisions of Section 7.8, is not
intended to confer upon any person other than the parties any rights or remedies
hereunder.
Section 10.6 GOVERNING LAW. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.
Section 10.7 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties without the prior written consent of the other parties, except that Sub
may assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve Sub of any of
its obligations hereunder. Subject to the preceding sentence, this Agreement
shall be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
Section 10.8 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party.
Section 10.9 ENFORCEMENT OF THIS AGREEMENT. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
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Section 10.10 INCORPORATION OF EXHIBITS. The Company Disclosure
Letter and all Exhibits and annexes attached hereto and referred to herein are
hereby incorporated herein and made a part hereof for all purposes as if fully
set forth herein.
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IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
TEXTRON INC.
By: /s/ Herbert L. Henkel
------------------------------
Name: Herber L. Henkel
Title: Group Vice President
E.I. TEXTRON INC.
By: /s/ Arnold M. Friedman
------------------------------
Name: Arnold M. Friedman
Title: Vice President
ELCO INDUSTRIES, INC.
By: /s/ John C. Lutz
------------------------------
Name: John C. Lutz
Title: President
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EXHIBIT A
CONDITIONS OF THE OFFER
Notwithstanding any other term of the Offer or this Agreement, Sub
shall not be required to accept for payment or pay for, subject to any
applicable rules and regulations of the SEC, including Rule 14e-1(c) of the
Exchange Act, any shares of Common Stock not theretofore accepted for payment or
paid for and may terminate or amend the Offer as to such shares of Common Stock
unless (i) there shall have been validly tendered and not withdrawn prior to the
expiration of the Offer that number of shares of Common Stock which would
represent at least 66 2/3% of the outstanding shares of Common Stock on a fully
diluted basis (the "Minimum Condition"), and (ii) any waiting period under the
Improvements Act applicable to the purchase of shares of Common Stock pursuant
to the Offer shall have expired or been terminated. Furthermore,
notwithstanding any other term of the Offer or this Agreement, Sub shall not be
required to accept for payment or, subject as aforesaid, to pay for any shares
of Common Stock not theretofore accepted for payment or paid for, and may
terminate or amend the Offer if at any time on or after the date of this
Agreement and before the acceptance of such shares of Common Stock for payment
or the payment therefor, any of the following conditions exist or shall occur
and remain in effect:
(a) there shall have been instituted, pending or threatened any
action or proceeding by any court or other Governmental Entity, which
(i) seeks to challenge the acquisition by Parent or Sub (or any of its
affiliates) of shares of Common Stock pursuant to the Offer, restrain,
prohibit or delay the making or consummation of the Offer or the
Merger, or obtain damages in connection therewith in an amount which
would have a Material Adverse Effect on the Company, (ii) seeks to
make the purchase of or payment for some or all of the shares of
Common Stock pursuant to the Offer or the Merger illegal, (iii) seeks
to impose limitations on the ability of Parent (or any of its
affiliates) effectively to acquire or hold, or to require Parent or
the Company or any of their respective affiliates or subsidiaries to
dispose of or hold separate, any portion of the assets or the business
of Parent and its affiliates or any material portion of the assets or
the business of the Company and its Subsidiaries taken as a whole,
(iv) seeks to impose material limitations on the ability of Parent (or
its affiliates) to exercise full rights of ownership of the shares of
Common Stock purchased by it, including, without limitation, the right
to vote the shares purchased by it on all matters properly presented
to the stockholders of the Company, or (v) seeks to restrict any
future business activity by Parent (or any of its affiliates),
including, without limitation, requiring the prior
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consent of any person or entity (including any Governmental Entity) to
future transactions by Parent (or any of its affiliates); or
(b) there shall have been promulgated, enacted, entered,
enforced or deemed applicable to the Offer or the Merger, by any
state, federal or foreign Governmental Entity or by any court,
domestic or foreign, any statute, rule, regulation, judgment, decree,
order or injunction, that is reasonably likely to directly or
indirectly result in any of the consequences referred to in clauses
(i) through (v) of subsection (a) above; or
(c) the Merger Agreement shall have been terminated in
accordance with its terms; or
(d) any of the representations and warranties made by the
Company in the Merger Agreement shall not have been true and correct
in all material respects when made, or shall thereafter have ceased to
be true and correct in all material respects as if made as of such
later date (other than representations and warranties made as of a
specified date), or the Company shall not in all material respects
have performed each obligation and agreement and complied with each
covenant to be performed and complied with by it under the Merger
Agreement; or
(e) the Company's Board of Directors shall have modified or
amended its recommendation of the Offer in any manner adverse to
Parent or shall have withdrawn its recommendation of the Offer, or
shall have recommended acceptance of any Acquisition Proposal or shall
have resolved to do any of the foregoing; or
(f) (i) any corporation, entity or "group" (as defined in
Section 13(d)(3) of the Exchange Act) ("person"), other than Parent,
shall have acquired beneficial ownership of more than 20% (or, in the
case of Okabe and its affiliates, 21%) of the outstanding shares of
Common Stock, or shall have been granted any options or rights,
conditional or otherwise, to acquire a total of more than 20% of the
outstanding shares of Common Stock; (ii) any new group shall have been
formed which beneficially owns more than 20% (or, in the case of Okabe
and its affiliates, 21%) of the outstanding shares of Common Stock; or
(iii) any person (other than Parent or one or more of its affiliates)
shall have entered into an agreement in principle or definitive
agreement with the Company with respect to a tender or exchange offer
for any shares of Common Stock or a merger, consolidation or other
business combination with or involving the Company.
A-2
<PAGE>
The foregoing conditions are for the sole benefit of Parent and Sub
and may be asserted by Parent or Sub regardless of the circumstances giving rise
to any such condition and may be waived by Parent or Sub, in whole or in part,
at any time and from time to time, in the sole discretion of Parent. The
failure by Parent or Sub at any time to exercise any of the foregoing rights
will not be deemed a waiver of any right, the waiver of such right with respect
to any particular facts or circumstances shall not be deemed a waiver with
respect to any other facts or circumstances, and each right will be deemed an
ongoing right which may be asserted at any time and from time to time.
Should the Offer be terminated pursuant to the foregoing provisions,
all tendered shares of Common Stock not theretofore accepted for payment shall
forthwith be returned by the Paying Agent to the tendering stockholders.
A-3
Exhibit 10.18
CHANGE OF CONTROL AGREEMENT
This Agreement is made this 30th day of March, 1995, by and
between Elco Industries, Inc., a Delaware corporation ("Elco") and John
C. Lutz ("Executive").
RECITALS:
Executive is a skilled and dedicated employee who has important
management responsibilities and talents. Elco believes that its best
interests will be served if Executive is encouraged to remain with Elco.
Elco has determined that Executive's ability to perform his responsibilities
and utilize his talents for the benefit of Elco, as well as Elco's ability to
retain Executive as an employee, will be significantly enhanced if
Executive is provided with fair and reasonable protection from the risks
of a change in ownership or control of Elco. Accordingly, Elco and
Executive agree as follows:
1. Definitions.
When the following terms appear in this Agreement they shall have
the respective meanings set forth below, unless the context clearly
indicates to the contrary:
(a) "Base Salary" means the highest annual rate of
Executive's base salary in effect on either the date of the Change
of Control or the Termination Date, including any amounts by
which the base salary was reduced prior to the Change of Control
at the request of the person or entity acquiring control of Elco or
reasonably shown to be related to the Change of Control.
(b) "Bonus" means the highest amount payable to
Executive under Elco's annual bonus plan in effect on either the
date of the Change of Control or the Termination Date, assuming
the highest performance targets are met for such bonus plan,
including any amounts by which the Executive's annual bonus was
reduced prior to the Change of Control at the request of the person
or entity acquiring control of Elco or reasonably shown to be
related to the Change of Control.
(c) "Cause" means either of the following:
(i) Executive's willful malfeasance having a material
adverse effect on Elco; or
(ii) Executive's conviction of a felony;
provided, that any action or refusal by Executive shall not
constitute "Cause" if, in good faith, Executive believed such action
or refusal to be in, or not opposed to, the best interests of Elco,
or if Executive shall be entitled, under applicable law or under an
applicable Certificate of Incorporation or By-Laws, as they may be
amended or restated from time to time, to be indemnified with
respect to such action or refusal.
(d) "Change of Control" means the first to occur of any of
the following dates:
(i) the date the Elco Board of Directors votes to
approve:
(A) any consolidation or merger of Elco;
(B) any sale, lease, exchange or other
transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets
of Elco other than any sale, lease, exchange or other
transfer to any corporation where Elco owns, directly
or indirectly, at least seventy percent (70%) of the
outstanding voting securities of such corporation
after any such transfer; or
(C) any plan or proposal for the liquidation or
dissolution of Elco;
(ii) the date any person (as such term is used in
Section 13(d) of the Securities Exchange Act of 1934,
hereinafter the "1934 Act"), other than one or more trusts
established by Elco for the benefit of employees of Elco or its
subsidiaries, shall become the beneficial owner (within the
meaning of Rule 13d-3 under the 1934 Act) of thirty percent
(30%) or more of outstanding Common Stock;
(iii) the date the Board of Directors of Elco
authorizes and approves any transaction which has either a
reasonable likelihood or a purpose of causing, whether
directly or indirectly:
(A) Common Stock to be held of record by
less than [300] persons; or
(B) Common Stock to be neither listed on any
national securities exchange nor authorized to be
quoted on an inter-dealer quotation system of any
registered national securities association;
(iv) the date, during any period of twenty-four (24)
consecutive months, on which individuals who at the
beginning of such period constitute the entire Board of
Directors of Elco shall cease for any reason to constitute a
majority thereof unless the election, or the nomination for
election by Elco stockholders, of each new director
comprising the majority was approved by a vote of at least a
majority of the Continuing Directors as hereinafter defined,
in office on the date of such election or nomination for
election of the new director. For purposes hereof, a
"Continuing Director" shall mean:
(A) any member of the Board of Directors of
Elco at the close of business on March 30, 1995.
(B) any member of the Board of Directors of
Elco who succeeds any Continuing Director described
in subparagraph (A) above if such successor was
elected, or nominated for election by Elco
stockholders, by a majority of the Continuing
Directors then still in office; or
(C) any director elected, or nominated for
election by Elco stockholders, to fill any vacancy or
newly created directorship on the Board of Directors
of Elco by a majority of the Continuing Directors then
still in office; or
(v) the date of commencement by any entity,
person, or group (including any affiliate thereof, other than
Elco) of a tender offer or exchange offer for more than
twenty percent (20%) of the outstanding Common Stock.
(e) "Code" means the Internal Revenue Code of 1986, as
amended.
(f) "Common Stock" means the $5 par value common stock
of Elco.
(g) "Confidential Information" means nonpublic information
relating to the business plans, marketing plans, customers or
employees of Elco other than information the disclosure of which
cannot reasonably be expected to adversely affect the business of
Elco.
(h) "Elco" means Elco Industries, Inc., a Delaware
corporation, and any successor or successors thereto.
(i) "Fringe Benefits" means the fair market value of the
highest level of fringe benefits payable to Executive by Elco on
either the date of the Change of Control or the Termination Date,
including any amounts by which the Executive's fringe benefits
were reduced prior to the Change of Control at the request of the
person or entity acquiring control of Elco or reasonably shown to
be related to the Change of Control. For these purposes, "Fringe
Benefits" do not include welfare benefits, such as medical coverage
(including prescription drug coverage), dental coverage, life
insurance, disability insurance and accidental death and
dismemberment benefits.
(j) "Good Reason" means any of the following
actions,without Executive's express prior written approval, other
than due to Executive's Permanent Disability or death:
(i) any diminution in Executive's titles, duties,
responsibilities, status or reporting relationship from the
positions, duties, responsibilities, status or reporting
relationship existing immediately prior to a Change of
Control;
(ii) the removal of Executive from, or any failure to
re-elect Executive to, any of the positions Executive holds
immediately prior to a Change of Control;
(iii) the failure of Elco to pay Executive's Base
Salary when due;
(iv) any reduction of Executive's Base Salary, or
Bonus, or any reduction in the aggregate amount of Fringe
Benefits provided to Executive;
(v) the change of Executive's principal place of
employment to a location more than 50 miles from Executive's
principal place of employment immediately prior to the
Change of Control; or
(vi) any breach by Elco of any provision of this
Agreement;
(vii) the failure of Elco to obtain a satisfactory
agreement from any successor to assume and agree to
perform this Agreement, as contemplated by Section 12
hereof; or
(viii) any purported termination of Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 2(i)
hereof (and, if applicable, the requirements of Section 13
hereof); for purposes of this Agreement, no such purported
termination shall be effective.
provided, however, that if any of the actions described in
subparagraphs (i) - (viii) above occur prior to a Change of Control
at the request of any individual or entity acquiring ownership or
control of Elco, or is reasonably shown to be related to a
prospective Change of Control, and if such actions occur without
Executive's express prior written approval, other than due to
Executive's Permanent Disability or death, then the existence of
such actions shall also constitute "Good Reason."
(k) "Permanent Disability" means Executive's inability, by
reason of any physical or mental impairment, to substantially
perform the significant aspects of his regular duties which inability
is reasonably contemplated to continue for at least one (1) year
from its inception.
2. Change of Control Benefits.
If Executive's employment with Elco is terminated at any time within
the two (2) years following a Change of Control of Elco without Cause, or
by Executive for Good Reason (the effective date of either such
termination hereafter referred to as the "Termination Date"), Executive
shall be entitled to the benefits provided hereafter in this Section 2 and
as set forth in this Agreement. If Executive's employment with Elco is
terminated by Elco without Cause prior to a Change of Control at the
request of any individual or entity acquiring ownership or control of Elco,
or is reasonably shown to be related to a prospective Change of Control,
or by Executive for Good Reason, or if the person or entity acquiring
control fails to assume Elco's liabilities to Executive under this
Agreement, the Executive's Termination Date shall be deemed to have
occurred immediately upon the Executive's effective date of termination
(in the case of a termination of employment at the request of the
acquirer), or immediately following the Change of Control (in the case of
the acquirer's failure to assume Elco's liabilities under this Agreement),
and therefore Executive shall be entitled to the benefits provided
hereafter in this Section 2 and as set forth in this Agreement.
(a) Severance Benefits. Within five (5) business days
after the Termination Date, Elco shall pay Executive a lump sum
amount, in cash, equal to two (2) times the sum of:
(i) Executive's Base Salary;
(ii) Executive's Bonus; and
(iii) Executive's Fringe Benefits.
(b) Performance Award. Any unpaid Target Award
previously granted to an Executive under the Elco Industries, Inc.
1988 Performance Share Plan (the "Share Plan") shall be paid to the
Executive within five (5) days of the Termination Date as if such
Target Award was 100 earned during the relevant Performance
Period (as such term is defined in the Share Plan), irrespective of
Elco's actual performance during the relevant Performance Period.
(c) Welfare Benefits. Elco shall, until the second
anniversary of the Termination Date, and at its expense, provide
Executive with medical (including prescription drug coverage),
dental, life insurance and accidental death and dismemberment
benefits at the highest level provided to Executive, his dependents
and beneficiaries, either on the date of a Change of Control or the
Termination Date, including any coverage or benefits that were
reduced prior to the Change of Control at the request of the person
or entity acquiring control of Elco or reasonably shown to be
related to the Change of Control. During the period that Elco is
providing Executive, his dependents and beneficiaries, with these
benefits, Executive shall be entitled to elect such changes and take
such actions the same as a similarly situated active employee.
(d) Payment of Accrued But Unpaid Amounts. Within five
(5) business days after the Termination Date, Elco shall pay
Executive (i) any unpaid portion of Executive's Bonus accrued with
respect to the full fiscal year ended prior to the Termination Date;
and (ii) all compensation previously deferred by Executive but not
yet paid.
(e) Post-Retirement Welfare Benefits. On the Termination
Date, for purposes of determining Executive's eligibility for post-
retirement benefits under any welfare benefit plan (as defined in
section 3(1) of the Employee Retirement Income Security Act of
1974, as amended) maintained by Elco immediately prior to the
Change of Control and in which Executive participated, immediately
prior to the Change of Control (or, with respect to an Executive
who is terminated prior to a Change of Control, the Termination
Date), Executive shall be credited with the excess of two years of
participation in the applicable medical plan and two years of age
over the actual years and fractional years of participation and age
credited to Executive as of the Change of Control (or Termination
Date, as the case may be). If, after taking into account such
participation and age, Executive would have been eligible to
receive such post-retirement benefits had Executive retired
immediately prior to the Change of Control (or Termination Date,
as the case may be), Executive shall receive, commencing on the
Termination Date, post-retirement benefits based on the terms and
conditions of the applicable plans in effect immediately prior to the
Change of Control (or Termination Date, as the case may be).
(f) Retirement Benefits. For purposes of determining the
Executive's retirement benefits under the various Elco retirement
benefit plans, Executive shall be deemed to be an active employee
receiving his Base Salary and shall accordingly continue to earn
service and accrue benefits under such plans for an additional
period of two years following the Termination Date.
(g) Effect on Existing Plans. All Change of Control
provisions applicable to Executive and contained in any plan,
program, agreement or arrangement maintained on the Effective
Date (or thereafter) by Elco (including, but not limited to, any
stock option, restricted stock or pension plan) shall remain in
effect through the date of a Change of Control, and for such period
thereafter as is necessary to carry out such provisions and provide
the benefits payable thereunder, and may not be altered in a
manner which adversely affects Executive without Executive's prior
written approval.
(h) Cessation of Benefits. Notwithstanding the foregoing,
no service of the Executive for Elco after age 65 shall be taken into
account for purposes of determining the Executive's benefits under
this Agreement.
(i) Notice of Termination. Any purported termination of
Executive's employment by Elco or by Executive shall be
communicated by written Notice of Termination to the other party
hereto in accordance with Section 13 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
3. Gross-Up Payment.
(a) In the event it shall be determined that any payment,
benefit or distribution (or combination thereof) by Elco or one or
more trusts established by Elco for the benefit of its employees, to
or for the benefit of Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement, or otherwise) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or
penalties are incurred by Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties,
hereinafter collectively referred to as the "Excise Tax"), Executive
shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that, after payment by Executive of
all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes and
excise taxes (and any interest and penalties imposed with respect
thereto) imposed upon the Gross-Up Payment itself, Executive
retains an amount of such additional payment equal to the Excise
Tax imposed upon the Payments.
(b) Subject to the provisions of Section 3(c), all
determinations required to be made under this Section 3, including
whether and when a Gross-Up Payment is required and the amount
of such Gross-up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by Coopers &
Lybrand or such other nationally recognized certified public
accounting firm as may be designated by Executive (the
"Accounting Firm") which shall provide detailed supporting
calculations both to Elco and Executive within fifteen (15) business
days of the receipt of notice from Executive that there has been a
Payment, or such earlier time as it requested by Elco. In the event
that the Accounting Firm is serving as accountant or auditor for an
individual, entity or group effecting the change in ownership or
effective control (within the meaning of Section 280G of the Code),
Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the "Accounting Firm"
hereunder). All fees and expenses of the Accounting Firm shall be
borne solely by Elco. Any Gross-Up Payment, as determined
pursuant to this Section 3, shall be paid by Elco to Executive
within five (5) days after the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise
Tax is payable by Executive, it shall so indicate to Executive in
writing. Any determination by the Accounting Firm shall be
binding upon Elco and Executive.
(c) For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amount of such
Excise Tax: (i) any payments or benefits received or to be
received by Executive pursuant to the terms of this Agreement
shall be treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall be
treated as subject to the Excise Tax, unless in the opinion of tax
counsel selected by Elco's independent auditors and acceptable to
Executive such other payments or benefits (in whole or in part) do
not constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable compensation
for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax; (ii) the amount of the Payments which
shall be treated as subject to the Excise Tax shall be equal to the
lesser of: (1) the total amount of the Payments; or (2) the amount
of excess parachute payments within the meaning of Section
280G(b)(1) (after applying clause (i), above); and (iii) the value
of any non-cash benefits or any deferred payment or benefit shall
be determined by Elco's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment,
Executive shall be deemed to pay Federal income taxes at the
highest marginal rate of Federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the
state and locality of Executive's residence on the Termination Date,
net of the maximum reduction in Federal income taxes which could
be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay to
Elco at the time that the amount of such reduction in Excise Tax is
finally determined the portion of the Gross-Up Payment attributable
to such reduction (plus the portion of the Gross-Up Payment
attributable to the Excise Tax and Federal and state and local
income tax imposed on the Gross-Up Payment being repaid by
Executive if such repayment results in a reduction in Excise Tax
and/or a Federal and state and local income tax deduction) plus
interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of Executive's employment
(including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment),
Elco shall make an additional gross-up payment in respect of such
excess (plus any interest payable with respect to such excess) at
the time that the amount of such excess is finally determined.
(d) Executive shall notify Elco in writing of any claim by
the Internal Revenue Service that, if successful, would require the
payment by Elco of the Gross-Up Payment. Such notification shall
be given as soon as practicable but no later than ten (10) business
days after Executive is informed in writing of such claim and shall
apprise Elco of the nature of such claim and the date on which such
claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the thirty (30) day period following the
date on which it gives such notice to Elco (or such shorter period
ending on the date that any payment of taxes with respect to such
claim is due). If Elco notifies Executive in writing prior to the
expiration of such period that it desires to contest such claim,
Executive shall:
(i) give Elco any information reasonably requested
by Elco relating to such claim;
(ii) take such action in connection with contesting
such claim as Elco shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by Elco;
(iii) cooperate with Elco in good faith in order to
effectively contest such claim; and
(iv) permit Elco to participate in any proceedings
relating to such claim; provided, however, that Elco shall
bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with
such contest and shall indemnify and hold Executive
harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect
thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 3(d), Elco shall control
all proceedings taken in connection with such contest and,
at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such
claim and may, at its sole option, either direct Executive to
pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and
in one or more appellate courts, as Elco shall determine;
provided, however, that if Elco directs Executive to pay
such claim and sue for a refund, Elco shall advance the
amount of such payment to Executive, on an interest-free
basis, and shall indemnify and hold Executive harmless, on
an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and provided
further, that if Executive is required to extend the statute
of limitations to enable Elco to contest such claim, Executive
may limit this extension solely to such contested amount.
Elco's control of the contest shall be limited to issues with
respect to which a Gross-Up Payment would be payable
hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(e) If, after the receipt by Executive of an amount
advanced by Elco pursuant to Section 3(d), Executive becomes
entitled to receive any refund with respect to such claim, Executive
shall (subject to Elco complying with the requirements of
Section 3(d)) promptly pay to Elco the amount of such refund
(together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Executive of an
amount advanced by Elco pursuant to Section 3(d), a determination
is made that Executive shall not be entitled to any refund with
respect to such claim and Elco does not notify Executive in writing
of its intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the
amount of Gross-Up Payment required to be paid.
4. Indemnification; Director's and Officer's Liability Insurance.
Executive shall, after the Termination Date, retain all rights to
indemnification under applicable law or under Elco's Certificate of
Incorporation or By-Laws, as they may be amended or restated from time
to time, to the extent any such amendment or restatement expands the
Executive's rights to indemnification. In addition, Elco shall maintain
Director's and Officer's liability insurance on behalf of Executive,
provided Executive is eligible to be covered and has in fact been covered
by such insurance, at the highest level in effect immediately prior to
either the Date of a Change of Control or the Termination Date, including
any such insurance that was reduced prior to a Change of Control at the
request of the person or entity acquiring control of Elco or reasonably
shown to the related to the Change of Control, for the seven (7) year
period following the Termination Date.
5. Termination for Cause.
Nothing in this Agreement shall be construed to prevent Elco from
terminating Executive's employment for Cause. If Executive is terminated
for Cause, Elco shall have no obligation to make any payments under this
Agreement, except for payments that may otherwise be payable under
then existing employee benefit plans, programs and arrangements of Elco.
6. Mitigation.
Executive shall not be required to mitigate damages or the amount
of any payment provided for under this Agreement by seeking other
employment or otherwise, and compensation earned from such employment
or otherwise shall not reduce the amounts otherwise payable under this
Agreement. Except as provided in Section 10, no amounts payable under
this Agreement shall be subject to reduction or offset in respect of any
claims which Elco (or any other person or entity) may have against
Executive.
7. Restrictive Covenants.
(a) Confidential Information. During the two (2) year
period following the Termination Date, Executive shall not disclose
to any person, or use to the significant disadvantage of Elco any
Confidential Information; provided that nothing contained in this
Section 7 shall prevent Executive from being employed by a
competitor of Elco or utilizing Executive's general skills,
experience, and knowledge, including those developed while
employed by Elco.
(b) Release. In consideration for the protection and
benefits provided for under this Agreement, Executive hereby
agrees to execute a release substantially in the form of Schedule A.
8. Disputes.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Chicago, Illinois,
or, at the option of Executive, in the county where Executive then
resides, in accordance with the Rules of the American Arbitration
Association then in effect, except that if Executive institutes an action
relating to this Agreement, Executive may, at Executive's option, bring
that action in a court of competent jurisdiction. Judgment may be entered
on an arbitrator's award relating to this Agreement in any court having
jurisdiction. Notwithstanding the pendency of any dispute in connection
with this Agreement, Elco will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was
given and continue Executive as a participant in all compensation, benefit
and insurance plans in which Executive was participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved
in accordance with this Section 8. Amounts paid under this Section 8 are
in addition to all other amounts due under this Agreement and shall not
be offset against or reduce any other amounts due under this Agreement.
9. Costs of Proceedings.
Elco shall pay all costs and expenses, including attorneys' fees and
disbursements, at least monthly, of Executive in connection with any legal
proceeding (including arbitration), whether or not instituted by Elco or
Executive, relating to the interpretation or enforcement of any provision
of this Agreement, except that if Executive instituted the proceeding and
the judge, arbitrator or other individual presiding over the proceeding
affirmatively finds the Executive instituted the proceeding in bad faith,
Executive shall pay all costs and expenses, including attorney's fees and
disbursements, of Elco. Elco shall pay prejudgment interest on any
money judgment obtained by Executive as a result of such a proceeding,
calculated at the rate which Bank of America announces from time to time
as its prime lending rate as in effect from time to time, from the date that
payment should have been made to Executive under this Agreement.
10. Withholding.
Notwithstanding the provisions of Sections 3 and 6 hereof, Elco
may, to the extent required by law, withhold applicable federal, state and
local income and other taxes from any payments due to Executive
hereunder.
11. Beneficiary Designation.
In the event of the Executive's death prior to his receipt of all
payments and benefits due to him under this Agreement, all such amounts
shall be paid to his designated beneficiary, as set forth on the form
attached hereto as Schedule B.
12. Assignment; Successors.
Except as otherwise provided herein, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by Elco and
Executive and their respective heirs, personal or legal representatives,
executors, administrators, successors, assigns, distributees, divisees
and legatees. If Executive should die while any amount would still be
payable to Executive hereunder had Executive continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee or other
designee or, if there is no such designee, to Executive's estate. If Elco
shall be merged into or consolidated with another entity, the provisions
of this Agreement shall be binding upon and inure to the benefit of the
entity surviving such merger or resulting from such consolidation. Elco
will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business or assets of Elco by agreement in form and substance
satisfactory to Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Elco would be
required to perform it if no such succession had taken place. The
provisions of this Section 12 shall continue to apply to each subsequent
employer of Executive hereunder in the event of any subsequent merger,
consolidation or transfer of assets of such subsequent employer.
13. Notices.
Any notice to be provided under the terms of this Agreement shall
be in writing and shall be sufficient if delivered in person or sent by
registered or certified mail, return receipt requested, addressed as
follows:
If to the Executive:
John C. Lutz
7828 McCurry Road
Roscoe, IL 61073
If to the Company:
Elco Industries, Inc.
1111 Samuelson Road
Rockford, Illinois 61125-7009
Attn: Secretary
or to such other place as either party may specify in writing, delivered
in accordance with the provisions of this Section.
14. Applicable Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois applicable to contracts made and to be
performed therein.
15. Effective Date; Term.
This Agreement shall be effective as of March 30, 1995 (the
"Effective Date"") and shall remain in effect thereafter until March 30,
1998, unless Elco and Executive agree in writing to continue this
Agreement for such additional period of time as the parties shall specify.
Notwithstanding the foregoing, this Agreement shall, if in effect on the
date of a Change of Control, remain in effect for at least two (2) years
following such Change of Control, and such additional time as may be
necessary to give effect to the terms of the Agreement.
16. Amendment.
This Agreement may be changed only by a written agreement
executed by Elco and Executive.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
ELCO INDUSTRIES, INC.
By: /s/ D. M. Hasse
Its Vice President
/s/ John C. Lutz
Executive
/s/ David Peterson
Chairman,
Compensation Committee
<PAGE>
Schedule A
CHANGE OF CONTROL AGREEMENT
RELEASE
For and in consideration of the payment of such amounts and
benefits as are set forth in the Change of Control Agreement dated March
30, 1995 by and between John C. Lutz and Elco Industries, Inc. ("Elco"),
Executive, together with his heirs, beneficiaries, personal or legal
representatives, executors, administrators, successors, assigns,
distributees, devisees and legatees, hereby waives, releases, and
discharges Elco and the present, future, or former employees, agents,
officers, directors, successors, assigns and affiliated entities of Elco,
(herein referred to collectively as the "Released Parties"), with respect
to any and all causes of action, potential causes of action, suits,
disputes, liabilities, claims in law and equity, rights, damages, demands,
personal injuries, and attorney's fees and costs by reason of any matter,
cost, or thing whatsoever against and as to Elco, which in any way
results from, arises out of, or pertains to Executive's employment,
termination of employment, benefits, awards, insurance coverage, hiring,
wages, or any other terms and conditions of employment at Elco, or any
other events which are unknown, fixed or contingent, and by reason of
any matter, cause, thing, charge, claim, right or action whatsoever,
against and as to Elco and/or any of the other Released Parties, and
which are in any way related to any violation of any provision of federal
and state statutory or common law or regulation, including claims arising
under any federal, state, or local laws prohibiting employment
discrimination on any basis or claims arising out of any legal restrictions
on Elco's rights to terminate its employees, any contract claim for the
alleged breach of any implied, express, or other type of employment
contract, wrongful, abusive or retaliatory discharge, and any tort claim,
including, but not limited to, fraud, misrepresentation, deceit,
defamation, slander, libel, interference with employment relations,
intentional or negligent infliction of emotional distress, breach of any
fiduciary duties, or any other tort-type causes of action.
This Release applies to any relief or benefit sought by the
Executive, no matter how denominated, including, but not limited to,
claims for compensation for any physical or mental injury, pain and
suffering, reinstatement, back pay, front pay, prejudgment interest,
compensatory damages, punitive damages, insurance coverage, benefits,
premiums, medical expenses, or attorneys' fees and costs.
In addition, Executive together with his heirs, beneficiaries,
personal or legal representatives, executors, administrators, successors,
distributees, devisees and legatees, agrees and covenants not to file a
lawsuit or administrative complaint to assert any claim with respect to his
employment with Elco, the payment of wages to him by Elco, or the
cessation of his employment with Elco which occurred prior to the
execution of this Release. Any such lawsuit or administrative complaint
filed in violation of this Release shall automatically constitute a breach of
this Release. If any government agency or court assumes jurisdiction of
any charge, complaint, cause of action or claim covered by this Release
against Elco or any of the Released Parties, on behalf of or related to
Executive, Executive agrees and covenants he will withdraw from and/or
dismiss the matter with prejudice. Executive agrees he will not
participate or cooperate in such matter(s) except as required by law.
Executive understands and acknowledges that he has
expressly waived all his rights under this Release. Executive further
acknowledges that he understands the legal effect of this Release, and
that, to the extent he has deemed necessary, he has consulted with his
attorney or other counsel regarding the legal effect of this Release.
Executive represents and warrants to Elco that he has the
full power, capacity, and authority to enter into this Release, and that
no portion of any claim, right, demand, action, or cause of action that
Executive has, or might have had arising out of the acts, events,
transactions, and occurrences referred to herein has been assigned,
transferred, or conveyed to any person not a party to this Release, by
way of subrogation, operation of law, or otherwise, and that no releases
or settlement agreements are necessary or need to be obtained from any
other person or entity to release and discharge completely any of the
claims of Executive released in this Release.
IN WITNESS WHEREOF, Executive has signed this instrument
this 30th day of March, 1995.
/s/ John C. Lutz
Executive
<PAGE>
Schedule B
CHANGE OF CONTROL AGREEMENT
BENEFICIARY DESIGNATION FORM
TO: Elco Industries, Inc.
FROM: John C. Lutz
DATE: March 30, 1995
In the event of my death prior to my receipt of all payments and
benefits due me under the Change of Control Agreement dated March 30,
1995, I hereby designate the person or persons named below who are
living at the time of my death to receive all amounts and benefits due me
under the terms of such Agreement as follows:
Relati % of
Name Address S.S. Number onship Total
1. Barbara J. Lutz 7828 McCurry Road ###-##-#### Wife 50%
Roscoe, IL
2. Jeffrey C. Lutz 4332 Pebble Beach Dr. Son 25%
Niwot, CO
3. James C. Lutz Son 25%
4.
Total: 100%
<PAGE>
I hereby revoke all prior Beneficiary Designations made previously and
expressly reserve the right to change or revoke this Beneficiary
Designation, but understand that no such change or revocation shall be
effective unless it is signed by me and filed with Elco Industries, Inc.
/s/ John C. Lutz
Signature
Accepted by Elco Industries, Inc.
By: /s/ D. M. Hasse 03/30/95
Date
Exhibit 10.19
CHANGE OF CONTROL AGREEMENT
This Agreement is made this 30th day of March, 1995, by and
between Elco Industries, Inc., a Delaware corporation ("Elco") and
August F. DeLuca ("Executive").
RECITALS:
Executive is a skilled and dedicated employee who has
important management responsibilities and talents. Elco believes
that its best interests will be served if Executive is encouraged to
remain with Elco. Elco has determined that Executive's ability to
perform his responsibilities and utilize his talents for the benefit of
Elco, as well as Elco's ability to retain Executive as an employee,
will be significantly enhanced if Executive is provided with fair and
reasonable protection from the risks of a change in ownership or
control of Elco. Accordingly, Elco and Executive agree as follows:
1. Definitions.
When the following terms appear in this Agreement they shall
have the respective meanings set forth below, unless the context
clearly indicates to the contrary:
(a) "Base Salary" means the highest annual rate of
Executive's base salary in effect on either the date of the
Change of Control or the Termination Date, including any
amounts by which the base salary was reduced prior to the
Change of Control at the request of the person or entity
acquiring control of Elco or reasonably shown to be related to
the Change of Control.
(b) "Bonus" means the highest amount payable to
Executive under Elco's annual bonus plan in effect on either
the date of the Change of Control or the Termination Date,
assuming the highest performance targets are met for such
bonus plan, including any amounts by which the Executive's
annual bonus was reduced prior to the Change of Control at
the request of the person or entity acquiring control of Elco
or reasonably shown to be related to the Change of Control.
(c) "Cause" means either of the following:
(i) Executive's willful malfeasance having a
material adverse effect on Elco; or
(ii) Executive's conviction of a felony;
provided, that any action or refusal by Executive shall not
constitute "Cause" if, in good faith, Executive believed such
action or refusal to be in, or not opposed to, the best
interests of Elco, or if Executive shall be entitled, under
applicable law or under an applicable Certificate of
Incorporation or By-Laws, as they may be amended or
restated from time to time, to be indemnified with respect to
such action or refusal.
(d) "Change of Control" means the first to occur of
any of the following dates:
(i) the date the Elco Board of Directors votes
to approve:
(A) any consolidation or merger of Elco;
(B) any sale, lease, exchange or other
transfer (in one transaction or a series of
related transactions) of all, or substantially all,
of the assets of Elco other than any sale, lease,
exchange or other transfer to any corporation
where Elco owns, directly or indirectly, at least
seventy percent (70%) of the outstanding voting
securities of such corporation after any such
transfer; or
(C) any plan or proposal for the
liquidation or dissolution of Elco;
(ii) the date any person (as such term is used
in Section 13(d) of the Securities Exchange Act of
1934, hereinafter the "1934 Act"), other than one or
more trusts established by Elco for the benefit of
employees of Elco or its subsidiaries, shall become the
beneficial owner (within the meaning of Rule 13d-3
under the 1934 Act) of thirty percent (30%) or more of
outstanding Common Stock;
(iii) the date the Board of Directors of Elco
authorizes and approves any transaction which has
either a reasonable likelihood or a purpose of causing,
whether directly or indirectly:
(A) Common Stock to be held of record
by less than [300] persons; or
(B) Common Stock to be neither listed
on any national securities exchange nor
authorized to be quoted on an inter-dealer
quotation system of any registered national
securities association;
(iv) the date, during any period of twenty-
four (24) consecutive months, on which individuals
who at the beginning of such period constitute the
entire Board of Directors of Elco shall cease for any
reason to constitute a majority thereof unless the
election, or the nomination for election by Elco
stockholders, of each new director comprising the
majority was approved by a vote of at least a majority
of the Continuing Directors as hereinafter defined, in
office on the date of such election or nomination for
election of the new director. For purposes hereof, a
"Continuing Director" shall mean:
(A) any member of the Board of
Directors of Elco at the close of business on
March 30, 1995.
(B) any member of the Board of
Directors of Elco who succeeds any Continuing
Director described in subparagraph (A) above
if such successor was elected, or nominated for
election by Elco stockholders, by a majority of
the Continuing Directors then still in office; or
(C) any director elected, or nominated
for election by Elco stockholders, to fill any
vacancy or newly created directorship on the
Board of Directors of Elco by a majority of the
Continuing Directors then still in office; or
(v) the date of commencement by any entity,
person, or group (including any affiliate thereof,
other than Elco) of a tender offer or exchange offer
for more than twenty percent (20%) of the outstanding
Common Stock.
(e) "Code" means the Internal Revenue Code of
1986, as amended.
(f) "Common Stock" means the $5 par value common
stock of Elco.
(g) "Confidential Information" means nonpublic
information relating to the business plans, marketing plans,
customers or employees of Elco other than information the
disclosure of which cannot reasonably be expected to
adversely affect the business of Elco.
(h) "Elco" means Elco Industries, Inc., a Delaware
corporation, and any successor or successors thereto.
(i) "Fringe Benefits" means the fair market value of
the highest level of fringe benefits payable to Executive by
Elco on either the date of the Change of Control or the
Termination Date, including any amounts by which the
Executive's fringe benefits were reduced prior to the Change
of Control at the request of the person or entity acquiring
control of Elco or reasonably shown to be related to the
Change of Control. For these purposes, "Fringe Benefits"
do not include welfare benefits, such as medical coverage
(including prescription drug coverage), dental coverage, life
insurance, disability insurance and accidental death and
dismemberment benefits.
(j) "Good Reason" means any of the following
actions,without Executive's express prior written approval,
other than due to Executive's Permanent Disability or death:
(i) any diminution in Executive's titles,
duties, responsibilities, status or reporting
relationship from the positions, duties,
responsibilities, status or reporting relationship
existing immediately prior to a Change of Control;
(ii) the removal of Executive from, or any
failure to re-elect Executive to, any of the positions
Executive holds immediately prior to a Change of
Control;
(iii) the failure of Elco to pay Executive's Base
Salary when due;
(iv) any reduction of Executive's Base Salary,
or Bonus, or any reduction in the aggregate amount of
Fringe Benefits provided to Executive;
(v) the change of Executive's principal place
of employment to a location more than 50 miles from
Executive's principal place of employment immediately
prior to the Change of Control; or
(vi) any breach by Elco of any provision of
this Agreement;
(vii) the failure of Elco to obtain a satisfactory
agreement from any successor to assume and agree to
perform this Agreement, as contemplated by Section 12
hereof; or
(viii) any purported termination of Executive's
employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of Section
2(i) hereof (and, if applicable, the requirements of
Section 13 hereof); for purposes of this Agreement, no
such purported termination shall be effective.
provided, however, that if any of the actions described in
subparagraphs (i) - (viii) above occur prior to a Change of
Control at the request of any individual or entity acquiring
ownership or control of Elco, or is reasonably shown to be
related to a prospective Change of Control, and if such
actions occur without Executive's express prior written
approval, other than due to Executive's Permanent Disability
or death, then the existence of such actions shall also
constitute "Good Reason."
(k) "Permanent Disability" means Executive's
inability, by reason of any physical or mental impairment, to
substantially perform the significant aspects of his regular
duties which inability is reasonably contemplated to continue
for at least one (1) year from its inception.
2. Change of Control Benefits.
If Executive's employment with Elco is terminated at any time
within the two (2) years following a Change of Control of Elco
without Cause, or by Executive for Good Reason (the effective date
of either such termination hereafter referred to as the "Termination
Date"), Executive shall be entitled to the benefits provided
hereafter in this Section 2 and as set forth in this Agreement. If
Executive's employment with Elco is terminated by Elco without
Cause prior to a Change of Control at the request of any individual
or entity acquiring ownership or control of Elco, or is reasonably
shown to be related to a prospective Change of Control, or by
Executive for Good Reason, or if the person or entity acquiring
control fails to assume Elco's liabilities to Executive under this
Agreement, the Executive's Termination Date shall be deemed to
have occurred immediately upon the Executive's effective date of
termination (in the case of a termination of employment at the
request of the acquirer), or immediately following the Change of
Control (in the case of the acquirer's failure to assume Elco's
liabilities under this Agreement), and therefore Executive shall be
entitled to the benefits provided hereafter in this Section 2 and as
set forth in this Agreement.
(a) Severance Benefits. Within five (5) business
days after the Termination Date, Elco shall pay Executive a
lump sum amount, in cash, equal to two (2) times the sum of:
(i) Executive's Base Salary;
(ii) Executive's Bonus; and
(iii) Executive's Fringe Benefits.
(b) Performance Award. Any unpaid Target Award
previously granted to an Executive under the Elco
Industries, Inc. 1988 Performance Share Plan (the "Share
Plan") shall be paid to the Executive within five (5) days of
the Termination Date as if such Target Award was 100 earned
during the relevant Performance Period (as such term is
defined in the Share Plan), irrespective of Elco's actual
performance during the relevant Performance Period.
(c) Welfare Benefits. Elco shall, until the second
anniversary of the Termination Date, and at its expense,
provide Executive with medical (including prescription drug
coverage), dental, life insurance and accidental death and
dismemberment benefits at the highest level provided to
Executive, his dependents and beneficiaries, either on the
date of a Change of Control or the Termination Date,
including any coverage or benefits that were reduced prior
to the Change of Control at the request of the person or
entity acquiring control of Elco or reasonably shown to be
related to the Change of Control. During the period that
Elco is providing Executive, his dependents and
beneficiaries, with these benefits, Executive shall be entitled
to elect such changes and take such actions the same as a
similarly situated active employee.
(d) Payment of Accrued But Unpaid
Amounts. Within five (5) business days after the
Termination Date, Elco shall pay Executive (i) any unpaid
portion of Executive's Bonus accrued with respect to the full
fiscal year ended prior to the Termination Date; and (ii) all
compensation previously deferred by Executive but not yet
paid.
(e) Post-Retirement Welfare Benefits. On the
Termination Date, for purposes of determining Executive's
eligibility for post-retirement benefits under any welfare
benefit plan (as defined in section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended)
maintained by Elco immediately prior to the Change of Control
and in which Executive participated, immediately prior to the
Change of Control (or, with respect to an Executive who is
terminated prior to a Change of Control, the Termination
Date), Executive shall be credited with the excess of two
years of participation in the applicable medical plan and two
years of age over the actual years and fractional years of
participation and age credited to Executive as of the Change
of Control (or Termination Date, as the case may be). If,
after taking into account such participation and age,
Executive would have been eligible to receive such post-
retirement benefits had Executive retired immediately prior
to the Change of Control (or Termination Date, as the case
may be), Executive shall receive, commencing on the
Termination Date, post-retirement benefits based on the
terms and conditions of the applicable plans in effect
immediately prior to the Change of Control (or Termination
Date, as the case may be).
(f) Retirement Benefits. For purposes of
determining the Executive's retirement benefits under the
various Elco retirement benefit plans, Executive shall be
deemed to be an active employee receiving his Base Salary
and shall accordingly continue to earn service and accrue
benefits under such plans for an additional period of two
years following the Termination Date.
(g) Effect on Existing Plans. All Change of Control
provisions applicable to Executive and contained in any plan,
program, agreement or arrangement maintained on the
Effective Date (or thereafter) by Elco (including, but not
limited to, any stock option, restricted stock or pension
plan) shall remain in effect through the date of a Change of
Control, and for such period thereafter as is necessary to
carry out such provisions and provide the benefits payable
thereunder, and may not be altered in a manner which
adversely affects Executive without Executive's prior written
approval.
(h) Cessation of Benefits. Notwithstanding the
foregoing, no service of the Executive for Elco after age 65
shall be taken into account for purposes of determining the
Executive's benefits under this Agreement.
(i) Notice of Termination. Any purported
termination of Executive's employment by Elco or by
Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with
Section 13 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
3. Gross-Up Payment.
(a) In the event it shall be determined that any
payment, benefit or distribution (or combination thereof) by
Elco or one or more trusts established by Elco for the benefit
of its employees, to or for the benefit of Executive (whether
paid or payable or distributed or distributable pursuant to
the terms of this Agreement, or otherwise) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of
the Code, or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), Executive shall
be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that, after payment by
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes and excise taxes (and any
interest and penalties imposed with respect thereto) imposed
upon the Gross-Up Payment itself, Executive retains an
amount of such additional payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 3(c), all
determinations required to be made under this Section 3,
including whether and when a Gross-Up Payment is required
and the amount of such Gross-up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by Coopers & Lybrand or such other nationally
recognized certified public accounting firm as may be
designated by Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to Elco and
Executive within fifteen (15) business days of the receipt of
notice from Executive that there has been a Payment, or such
earlier time as it requested by Elco. In the event that the
Accounting Firm is serving as accountant or auditor for an
individual, entity or group effecting the change in ownership
or effective control (within the meaning of Section 280G of the
Code), Executive shall appoint another nationally recognized
accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to
as the "Accounting Firm" hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by Elco. Any
Gross-Up Payment, as determined pursuant to this Section 3,
shall be paid by Elco to Executive within five (5) days after
the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by
Executive, it shall so indicate to Executive in writing. Any
determination by the Accounting Firm shall be binding upon
Elco and Executive.
(c) For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amount of
such Excise Tax: (i) any payments or benefits received or
to be received by Executive pursuant to the terms of this
Agreement shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by Elco's
independent auditors and acceptable to Executive such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax; (ii) the amount of
the Payments which shall be treated as subject to the Excise
Tax shall be equal to the lesser of: (1) the total amount of
the Payments; or (2) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) (after
applying clause (i), above); and (iii) the value of any non-
cash benefits or any deferred payment or benefit shall be
determined by Elco's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay Federal income
taxes at the highest marginal rate of Federal income taxation
in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Executive's
residence on the Termination Date, net of the maximum
reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes. In the event
that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay
to Elco at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of
the Gross-Up Payment attributable to the Excise Tax and
Federal and state and local income tax imposed on the Gross-
Up Payment being repaid by Executive if such repayment
results in a reduction in Excise Tax and/or a Federal and
state and local income tax deduction) plus interest on the
amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account
hereunder at the time of the termination of Executive's
employment (including by reason of any payment the
existence or amount of which cannot be determined at the time
of the Gross-Up Payment), Elco shall make an additional
gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that
the amount of such excess is finally determined.
(d) Executive shall notify Elco in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by Elco of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed
in writing of such claim and shall apprise Elco of the nature
of such claim and the date on which such claim is requested
to be paid. Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on
which it gives such notice to Elco (or such shorter period
ending on the date that any payment of taxes with respect to
such claim is due). If Elco notifies Executive in writing prior
to the expiration of such period that it desires to contest
such claim, Executive shall:
(i) give Elco any information reasonably
requested by Elco relating to such claim;
(ii) take such action in connection with
contesting such claim as Elco shall reasonably request
in writing from time to time, including, without
limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by
Elco;
(iii) cooperate with Elco in good faith in order
to effectively contest such claim; and
(iv) permit Elco to participate in any
proceedings relating to such claim; provided,
however, that Elco shall bear and pay directly all costs
and expenses (including additional interest and
penalties) incurred in connection with such contest
and shall indemnify and hold Executive harmless, on
an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and
payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 3(d), Elco
shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or
forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed
and sue for a refund or contest the claim in any
permissible manner, and Executive agrees to prosecute
such contest to a determination before any
administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as
Elco shall determine; provided, however, that if Elco
directs Executive to pay such claim and sue for a
refund, Elco shall advance the amount of such payment
to Executive, on an interest-free basis, and shall
indemnify and hold Executive harmless, on an after-
tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto)
imposed with respect to such advance or with respect
to any imputed income with respect to such advance;
and provided further, that if Executive is required to
extend the statute of limitations to enable Elco to
contest such claim, Executive may limit this extension
solely to such contested amount. Elco's control of the
contest shall be limited to issues with respect to which
a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(e) If, after the receipt by Executive of an amount
advanced by Elco pursuant to Section 3(d), Executive
becomes entitled to receive any refund with respect to such
claim, Executive shall (subject to Elco complying with the
requirements of Section 3(d)) promptly pay to Elco the
amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after
the receipt by Executive of an amount advanced by Elco
pursuant to Section 3(d), a determination is made that
Executive shall not be entitled to any refund with respect to
such claim and Elco does not notify Executive in writing of its
intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to
be paid.
4. Indemnification; Director's and Officer's Liability
Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under Elco's Certificate
of Incorporation or By-Laws, as they may be amended or restated
from time to time, to the extent any such amendment or restatement
expands the Executive's rights to indemnification. In addition, Elco
shall maintain Director's and Officer's liability insurance on behalf
of Executive, provided Executive is eligible to be covered and has
in fact been covered by such insurance, at the highest level in
effect immediately prior to either the Date of a Change of Control or
the Termination Date, including any such insurance that was
reduced prior to a Change of Control at the request of the person
or entity acquiring control of Elco or reasonably shown to the
related to the Change of Control, for the seven (7) year period
following the Termination Date.
5. Termination for Cause.
Nothing in this Agreement shall be construed to prevent Elco
from terminating Executive's employment for Cause. If Executive
is terminated for Cause, Elco shall have no obligation to make any
payments under this Agreement, except for payments that may
otherwise be payable under then existing employee benefit plans,
programs and arrangements of Elco.
6. Mitigation.
Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by
seeking other employment or otherwise, and compensation earned
from such employment or otherwise shall not reduce the amounts
otherwise payable under this Agreement. Except as provided in
Section 10, no amounts payable under this Agreement shall be
subject to reduction or offset in respect of any claims which Elco (or
any other person or entity) may have against Executive.
7. Restrictive Covenants.
(a) Confidential Information. During the two (2)
year period following the Termination Date, Executive shall
not disclose to any person, or use to the significant
disadvantage of Elco any Confidential Information; provided
that nothing contained in this Section 7 shall prevent
Executive from being employed by a competitor of Elco or
utilizing Executive's general skills, experience, and
knowledge, including those developed while employed by
Elco.
(b) Release. In consideration for the protection and
benefits provided for under this Agreement, Executive
hereby agrees to execute a release substantially in the form
of Schedule A.
8. Disputes.
Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois, or, at the option of Executive, in the county
where Executive then resides, in accordance with the Rules of the
American Arbitration Association then in effect, except that if
Executive institutes an action relating to this Agreement, Executive
may, at Executive's option, bring that action in a court of
competent jurisdiction. Judgment may be entered on an arbitrator's
award relating to this Agreement in any court having jurisdiction.
Notwithstanding the pendency of any dispute in connection with
this Agreement, Elco will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute
was given and continue Executive as a participant in all
compensation, benefit and insurance plans in which Executive was
participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with this Section
8. Amounts paid under this Section 8 are in addition to all other
amounts due under this Agreement and shall not be offset against
or reduce any other amounts due under this Agreement.
9. Costs of Proceedings.
Elco shall pay all costs and expenses, including attorneys'
fees and disbursements, at least monthly, of Executive in
connection with any legal proceeding (including arbitration),
whether or not instituted by Elco or Executive, relating to the
interpretation or enforcement of any provision of this Agreement,
except that if Executive instituted the proceeding and the judge,
arbitrator or other individual presiding over the proceeding
affirmatively finds the Executive instituted the proceeding in bad
faith, Executive shall pay all costs and expenses, including
attorney's fees and disbursements, of Elco. Elco shall pay
prejudgment interest on any money judgment obtained by Executive
as a result of such a proceeding, calculated at the rate which Bank
of America announces from time to time as its prime lending rate as
in effect from time to time, from the date that payment should have
been made to Executive under this Agreement.
10. Withholding.
Notwithstanding the provisions of Sections 3 and 6 hereof,
Elco may, to the extent required by law, withhold applicable
federal, state and local income and other taxes from any payments
due to Executive hereunder.
11. Beneficiary Designation.
In the event of the Executive's death prior to his receipt of
all payments and benefits due to him under this Agreement, all such
amounts shall be paid to his designated beneficiary, as set forth on
the form attached hereto as Schedule B.
12. Assignment; Successors.
Except as otherwise provided herein, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by Elco
and Executive and their respective heirs, personal or legal
representatives, executors, administrators, successors, assigns,
distributees, divisees and legatees. If Executive should die while
any amount would still be payable to Executive hereunder had
Executive continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if
there is no such designee, to Executive's estate. If Elco shall be
merged into or consolidated with another entity, the provisions of
this Agreement shall be binding upon and inure to the benefit of the
entity surviving such merger or resulting from such consolidation.
Elco will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of Elco by agreement in
form and substance satisfactory to Executive, to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that Elco would be required to perform it if no such
succession had taken place. The provisions of this Section 12 shall
continue to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger, consolidation or
transfer of assets of such subsequent employer.
13. Notices.
Any notice to be provided under the terms of this Agreement
shall be in writing and shall be sufficient if delivered in person or
sent by registered or certified mail, return receipt requested,
addressed as follows:
If to the Executive:
August F. DeLuca
5038 Parliament
Rockford, IL 61107
If to the Company:
Elco Industries, Inc.
1111 Samuelson Road
Rockford, Illinois 61125-7009
Attn: Secretary
or to such other place as either party may specify in writing,
delivered in accordance with the provisions of this Section.
14. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois applicable to
contracts made and to be performed therein.
15. Effective Date; Term.
This Agreement shall be effective as of March 30, 1995 (the
"Effective Date"") and shall remain in effect thereafter until March
30, 1998, unless Elco and Executive agree in writing to continue
this Agreement for such additional period of time as the parties
shall specify. Notwithstanding the foregoing, this Agreement
shall, if in effect on the date of a Change of Control, remain in
effect for at least two (2) years following such Change of Control,
and such additional time as may be necessary to give effect to the
terms of the Agreement.
16. Amendment.
This Agreement may be changed only by a written agreement
executed by Elco and Executive.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
ELCO INDUSTRIES, INC.
By: /s/ John C. Lutz
Its President
/s/ August F. DeLuca
Executive
/s/ David Peterson
Chairman,
Compensation Committee
<PAGE>
Schedule A
CHANGE OF CONTROL AGREEMENT
RELEASE
For and in consideration of the payment of such
amounts and benefits as are set forth in the Change of Control
Agreement dated March 30, 1995 by and between August F. DeLuca
and Elco Industries, Inc. ("Elco"), Executive, together with his
heirs, beneficiaries, personal or legal representatives, executors,
administrators, successors, assigns, distributees, devisees and
legatees, hereby waives, releases, and discharges Elco and the
present, future, or former employees, agents, officers, directors,
successors, assigns and affiliated entities of Elco, (herein referred
to collectively as the "Released Parties"), with respect to any and
all causes of action, potential causes of action, suits, disputes,
liabilities, claims in law and equity, rights, damages, demands,
personal injuries, and attorney's fees and costs by reason of any
matter, cost, or thing whatsoever against and as to Elco, which in
any way results from, arises out of, or pertains to Executive's
employment, termination of employment, benefits, awards,
insurance coverage, hiring, wages, or any other terms and
conditions of employment at Elco, or any other events which are
unknown, fixed or contingent, and by reason of any matter, cause,
thing, charge, claim, right or action whatsoever, against and as to
Elco and/or any of the other Released Parties, and which are in any
way related to any violation of any provision of federal and state
statutory or common law or regulation, including claims arising
under any federal, state, or local laws prohibiting employment
discrimination on any basis or claims arising out of any legal
restrictions on Elco's rights to terminate its employees, any
contract claim for the alleged breach of any implied, express, or
other type of employment contract, wrongful, abusive or retaliatory
discharge, and any tort claim, including, but not limited to, fraud,
misrepresentation, deceit, defamation, slander, libel, interference
with employment relations, intentional or negligent infliction of
emotional distress, breach of any fiduciary duties, or any other
tort-type causes of action.
This Release applies to any relief or benefit sought by
the Executive, no matter how denominated, including, but not
limited to, claims for compensation for any physical or mental
injury, pain and suffering, reinstatement, back pay, front pay,
prejudgment interest, compensatory damages, punitive damages,
insurance coverage, benefits, premiums, medical expenses, or
attorneys' fees and costs.
In addition, Executive together with his heirs,
beneficiaries, personal or legal representatives, executors,
administrators, successors, distributees, devisees and legatees,
agrees and covenants not to file a lawsuit or administrative
complaint to assert any claim with respect to his employment with
Elco, the payment of wages to him by Elco, or the cessation of his
employment with Elco which occurred prior to the execution of this
Release. Any such lawsuit or administrative complaint filed in
violation of this Release shall automatically constitute a breach of
this Release. If any government agency or court assumes
jurisdiction of any charge, complaint, cause of action or claim
covered by this Release against Elco or any of the Released Parties,
on behalf of or related to Executive, Executive agrees and
covenants he will withdraw from and/or dismiss the matter with
prejudice. Executive agrees he will not participate or cooperate in
such matter(s) except as required by law.
Executive understands and acknowledges that he has
expressly waived all his rights under this Release. Executive
further acknowledges that he understands the legal effect of this
Release, and that, to the extent he has deemed necessary, he has
consulted with his attorney or other counsel regarding the legal
effect of this Release.
Executive represents and warrants to Elco that he has
the full power, capacity, and authority to enter into this Release,
and that no portion of any claim, right, demand, action, or cause
of action that Executive has, or might have had arising out of the
acts, events, transactions, and occurrences referred to herein has
been assigned, transferred, or conveyed to any person not a party
to this Release, by way of subrogation, operation of law, or
otherwise, and that no releases or settlement agreements are
necessary or need to be obtained from any other person or entity to
release and discharge completely any of the claims of Executive
released in this Release.
IN WITNESS WHEREOF, Executive has signed this
instrument this 30th day of March, 1995.
/s/ August F. DeLuca
Executive
<PAGE>
Schedule B
CHANGE OF CONTROL AGREEMENT
BENEFICIARY DESIGNATION FORM
TO: Elco Industries, Inc.
FROM: August F. DeLuca
DATE: March 30, 1995
In the event of my death prior to my receipt of all payments
and benefits due me under the Change of Control Agreement dated
March 30, 1995, I hereby designate the person or persons named
below who are living at the time of my death to receive all amounts
and benefits due me under the terms of such Agreement as follows:
Name and Address: Carolyn C. DeLuca
5038 Parliament
Rockford, IL 61107
S.S. Number: ###-##-####
Relationship: Wife
Percent of Total: 100%
Total: 100%
<PAGE>
I hereby revoke all prior Beneficiary Designations made
previously and expressly reserve the right to change or revoke this
Beneficiary Designation, but understand that no such change or
revocation shall be effective unless it is signed by me and filed with
Elco Industries, Inc.
/s/ August F. DeLuca
Signature
Accepted by Elco Industries, Inc.
By: /s/ D. M. Hasse, V.P. 04/13/95
Date
Exhibit 10.20
CHANGE OF CONTROL AGREEMENT
This Agreement is made this 30th day of March, 1995, by and
between Elco Industries, Inc., a Delaware corporation ("Elco") and
Derek M. Hasse ("Executive").
RECITALS:
Executive is a skilled and dedicated employee who has
important management responsibilities and talents. Elco believes
that its best interests will be served if Executive is encouraged to
remain with Elco. Elco has determined that Executive's ability to
perform his responsibilities and utilize his talents for the benefit of
Elco, as well as Elco's ability to retain Executive as an employee,
will be significantly enhanced if Executive is provided with fair and
reasonable protection from the risks of a change in ownership or
control of Elco. Accordingly, Elco and Executive agree as follows:
1. Definitions.
When the following terms appear in this Agreement they shall
have the respective meanings set forth below, unless the context
clearly indicates to the contrary:
(a) "Base Salary" means the highest annual rate of
Executive's base salary in effect on either the date of the
Change of Control or the Termination Date, including any
amounts by which the base salary was reduced prior to the
Change of Control at the request of the person or entity
acquiring control of Elco or reasonably shown to be related to
the Change of Control.
(b) "Bonus" means the highest amount payable to
Executive under Elco's annual bonus plan in effect on either
the date of the Change of Control or the Termination Date,
assuming the highest performance targets are met for such
bonus plan, including any amounts by which the Executive's
annual bonus was reduced prior to the Change of Control at
the request of the person or entity acquiring control of Elco
or reasonably shown to be related to the Change of Control.
(c) "Cause" means either of the following:
(i) Executive's willful malfeasance having a
material adverse effect on Elco; or
(ii) Executive's conviction of a felony;
provided, that any action or refusal by Executive shall not
constitute "Cause" if, in good faith, Executive believed such
action or refusal to be in, or not opposed to, the best
interests of Elco, or if Executive shall be entitled, under
applicable law or under an applicable Certificate of
Incorporation or By-Laws, as they may be amended or
restated from time to time, to be indemnified with respect to
such action or refusal.
(d) "Change of Control" means the first to occur of
any of the following dates:
(i) the date the Elco Board of Directors votes
to approve:
(A) any consolidation or merger of Elco;
(B) any sale, lease, exchange or other
transfer (in one transaction or a series of
related transactions) of all, or substantially all,
of the assets of Elco other than any sale, lease,
exchange or other transfer to any corporation
where Elco owns, directly or indirectly, at least
seventy percent (70%) of the outstanding voting
securities of such corporation after any such
transfer; or
(C) any plan or proposal for the
liquidation or dissolution of Elco;
(ii) the date any person (as such term is used
in Section 13(d) of the Securities Exchange Act of
1934, hereinafter the "1934 Act"), other than one or
more trusts established by Elco for the benefit of
employees of Elco or its subsidiaries, shall become the
beneficial owner (within the meaning of Rule 13d-3
under the 1934 Act) of thirty percent (30%) or more of
outstanding Common Stock;
(iii) the date the Board of Directors of Elco
authorizes and approves any transaction which has
either a reasonable likelihood or a purpose of causing,
whether directly or indirectly:
(A) Common Stock to be held of record
by less than [300] persons; or
(B) Common Stock to be neither listed
on any national securities exchange nor
authorized to be quoted on an inter-dealer
quotation system of any registered national
securities association;
(iv) the date, during any period of twenty-
four (24) consecutive months, on which individuals
who at the beginning of such period constitute the
entire Board of Directors of Elco shall cease for any
reason to constitute a majority thereof unless the
election, or the nomination for election by Elco
stockholders, of each new director comprising the
majority was approved by a vote of at least a majority
of the Continuing Directors as hereinafter defined, in
office on the date of such election or nomination for
election of the new director. For purposes hereof, a
"Continuing Director" shall mean:
(A) any member of the Board of
Directors of Elco at the close of business on
March 30, 1995.
(B) any member of the Board of
Directors of Elco who succeeds any Continuing
Director described in subparagraph (A) above
if such successor was elected, or nominated for
election by Elco stockholders, by a majority of
the Continuing Directors then still in office; or
(C) any director elected, or nominated
for election by Elco stockholders, to fill any
vacancy or newly created directorship on the
Board of Directors of Elco by a majority of the
Continuing Directors then still in office; or
(v) the date of commencement by any entity,
person, or group (including any affiliate thereof,
other than Elco) of a tender offer or exchange offer
for more than twenty percent (20%) of the outstanding
Common Stock.
(e) "Code" means the Internal Revenue Code of
1986, as amended.
(f) "Common Stock" means the $5 par value common
stock of Elco.
(g) "Confidential Information" means nonpublic
information relating to the business plans, marketing plans,
customers or employees of Elco other than information the
disclosure of which cannot reasonably be expected to
adversely affect the business of Elco.
(h) "Elco" means Elco Industries, Inc., a Delaware
corporation, and any successor or successors thereto.
(i) "Fringe Benefits" means the fair market value of
the highest level of fringe benefits payable to Executive by
Elco on either the date of the Change of Control or the
Termination Date, including any amounts by which the
Executive's fringe benefits were reduced prior to the Change
of Control at the request of the person or entity acquiring
control of Elco or reasonably shown to be related to the
Change of Control. For these purposes, "Fringe Benefits"
do not include welfare benefits, such as medical coverage
(including prescription drug coverage), dental coverage, life
insurance, disability insurance and accidental death and
dismemberment benefits.
(j) "Good Reason" means any of the following
actions,without Executive's express prior written approval,
other than due to Executive's Permanent Disability or death:
(i) any diminution in Executive's titles,
duties, responsibilities, status or reporting
relationship from the positions, duties,
responsibilities, status or reporting relationship
existing immediately prior to a Change of Control;
(ii) the removal of Executive from, or any
failure to re-elect Executive to, any of the positions
Executive holds immediately prior to a Change of
Control;
(iii) the failure of Elco to pay Executive's Base
Salary when due;
(iv) any reduction of Executive's Base Salary,
or Bonus, or any reduction in the aggregate amount of
Fringe Benefits provided to Executive;
(v) the change of Executive's principal place
of employment to a location more than 50 miles from
Executive's principal place of employment immediately
prior to the Change of Control; or
(vi) any breach by Elco of any provision of
this Agreement;
(vii) the failure of Elco to obtain a satisfactory
agreement from any successor to assume and agree to
perform this Agreement, as contemplated by Section 12
hereof; or
(viii) any purported termination of Executive's
employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of Section
2(i) hereof (and, if applicable, the requirements of
Section 13 hereof); for purposes of this Agreement, no
such purported termination shall be effective.
provided, however, that if any of the actions described in
subparagraphs (i) - (viii) above occur prior to a Change of
Control at the request of any individual or entity acquiring
ownership or control of Elco, or is reasonably shown to be
related to a prospective Change of Control, and if such
actions occur without Executive's express prior written
approval, other than due to Executive's Permanent Disability
or death, then the existence of such actions shall also
constitute "Good Reason."
(k) "Permanent Disability" means Executive's
inability, by reason of any physical or mental impairment, to
substantially perform the significant aspects of his regular
duties which inability is reasonably contemplated to continue
for at least one (1) year from its inception.
2. Change of Control Benefits.
If Executive's employment with Elco is terminated at any time
within the two (2) years following a Change of Control of Elco
without Cause, or by Executive for Good Reason (the effective date
of either such termination hereafter referred to as the "Termination
Date"), Executive shall be entitled to the benefits provided
hereafter in this Section 2 and as set forth in this Agreement. If
Executive's employment with Elco is terminated by Elco without
Cause prior to a Change of Control at the request of any individual
or entity acquiring ownership or control of Elco, or is reasonably
shown to be related to a prospective Change of Control, or by
Executive for Good Reason, or if the person or entity acquiring
control fails to assume Elco's liabilities to Executive under this
Agreement, the Executive's Termination Date shall be deemed to
have occurred immediately upon the Executive's effective date of
termination (in the case of a termination of employment at the
request of the acquirer), or immediately following the Change of
Control (in the case of the acquirer's failure to assume Elco's
liabilities under this Agreement), and therefore Executive shall be
entitled to the benefits provided hereafter in this Section 2 and as
set forth in this Agreement.
(a) Severance Benefits. Within five (5) business
days after the Termination Date, Elco shall pay Executive a
lump sum amount, in cash, equal to two (2) times the sum of:
(i) Executive's Base Salary;
(ii) Executive's Bonus; and
(iii) Executive's Fringe Benefits.
(b) Performance Award. Any unpaid Target Award
previously granted to an Executive under the Elco
Industries, Inc. 1988 Performance Share Plan (the "Share
Plan") shall be paid to the Executive within five (5) days of
the Termination Date as if such Target Award was 100 earned
during the relevant Performance Period (as such term is
defined in the Share Plan), irrespective of Elco's actual
performance during the relevant Performance Period.
(c) Welfare Benefits. Elco shall, until the second
anniversary of the Termination Date, and at its expense,
provide Executive with medical (including prescription drug
coverage), dental, life insurance and accidental death and
dismemberment benefits at the highest level provided to
Executive, his dependents and beneficiaries, either on the
date of a Change of Control or the Termination Date,
including any coverage or benefits that were reduced prior
to the Change of Control at the request of the person or
entity acquiring control of Elco or reasonably shown to be
related to the Change of Control. During the period that
Elco is providing Executive, his dependents and
beneficiaries, with these benefits, Executive shall be entitled
to elect such changes and take such actions the same as a
similarly situated active employee.
(d) Payment of Accrued But Unpaid
Amounts. Within five (5) business days after the
Termination Date, Elco shall pay Executive (i) any unpaid
portion of Executive's Bonus accrued with respect to the full
fiscal year ended prior to the Termination Date; and (ii) all
compensation previously deferred by Executive but not yet
paid.
(e) Post-Retirement Welfare Benefits. On the
Termination Date, for purposes of determining Executive's
eligibility for post-retirement benefits under any welfare
benefit plan (as defined in section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended)
maintained by Elco immediately prior to the Change of Control
and in which Executive participated, immediately prior to the
Change of Control (or, with respect to an Executive who is
terminated prior to a Change of Control, the Termination
Date), Executive shall be credited with the excess of two
years of participation in the applicable medical plan and two
years of age over the actual years and fractional years of
participation and age credited to Executive as of the Change
of Control (or Termination Date, as the case may be). If,
after taking into account such participation and age,
Executive would have been eligible to receive such post-
retirement benefits had Executive retired immediately prior
to the Change of Control (or Termination Date, as the case
may be), Executive shall receive, commencing on the
Termination Date, post-retirement benefits based on the
terms and conditions of the applicable plans in effect
immediately prior to the Change of Control (or Termination
Date, as the case may be).
(f) Retirement Benefits. For purposes of
determining the Executive's retirement benefits under the
various Elco retirement benefit plans, Executive shall be
deemed to be an active employee receiving his Base Salary
and shall accordingly continue to earn service and accrue
benefits under such plans for an additional period of two
years following the Termination Date.
(g) Effect on Existing Plans. All Change of Control
provisions applicable to Executive and contained in any plan,
program, agreement or arrangement maintained on the
Effective Date (or thereafter) by Elco (including, but not
limited to, any stock option, restricted stock or pension
plan) shall remain in effect through the date of a Change of
Control, and for such period thereafter as is necessary to
carry out such provisions and provide the benefits payable
thereunder, and may not be altered in a manner which
adversely affects Executive without Executive's prior written
approval.
(h) Cessation of Benefits. Notwithstanding the
foregoing, no service of the Executive for Elco after age 65
shall be taken into account for purposes of determining the
Executive's benefits under this Agreement.
(i) Notice of Termination. Any purported
termination of Executive's employment by Elco or by
Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with
Section 13 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
3. Gross-Up Payment.
(a) In the event it shall be determined that any
payment, benefit or distribution (or combination thereof) by
Elco or one or more trusts established by Elco for the benefit
of its employees, to or for the benefit of Executive (whether
paid or payable or distributed or distributable pursuant to
the terms of this Agreement, or otherwise) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of
the Code, or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), Executive shall
be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that, after payment by
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes and excise taxes (and any
interest and penalties imposed with respect thereto) imposed
upon the Gross-Up Payment itself, Executive retains an
amount of such additional payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 3(c), all
determinations required to be made under this Section 3,
including whether and when a Gross-Up Payment is required
and the amount of such Gross-up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by Coopers & Lybrand or such other nationally
recognized certified public accounting firm as may be
designated by Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to Elco and
Executive within fifteen (15) business days of the receipt of
notice from Executive that there has been a Payment, or such
earlier time as it requested by Elco. In the event that the
Accounting Firm is serving as accountant or auditor for an
individual, entity or group effecting the change in ownership
or effective control (within the meaning of Section 280G of the
Code), Executive shall appoint another nationally recognized
accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to
as the "Accounting Firm" hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by Elco. Any
Gross-Up Payment, as determined pursuant to this Section 3,
shall be paid by Elco to Executive within five (5) days after
the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by
Executive, it shall so indicate to Executive in writing. Any
determination by the Accounting Firm shall be binding upon
Elco and Executive.
(c) For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amount of
such Excise Tax: (i) any payments or benefits received or
to be received by Executive pursuant to the terms of this
Agreement shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by Elco's
independent auditors and acceptable to Executive such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax; (ii) the amount of
the Payments which shall be treated as subject to the Excise
Tax shall be equal to the lesser of: (1) the total amount of
the Payments; or (2) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) (after
applying clause (i), above); and (iii) the value of any non-
cash benefits or any deferred payment or benefit shall be
determined by Elco's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay Federal income
taxes at the highest marginal rate of Federal income taxation
in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Executive's
residence on the Termination Date, net of the maximum
reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes. In the event
that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay
to Elco at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of
the Gross-Up Payment attributable to the Excise Tax and
Federal and state and local income tax imposed on the Gross-
Up Payment being repaid by Executive if such repayment
results in a reduction in Excise Tax and/or a Federal and
state and local income tax deduction) plus interest on the
amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account
hereunder at the time of the termination of Executive's
employment (including by reason of any payment the
existence or amount of which cannot be determined at the time
of the Gross-Up Payment), Elco shall make an additional
gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that
the amount of such excess is finally determined.
(d) Executive shall notify Elco in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by Elco of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed
in writing of such claim and shall apprise Elco of the nature
of such claim and the date on which such claim is requested
to be paid. Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on
which it gives such notice to Elco (or such shorter period
ending on the date that any payment of taxes with respect to
such claim is due). If Elco notifies Executive in writing prior
to the expiration of such period that it desires to contest
such claim, Executive shall:
(i) give Elco any information reasonably
requested by Elco relating to such claim;
(ii) take such action in connection with
contesting such claim as Elco shall reasonably request
in writing from time to time, including, without
limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by
Elco;
(iii) cooperate with Elco in good faith in order
to effectively contest such claim; and
(iv) permit Elco to participate in any
proceedings relating to such claim; provided,
however, that Elco shall bear and pay directly all costs
and expenses (including additional interest and
penalties) incurred in connection with such contest
and shall indemnify and hold Executive harmless, on
an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and
payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 3(d), Elco
shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or
forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed
and sue for a refund or contest the claim in any
permissible manner, and Executive agrees to prosecute
such contest to a determination before any
administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as
Elco shall determine; provided, however, that if Elco
directs Executive to pay such claim and sue for a
refund, Elco shall advance the amount of such payment
to Executive, on an interest-free basis, and shall
indemnify and hold Executive harmless, on an after-
tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto)
imposed with respect to such advance or with respect
to any imputed income with respect to such advance;
and provided further, that if Executive is required to
extend the statute of limitations to enable Elco to
contest such claim, Executive may limit this extension
solely to such contested amount. Elco's control of the
contest shall be limited to issues with respect to which
a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(e) If, after the receipt by Executive of an amount
advanced by Elco pursuant to Section 3(d), Executive
becomes entitled to receive any refund with respect to such
claim, Executive shall (subject to Elco complying with the
requirements of Section 3(d)) promptly pay to Elco the
amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after
the receipt by Executive of an amount advanced by Elco
pursuant to Section 3(d), a determination is made that
Executive shall not be entitled to any refund with respect to
such claim and Elco does not notify Executive in writing of its
intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to
be paid.
4. Indemnification; Director's and Officer's Liability
Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under Elco's Certificate
of Incorporation or By-Laws, as they may be amended or restated
from time to time, to the extent any such amendment or restatement
expands the Executive's rights to indemnification. In addition, Elco
shall maintain Director's and Officer's liability insurance on behalf
of Executive, provided Executive is eligible to be covered and has
in fact been covered by such insurance, at the highest level in
effect immediately prior to either the Date of a Change of Control or
the Termination Date, including any such insurance that was
reduced prior to a Change of Control at the request of the person
or entity acquiring control of Elco or reasonably shown to the
related to the Change of Control, for the seven (7) year period
following the Termination Date.
5. Termination for Cause.
Nothing in this Agreement shall be construed to prevent Elco
from terminating Executive's employment for Cause. If Executive
is terminated for Cause, Elco shall have no obligation to make any
payments under this Agreement, except for payments that may
otherwise be payable under then existing employee benefit plans,
programs and arrangements of Elco.
6. Mitigation.
Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by
seeking other employment or otherwise, and compensation earned
from such employment or otherwise shall not reduce the amounts
otherwise payable under this Agreement. Except as provided in
Section 10, no amounts payable under this Agreement shall be
subject to reduction or offset in respect of any claims which Elco (or
any other person or entity) may have against Executive.
7. Restrictive Covenants.
(a) Confidential Information. During the two (2)
year period following the Termination Date, Executive shall
not disclose to any person, or use to the significant
disadvantage of Elco any Confidential Information; provided
that nothing contained in this Section 7 shall prevent
Executive from being employed by a competitor of Elco or
utilizing Executive's general skills, experience, and
knowledge, including those developed while employed by
Elco.
(b) Release. In consideration for the protection and
benefits provided for under this Agreement, Executive
hereby agrees to execute a release substantially in the form
of Schedule A.
8. Disputes.
Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois, or, at the option of Executive, in the county
where Executive then resides, in accordance with the Rules of the
American Arbitration Association then in effect, except that if
Executive institutes an action relating to this Agreement, Executive
may, at Executive's option, bring that action in a court of
competent jurisdiction. Judgment may be entered on an arbitrator's
award relating to this Agreement in any court having jurisdiction.
Notwithstanding the pendency of any dispute in connection with
this Agreement, Elco will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute
was given and continue Executive as a participant in all
compensation, benefit and insurance plans in which Executive was
participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with this Section
8. Amounts paid under this Section 8 are in addition to all other
amounts due under this Agreement and shall not be offset against
or reduce any other amounts due under this Agreement.
9. Costs of Proceedings.
Elco shall pay all costs and expenses, including attorneys'
fees and disbursements, at least monthly, of Executive in
connection with any legal proceeding (including arbitration),
whether or not instituted by Elco or Executive, relating to the
interpretation or enforcement of any provision of this Agreement,
except that if Executive instituted the proceeding and the judge,
arbitrator or other individual presiding over the proceeding
affirmatively finds the Executive instituted the proceeding in bad
faith, Executive shall pay all costs and expenses, including
attorney's fees and disbursements, of Elco. Elco shall pay
prejudgment interest on any money judgment obtained by Executive
as a result of such a proceeding, calculated at the rate which Bank
of America announces from time to time as its prime lending rate as
in effect from time to time, from the date that payment should have
been made to Executive under this Agreement.
10. Withholding.
Notwithstanding the provisions of Sections 3 and 6 hereof,
Elco may, to the extent required by law, withhold applicable
federal, state and local income and other taxes from any payments
due to Executive hereunder.
11. Beneficiary Designation.
In the event of the Executive's death prior to his receipt of
all payments and benefits due to him under this Agreement, all such
amounts shall be paid to his designated beneficiary, as set forth on
the form attached hereto as Schedule B.
12. Assignment; Successors.
Except as otherwise provided herein, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by Elco
and Executive and their respective heirs, personal or legal
representatives, executors, administrators, successors, assigns,
distributees, divisees and legatees. If Executive should die while
any amount would still be payable to Executive hereunder had
Executive continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if
there is no such designee, to Executive's estate. If Elco shall be
merged into or consolidated with another entity, the provisions of
this Agreement shall be binding upon and inure to the benefit of the
entity surviving such merger or resulting from such consolidation.
Elco will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of Elco by agreement in
form and substance satisfactory to Executive, to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that Elco would be required to perform it if no such
succession had taken place. The provisions of this Section 12 shall
continue to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger, consolidation or
transfer of assets of such subsequent employer.
13. Notices.
Any notice to be provided under the terms of this Agreement
shall be in writing and shall be sufficient if delivered in person or
sent by registered or certified mail, return receipt requested,
addressed as follows:
If to the Executive:
Derek M. Hasse
5535 LaCumbre Ln
Rockford, IL 61107
If to the Company:
Elco Industries, Inc.
1111 Samuelson Road
Rockford, Illinois 61125-7009
Attn: Secretary
or to such other place as either party may specify in writing,
delivered in accordance with the provisions of this Section.
14. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois applicable to
contracts made and to be performed therein.
15. Effective Date; Term.
This Agreement shall be effective as of March 30, 1995 (the
"Effective Date"") and shall remain in effect thereafter until March
30, 1998, unless Elco and Executive agree in writing to continue
this Agreement for such additional period of time as the parties
shall specify. Notwithstanding the foregoing, this Agreement
shall, if in effect on the date of a Change of Control, remain in
effect for at least two (2) years following such Change of Control,
and such additional time as may be necessary to give effect to the
terms of the Agreement.
16. Amendment.
This Agreement may be changed only by a written agreement
executed by Elco and Executive.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
ELCO INDUSTRIES, INC.
By: /s/ John C. Lutz
Its President
/s/ Derek M. Hasse
Executive
/s/ David Peterson
Chairman,
Compensation Committee
<PAGE>
Schedule A
CHANGE OF CONTROL AGREEMENT
RELEASE
For and in consideration of the payment of such
amounts and benefits as are set forth in the Change of Control
Agreement dated March 30, 1995 by and between Derek M. Hasse
and Elco Industries, Inc. ("Elco"), Executive, together with his
heirs, beneficiaries, personal or legal representatives, executors,
administrators, successors, assigns, distributees, devisees and
legatees, hereby waives, releases, and discharges Elco and the
present, future, or former employees, agents, officers, directors,
successors, assigns and affiliated entities of Elco, (herein referred
to collectively as the "Released Parties"), with respect to any and
all causes of action, potential causes of action, suits, disputes,
liabilities, claims in law and equity, rights, damages, demands,
personal injuries, and attorney's fees and costs by reason of any
matter, cost, or thing whatsoever against and as to Elco, which in
any way results from, arises out of, or pertains to Executive's
employment, termination of employment, benefits, awards,
insurance coverage, hiring, wages, or any other terms and
conditions of employment at Elco, or any other events which are
unknown, fixed or contingent, and by reason of any matter, cause,
thing, charge, claim, right or action whatsoever, against and as to
Elco and/or any of the other Released Parties, and which are in any
way related to any violation of any provision of federal and state
statutory or common law or regulation, including claims arising
under any federal, state, or local laws prohibiting employment
discrimination on any basis or claims arising out of any legal
restrictions on Elco's rights to terminate its employees, any
contract claim for the alleged breach of any implied, express, or
other type of employment contract, wrongful, abusive or retaliatory
discharge, and any tort claim, including, but not limited to, fraud,
misrepresentation, deceit, defamation, slander, libel, interference
with employment relations, intentional or negligent infliction of
emotional distress, breach of any fiduciary duties, or any other
tort-type causes of action.
This Release applies to any relief or benefit sought by
the Executive, no matter how denominated, including, but not
limited to, claims for compensation for any physical or mental
injury, pain and suffering, reinstatement, back pay, front pay,
prejudgment interest, compensatory damages, punitive damages,
insurance coverage, benefits, premiums, medical expenses, or
attorneys' fees and costs.
In addition, Executive together with his heirs,
beneficiaries, personal or legal representatives, executors,
administrators, successors, distributees, devisees and legatees,
agrees and covenants not to file a lawsuit or administrative
complaint to assert any claim with respect to his employment with
Elco, the payment of wages to him by Elco, or the cessation of his
employment with Elco which occurred prior to the execution of this
Release. Any such lawsuit or administrative complaint filed in
violation of this Release shall automatically constitute a breach of
this Release. If any government agency or court assumes
jurisdiction of any charge, complaint, cause of action or claim
covered by this Release against Elco or any of the Released Parties,
on behalf of or related to Executive, Executive agrees and
covenants he will withdraw from and/or dismiss the matter with
prejudice. Executive agrees he will not participate or cooperate in
such matter(s) except as required by law.
Executive understands and acknowledges that he has
expressly waived all his rights under this Release. Executive
further acknowledges that he understands the legal effect of this
Release, and that, to the extent he has deemed necessary, he has
consulted with his attorney or other counsel regarding the legal
effect of this Release.
Executive represents and warrants to Elco that he has
the full power, capacity, and authority to enter into this Release,
and that no portion of any claim, right, demand, action, or cause
of action that Executive has, or might have had arising out of the
acts, events, transactions, and occurrences referred to herein has
been assigned, transferred, or conveyed to any person not a party
to this Release, by way of subrogation, operation of law, or
otherwise, and that no releases or settlement agreements are
necessary or need to be obtained from any other person or entity to
release and discharge completely any of the claims of Executive
released in this Release.
IN WITNESS WHEREOF, Executive has signed this
instrument this 30th day of March, 1995.
/s/ Derek M. Hasse
Executive
<PAGE>
Schedule B
CHANGE OF CONTROL AGREEMENT
BENEFICIARY DESIGNATION FORM
TO: Elco Industries, Inc.
FROM: Derek M. Hasse
DATE: March 30, 1995
In the event of my death prior to my receipt of all payments
and benefits due me under the Change of Control Agreement dated
March 30, 1995, I hereby designate the person or persons named
below who are living at the time of my death to receive all amounts
and benefits due me under the terms of such Agreement as follows:
Name and Address: Sally Hasse
5535 LaCumbre
Rockford, IL 61107
S.S. Number: ###-##-####
Relationship: Wife
Percent of Total: 100%
Total: 100%
<PAGE>
I hereby revoke all prior Beneficiary Designations made
previously and expressly reserve the right to change or revoke this
Beneficiary Designation, but understand that no such change or
revocation shall be effective unless it is signed by me and filed with
Elco Industries, Inc.
/s/ Derek M. Hasse
Signature
Accepted by Elco Industries, Inc.
By: /s/ Kenneth L. Heal, Secretary 04/13/95
Date
Exhibit 10.21
CHANGE OF CONTROL AGREEMENT
This Agreement is made this 30th day of March, 1995, by and
between Elco Industries, Inc., a Delaware corporation ("Elco") and
Robert H. Rothkopf ("Executive").
RECITALS:
Executive is a skilled and dedicated employee who has
important management responsibilities and talents. Elco believes
that its best interests will be served if Executive is encouraged to
remain with Elco. Elco has determined that Executive's ability to
perform his responsibilities and utilize his talents for the benefit of
Elco, as well as Elco's ability to retain Executive as an employee,
will be significantly enhanced if Executive is provided with fair and
reasonable protection from the risks of a change in ownership or
control of Elco. Accordingly, Elco and Executive agree as follows:
1. Definitions.
When the following terms appear in this Agreement they shall
have the respective meanings set forth below, unless the context
clearly indicates to the contrary:
(a) "Base Salary" means the highest annual rate of
Executive's base salary in effect on either the date of the
Change of Control or the Termination Date, including any
amounts by which the base salary was reduced prior to the
Change of Control at the request of the person or entity
acquiring control of Elco or reasonably shown to be related to
the Change of Control.
(b) "Bonus" means the highest amount payable to
Executive under Elco's annual bonus plan in effect on either
the date of the Change of Control or the Termination Date,
assuming the highest performance targets are met for such
bonus plan, including any amounts by which the Executive's
annual bonus was reduced prior to the Change of Control at
the request of the person or entity acquiring control of Elco
or reasonably shown to be related to the Change of Control.
(c) "Cause" means either of the following:
(i) Executive's willful malfeasance having a
material adverse effect on Elco; or
(ii) Executive's conviction of a felony;
provided, that any action or refusal by Executive shall not
constitute "Cause" if, in good faith, Executive believed such
action or refusal to be in, or not opposed to, the best
interests of Elco, or if Executive shall be entitled, under
applicable law or under an applicable Certificate of
Incorporation or By-Laws, as they may be amended or
restated from time to time, to be indemnified with respect to
such action or refusal.
(d) "Change of Control" means the first to occur of
any of the following dates:
(i) the date the Elco Board of Directors votes
to approve:
(A) any consolidation or merger of Elco;
(B) any sale, lease, exchange or other
transfer (in one transaction or a series of
related transactions) of all, or substantially all,
of the assets of Elco other than any sale, lease,
exchange or other transfer to any corporation
where Elco owns, directly or indirectly, at least
seventy percent (70%) of the outstanding voting
securities of such corporation after any such
transfer; or
(C) any plan or proposal for the
liquidation or dissolution of Elco;
(ii) the date any person (as such term is used
in Section 13(d) of the Securities Exchange Act of
1934, hereinafter the "1934 Act"), other than one or
more trusts established by Elco for the benefit of
employees of Elco or its subsidiaries, shall become the
beneficial owner (within the meaning of Rule 13d-3
under the 1934 Act) of thirty percent (30%) or more of
outstanding Common Stock;
(iii) the date the Board of Directors of Elco
authorizes and approves any transaction which has
either a reasonable likelihood or a purpose of causing,
whether directly or indirectly:
(A) Common Stock to be held of record
by less than [300] persons; or
(B) Common Stock to be neither listed
on any national securities exchange nor
authorized to be quoted on an inter-dealer
quotation system of any registered national
securities association;
(iv) the date, during any period of twenty-
four (24) consecutive months, on which individuals
who at the beginning of such period constitute the
entire Board of Directors of Elco shall cease for any
reason to constitute a majority thereof unless the
election, or the nomination for election by Elco
stockholders, of each new director comprising the
majority was approved by a vote of at least a majority
of the Continuing Directors as hereinafter defined, in
office on the date of such election or nomination for
election of the new director. For purposes hereof, a
"Continuing Director" shall mean:
(A) any member of the Board of
Directors of Elco at the close of business on
March 30, 1995.
(B) any member of the Board of
Directors of Elco who succeeds any Continuing
Director described in subparagraph (A) above
if such successor was elected, or nominated for
election by Elco stockholders, by a majority of
the Continuing Directors then still in office; or
(C) any director elected, or nominated
for election by Elco stockholders, to fill any
vacancy or newly created directorship on the
Board of Directors of Elco by a majority of the
Continuing Directors then still in office; or
(v) the date of commencement by any entity,
person, or group (including any affiliate thereof,
other than Elco) of a tender offer or exchange offer
for more than twenty percent (20%) of the outstanding
Common Stock.
(e) "Code" means the Internal Revenue Code of
1986, as amended.
(f) "Common Stock" means the $5 par value common
stock of Elco.
(g) "Confidential Information" means nonpublic
information relating to the business plans, marketing plans,
customers or employees of Elco other than information the
disclosure of which cannot reasonably be expected to
adversely affect the business of Elco.
(h) "Elco" means Elco Industries, Inc., a Delaware
corporation, and any successor or successors thereto.
(i) "Fringe Benefits" means the fair market value of
the highest level of fringe benefits payable to Executive by
Elco on either the date of the Change of Control or the
Termination Date, including any amounts by which the
Executive's fringe benefits were reduced prior to the Change
of Control at the request of the person or entity acquiring
control of Elco or reasonably shown to be related to the
Change of Control. For these purposes, "Fringe Benefits"
do not include welfare benefits, such as medical coverage
(including prescription drug coverage), dental coverage, life
insurance, disability insurance and accidental death and
dismemberment benefits.
(j) "Good Reason" means any of the following
actions,without Executive's express prior written approval,
other than due to Executive's Permanent Disability or death:
(i) any diminution in Executive's titles,
duties, responsibilities, status or reporting
relationship from the positions, duties,
responsibilities, status or reporting relationship
existing immediately prior to a Change of Control;
(ii) the removal of Executive from, or any
failure to re-elect Executive to, any of the positions
Executive holds immediately prior to a Change of
Control;
(iii) the failure of Elco to pay Executive's Base
Salary when due;
(iv) any reduction of Executive's Base Salary,
or Bonus, or any reduction in the aggregate amount of
Fringe Benefits provided to Executive;
(v) the change of Executive's principal place
of employment to a location more than 50 miles from
Executive's principal place of employment immediately
prior to the Change of Control; or
(vi) any breach by Elco of any provision of
this Agreement;
(vii) the failure of Elco to obtain a satisfactory
agreement from any successor to assume and agree to
perform this Agreement, as contemplated by Section 12
hereof; or
(viii) any purported termination of Executive's
employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of Section
2(i) hereof (and, if applicable, the requirements of
Section 13 hereof); for purposes of this Agreement, no
such purported termination shall be effective.
provided, however, that if any of the actions described in
subparagraphs (i) - (viii) above occur prior to a Change of
Control at the request of any individual or entity acquiring
ownership or control of Elco, or is reasonably shown to be
related to a prospective Change of Control, and if such
actions occur without Executive's express prior written
approval, other than due to Executive's Permanent Disability
or death, then the existence of such actions shall also
constitute "Good Reason."
(k) "Permanent Disability" means Executive's
inability, by reason of any physical or mental impairment, to
substantially perform the significant aspects of his regular
duties which inability is reasonably contemplated to continue
for at least one (1) year from its inception.
2. Change of Control Benefits.
If Executive's employment with Elco is terminated at any time
within the two (2) years following a Change of Control of Elco
without Cause, or by Executive for Good Reason (the effective date
of either such termination hereafter referred to as the "Termination
Date"), Executive shall be entitled to the benefits provided
hereafter in this Section 2 and as set forth in this Agreement. If
Executive's employment with Elco is terminated by Elco without
Cause prior to a Change of Control at the request of any individual
or entity acquiring ownership or control of Elco, or is reasonably
shown to be related to a prospective Change of Control, or by
Executive for Good Reason, or if the person or entity acquiring
control fails to assume Elco's liabilities to Executive under this
Agreement, the Executive's Termination Date shall be deemed to
have occurred immediately upon the Executive's effective date of
termination (in the case of a termination of employment at the
request of the acquirer), or immediately following the Change of
Control (in the case of the acquirer's failure to assume Elco's
liabilities under this Agreement), and therefore Executive shall be
entitled to the benefits provided hereafter in this Section 2 and as
set forth in this Agreement.
(a) Severance Benefits. Within five (5) business
days after the Termination Date, Elco shall pay Executive a
lump sum amount, in cash, equal to two (2) times the sum of:
(i) Executive's Base Salary;
(ii) Executive's Bonus; and
(iii) Executive's Fringe Benefits.
(b) Performance Award. Any unpaid Target Award
previously granted to an Executive under the Elco
Industries, Inc. 1988 Performance Share Plan (the "Share
Plan") shall be paid to the Executive within five (5) days of
the Termination Date as if such Target Award was 100 earned
during the relevant Performance Period (as such term is
defined in the Share Plan), irrespective of Elco's actual
performance during the relevant Performance Period.
(c) Welfare Benefits. Elco shall, until the second
anniversary of the Termination Date, and at its expense,
provide Executive with medical (including prescription drug
coverage), dental, life insurance and accidental death and
dismemberment benefits at the highest level provided to
Executive, his dependents and beneficiaries, either on the
date of a Change of Control or the Termination Date,
including any coverage or benefits that were reduced prior
to the Change of Control at the request of the person or
entity acquiring control of Elco or reasonably shown to be
related to the Change of Control. During the period that
Elco is providing Executive, his dependents and
beneficiaries, with these benefits, Executive shall be entitled
to elect such changes and take such actions the same as a
similarly situated active employee.
(d) Payment of Accrued But Unpaid
Amounts. Within five (5) business days after the
Termination Date, Elco shall pay Executive (i) any unpaid
portion of Executive's Bonus accrued with respect to the full
fiscal year ended prior to the Termination Date; and (ii) all
compensation previously deferred by Executive but not yet
paid.
(e) Post-Retirement Welfare Benefits. On the
Termination Date, for purposes of determining Executive's
eligibility for post-retirement benefits under any welfare
benefit plan (as defined in section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended)
maintained by Elco immediately prior to the Change of Control
and in which Executive participated, immediately prior to the
Change of Control (or, with respect to an Executive who is
terminated prior to a Change of Control, the Termination
Date), Executive shall be credited with the excess of two
years of participation in the applicable medical plan and two
years of age over the actual years and fractional years of
participation and age credited to Executive as of the Change
of Control (or Termination Date, as the case may be). If,
after taking into account such participation and age,
Executive would have been eligible to receive such post-
retirement benefits had Executive retired immediately prior
to the Change of Control (or Termination Date, as the case
may be), Executive shall receive, commencing on the
Termination Date, post-retirement benefits based on the
terms and conditions of the applicable plans in effect
immediately prior to the Change of Control (or Termination
Date, as the case may be).
(f) Retirement Benefits. For purposes of
determining the Executive's retirement benefits under the
various Elco retirement benefit plans, Executive shall be
deemed to be an active employee receiving his Base Salary
and shall accordingly continue to earn service and accrue
benefits under such plans for an additional period of two
years following the Termination Date.
(g) Effect on Existing Plans. All Change of Control
provisions applicable to Executive and contained in any plan,
program, agreement or arrangement maintained on the
Effective Date (or thereafter) by Elco (including, but not
limited to, any stock option, restricted stock or pension
plan) shall remain in effect through the date of a Change of
Control, and for such period thereafter as is necessary to
carry out such provisions and provide the benefits payable
thereunder, and may not be altered in a manner which
adversely affects Executive without Executive's prior written
approval.
(h) Cessation of Benefits. Notwithstanding the
foregoing, no service of the Executive for Elco after age 65
shall be taken into account for purposes of determining the
Executive's benefits under this Agreement.
(i) Notice of Termination. Any purported
termination of Executive's employment by Elco or by
Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with
Section 13 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
3. Gross-Up Payment.
(a) In the event it shall be determined that any
payment, benefit or distribution (or combination thereof) by
Elco or one or more trusts established by Elco for the benefit
of its employees, to or for the benefit of Executive (whether
paid or payable or distributed or distributable pursuant to
the terms of this Agreement, or otherwise) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of
the Code, or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), Executive shall
be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that, after payment by
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes and excise taxes (and any
interest and penalties imposed with respect thereto) imposed
upon the Gross-Up Payment itself, Executive retains an
amount of such additional payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 3(c), all
determinations required to be made under this Section 3,
including whether and when a Gross-Up Payment is required
and the amount of such Gross-up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by Coopers & Lybrand or such other nationally
recognized certified public accounting firm as may be
designated by Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to Elco and
Executive within fifteen (15) business days of the receipt of
notice from Executive that there has been a Payment, or such
earlier time as it requested by Elco. In the event that the
Accounting Firm is serving as accountant or auditor for an
individual, entity or group effecting the change in ownership
or effective control (within the meaning of Section 280G of the
Code), Executive shall appoint another nationally recognized
accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to
as the "Accounting Firm" hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by Elco. Any
Gross-Up Payment, as determined pursuant to this Section 3,
shall be paid by Elco to Executive within five (5) days after
the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by
Executive, it shall so indicate to Executive in writing. Any
determination by the Accounting Firm shall be binding upon
Elco and Executive.
(c) For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amount of
such Excise Tax: (i) any payments or benefits received or
to be received by Executive pursuant to the terms of this
Agreement shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by Elco's
independent auditors and acceptable to Executive such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax; (ii) the amount of
the Payments which shall be treated as subject to the Excise
Tax shall be equal to the lesser of: (1) the total amount of
the Payments; or (2) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) (after
applying clause (i), above); and (iii) the value of any non-
cash benefits or any deferred payment or benefit shall be
determined by Elco's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay Federal income
taxes at the highest marginal rate of Federal income taxation
in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Executive's
residence on the Termination Date, net of the maximum
reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes. In the event
that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay
to Elco at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of
the Gross-Up Payment attributable to the Excise Tax and
Federal and state and local income tax imposed on the Gross-
Up Payment being repaid by Executive if such repayment
results in a reduction in Excise Tax and/or a Federal and
state and local income tax deduction) plus interest on the
amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account
hereunder at the time of the termination of Executive's
employment (including by reason of any payment the
existence or amount of which cannot be determined at the time
of the Gross-Up Payment), Elco shall make an additional
gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that
the amount of such excess is finally determined.
(d) Executive shall notify Elco in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by Elco of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed
in writing of such claim and shall apprise Elco of the nature
of such claim and the date on which such claim is requested
to be paid. Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on
which it gives such notice to Elco (or such shorter period
ending on the date that any payment of taxes with respect to
such claim is due). If Elco notifies Executive in writing prior
to the expiration of such period that it desires to contest
such claim, Executive shall:
(i) give Elco any information reasonably
requested by Elco relating to such claim;
(ii) take such action in connection with
contesting such claim as Elco shall reasonably request
in writing from time to time, including, without
limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by
Elco;
(iii) cooperate with Elco in good faith in order
to effectively contest such claim; and
(iv) permit Elco to participate in any
proceedings relating to such claim; provided,
however, that Elco shall bear and pay directly all costs
and expenses (including additional interest and
penalties) incurred in connection with such contest
and shall indemnify and hold Executive harmless, on
an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and
payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 3(d), Elco
shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or
forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed
and sue for a refund or contest the claim in any
permissible manner, and Executive agrees to prosecute
such contest to a determination before any
administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as
Elco shall determine; provided, however, that if Elco
directs Executive to pay such claim and sue for a
refund, Elco shall advance the amount of such payment
to Executive, on an interest-free basis, and shall
indemnify and hold Executive harmless, on an after-
tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto)
imposed with respect to such advance or with respect
to any imputed income with respect to such advance;
and provided further, that if Executive is required to
extend the statute of limitations to enable Elco to
contest such claim, Executive may limit this extension
solely to such contested amount. Elco's control of the
contest shall be limited to issues with respect to which
a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(e) If, after the receipt by Executive of an amount
advanced by Elco pursuant to Section 3(d), Executive
becomes entitled to receive any refund with respect to such
claim, Executive shall (subject to Elco complying with the
requirements of Section 3(d)) promptly pay to Elco the
amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after
the receipt by Executive of an amount advanced by Elco
pursuant to Section 3(d), a determination is made that
Executive shall not be entitled to any refund with respect to
such claim and Elco does not notify Executive in writing of its
intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to
be paid.
4. Indemnification; Director's and Officer's Liability
Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under Elco's Certificate
of Incorporation or By-Laws, as they may be amended or restated
from time to time, to the extent any such amendment or restatement
expands the Executive's rights to indemnification. In addition, Elco
shall maintain Director's and Officer's liability insurance on behalf
of Executive, provided Executive is eligible to be covered and has
in fact been covered by such insurance, at the highest level in
effect immediately prior to either the Date of a Change of Control or
the Termination Date, including any such insurance that was
reduced prior to a Change of Control at the request of the person
or entity acquiring control of Elco or reasonably shown to the
related to the Change of Control, for the seven (7) year period
following the Termination Date.
5. Termination for Cause.
Nothing in this Agreement shall be construed to prevent Elco
from terminating Executive's employment for Cause. If Executive
is terminated for Cause, Elco shall have no obligation to make any
payments under this Agreement, except for payments that may
otherwise be payable under then existing employee benefit plans,
programs and arrangements of Elco.
6. Mitigation.
Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by
seeking other employment or otherwise, and compensation earned
from such employment or otherwise shall not reduce the amounts
otherwise payable under this Agreement. Except as provided in
Section 10, no amounts payable under this Agreement shall be
subject to reduction or offset in respect of any claims which Elco (or
any other person or entity) may have against Executive.
7. Restrictive Covenants.
(a) Confidential Information. During the two (2)
year period following the Termination Date, Executive shall
not disclose to any person, or use to the significant
disadvantage of Elco any Confidential Information; provided
that nothing contained in this Section 7 shall prevent
Executive from being employed by a competitor of Elco or
utilizing Executive's general skills, experience, and
knowledge, including those developed while employed by
Elco.
(b) Release. In consideration for the protection and
benefits provided for under this Agreement, Executive
hereby agrees to execute a release substantially in the form
of Schedule A.
8. Disputes.
Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois, or, at the option of Executive, in the county
where Executive then resides, in accordance with the Rules of the
American Arbitration Association then in effect, except that if
Executive institutes an action relating to this Agreement, Executive
may, at Executive's option, bring that action in a court of
competent jurisdiction. Judgment may be entered on an arbitrator's
award relating to this Agreement in any court having jurisdiction.
Notwithstanding the pendency of any dispute in connection with
this Agreement, Elco will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute
was given and continue Executive as a participant in all
compensation, benefit and insurance plans in which Executive was
participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with this Section
8. Amounts paid under this Section 8 are in addition to all other
amounts due under this Agreement and shall not be offset against
or reduce any other amounts due under this Agreement.
9. Costs of Proceedings.
Elco shall pay all costs and expenses, including attorneys'
fees and disbursements, at least monthly, of Executive in
connection with any legal proceeding (including arbitration),
whether or not instituted by Elco or Executive, relating to the
interpretation or enforcement of any provision of this Agreement,
except that if Executive instituted the proceeding and the judge,
arbitrator or other individual presiding over the proceeding
affirmatively finds the Executive instituted the proceeding in bad
faith, Executive shall pay all costs and expenses, including
attorney's fees and disbursements, of Elco. Elco shall pay
prejudgment interest on any money judgment obtained by Executive
as a result of such a proceeding, calculated at the rate which Bank
of America announces from time to time as its prime lending rate as
in effect from time to time, from the date that payment should have
been made to Executive under this Agreement.
10. Withholding.
Notwithstanding the provisions of Sections 3 and 6 hereof,
Elco may, to the extent required by law, withhold applicable
federal, state and local income and other taxes from any payments
due to Executive hereunder.
11. Beneficiary Designation.
In the event of the Executive's death prior to his receipt of
all payments and benefits due to him under this Agreement, all such
amounts shall be paid to his designated beneficiary, as set forth on
the form attached hereto as Schedule B.
12. Assignment; Successors.
Except as otherwise provided herein, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by Elco
and Executive and their respective heirs, personal or legal
representatives, executors, administrators, successors, assigns,
distributees, divisees and legatees. If Executive should die while
any amount would still be payable to Executive hereunder had
Executive continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if
there is no such designee, to Executive's estate. If Elco shall be
merged into or consolidated with another entity, the provisions of
this Agreement shall be binding upon and inure to the benefit of the
entity surviving such merger or resulting from such consolidation.
Elco will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of Elco by agreement in
form and substance satisfactory to Executive, to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that Elco would be required to perform it if no such
succession had taken place. The provisions of this Section 12 shall
continue to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger, consolidation or
transfer of assets of such subsequent employer.
13. Notices.
Any notice to be provided under the terms of this Agreement
shall be in writing and shall be sufficient if delivered in person or
sent by registered or certified mail, return receipt requested,
addressed as follows:
If to the Executive:
Robert H. Rothkopf
5203 Deer Pointe Road
Rockford, IL 61114
If to the Company:
Elco Industries, Inc.
1111 Samuelson Road
Rockford, Illinois 61125-7009
Attn: Secretary
or to such other place as either party may specify in writing,
delivered in accordance with the provisions of this Section.
14. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois applicable to
contracts made and to be performed therein.
15. Effective Date; Term.
This Agreement shall be effective as of March 30, 1995 (the
"Effective Date"") and shall remain in effect thereafter until March
30, 1998, unless Elco and Executive agree in writing to continue
this Agreement for such additional period of time as the parties
shall specify. Notwithstanding the foregoing, this Agreement
shall, if in effect on the date of a Change of Control, remain in
effect for at least two (2) years following such Change of Control,
and such additional time as may be necessary to give effect to the
terms of the Agreement.
16. Amendment.
This Agreement may be changed only by a written agreement
executed by Elco and Executive.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this
Agreement to be duly executed and the Executive has hereunto set
his hand at Rockford, IL (town and state) the day and year
first above written.
ELCO INDUSTRIES, INC. and its
subsidiaries
By: /s/ D. M. Hasse
Its: V.P. Administration
/s/ Robert H. Rothkopf
Executive
/s/ David Peterson
Chairman, Compensation Committee
<PAGE>
Schedule A
CHANGE OF CONTROL AGREEMENT
RELEASE
For and in consideration of the payment of such
amounts and benefits as are set forth in the Change of Control
Agreement dated March 30, 1995 by and between Robert H.
Rothkopf and Elco Industries, Inc. ("Elco"), Executive, together
with his heirs, beneficiaries, personal or legal representatives,
executors, administrators, successors, assigns, distributees,
devisees and legatees, hereby waives, releases, and discharges
Elco and the present, future, or former employees, agents,
officers, directors, successors, assigns and affiliated entities of
Elco, (herein referred to collectively as the "Released Parties"),
with respect to any and all causes of action, potential causes of
action, suits, disputes, liabilities, claims in law and equity, rights,
damages, demands, personal injuries, and attorney's fees and costs
by reason of any matter, cost, or thing whatsoever against and as
to Elco, which in any way results from, arises out of, or pertains
to Executive's employment, termination of employment, benefits,
awards, insurance coverage, hiring, wages, or any other terms and
conditions of employment at Elco, or any other events which are
unknown, fixed or contingent, and by reason of any matter, cause,
thing, charge, claim, right or action whatsoever, against and as to
Elco and/or any of the other Released Parties, and which are in any
way related to any violation of any provision of federal and state
statutory or common law or regulation, including claims arising
under any federal, state, or local laws prohibiting employment
discrimination on any basis or claims arising out of any legal
restrictions on Elco's rights to terminate its employees, any
contract claim for the alleged breach of any implied, express, or
other type of employment contract, wrongful, abusive or retaliatory
discharge, and any tort claim, including, but not limited to, fraud,
misrepresentation, deceit, defamation, slander, libel, interference
with employment relations, intentional or negligent infliction of
emotional distress, breach of any fiduciary duties, or any other
tort-type causes of action.
This Release applies to any relief or benefit sought by
the Executive, no matter how denominated, including, but not
limited to, claims for compensation for any physical or mental
injury, pain and suffering, reinstatement, back pay, front pay,
prejudgment interest, compensatory damages, punitive damages,
insurance coverage, benefits, premiums, medical expenses, or
attorneys' fees and costs.
In addition, Executive together with his heirs,
beneficiaries, personal or legal representatives, executors,
administrators, successors, distributees, devisees and legatees,
agrees and covenants not to file a lawsuit or administrative
complaint to assert any claim with respect to his employment with
Elco, the payment of wages to him by Elco, or the cessation of his
employment with Elco which occurred prior to the execution of this
Release. Any such lawsuit or administrative complaint filed in
violation of this Release shall automatically constitute a breach of
this Release. If any government agency or court assumes
jurisdiction of any charge, complaint, cause of action or claim
covered by this Release against Elco or any of the Released Parties,
on behalf of or related to Executive, Executive agrees and
covenants he will withdraw from and/or dismiss the matter with
prejudice. Executive agrees he will not participate or cooperate in
such matter(s) except as required by law.
Executive understands and acknowledges that he has
expressly waived all his rights under this Release. Executive
further acknowledges that he understands the legal effect of this
Release, and that, to the extent he has deemed necessary, he has
consulted with his attorney or other counsel regarding the legal
effect of this Release.
Executive represents and warrants to Elco that he has
the full power, capacity, and authority to enter into this Release,
and that no portion of any claim, right, demand, action, or cause
of action that Executive has, or might have had arising out of the
acts, events, transactions, and occurrences referred to herein has
been assigned, transferred, or conveyed to any person not a party
to this Release, by way of subrogation, operation of law, or
otherwise, and that no releases or settlement agreements are
necessary or need to be obtained from any other person or entity to
release and discharge completely any of the claims of Executive
released in this Release.
IN WITNESS WHEREOF, Executive has signed this
instrument this 4th day of April, 1995.
/s/ Robert H. Rothkopf
Executive
<PAGE>
Schedule B
CHANGE OF CONTROL AGREEMENT
BENEFICIARY DESIGNATION FORM
TO: Elco Industries, Inc.
FROM: Robert Rothkopf
DATE: 4/4/95
In the event of my death prior to my receipt of all payments
and benefits due me under the Change of Control Agreement dated
March 30, 1995, I hereby designate the person or persons named
below who are living at the time of my death to receive all amounts
and benefits due me under the terms of such Agreement as follows:
Name and Address: Patricia Rothkopf
5203 Deer Pointe
Rockford, IL 61114
S.S. Number: ###-##-####
Relationship: Wife
Percent of Total: 100%
Total: 100%
<PAGE>
I hereby revoke all prior Beneficiary Designations made
previously and expressly reserve the right to change or revoke this
Beneficiary Designation, but understand that no such change or
revocation shall be effective unless it is signed by me and filed with
Elco Industries, Inc.
/s/ Robert H. Rothkopf
Signature
Accepted by Elco Industries, Inc.
By: /s/ D. M. Hasse April 4, 1995
Date
Exhibit 10.22
CHANGE OF CONTROL AGREEMENT
This Agreement is made this 30th day of March, 1995, by and
between Elco Industries, Inc., a Delaware corporation ("Elco") and
James R. Stenberg ("Executive").
RECITALS:
Executive is a skilled and dedicated employee who has
important management responsibilities and talents. Elco believes
that its best interests will be served if Executive is encouraged to
remain with Elco. Elco has determined that Executive's ability to
perform his responsibilities and utilize his talents for the benefit of
Elco, as well as Elco's ability to retain Executive as an employee,
will be significantly enhanced if Executive is provided with fair and
reasonable protection from the risks of a change in ownership or
control of Elco. Accordingly, Elco and Executive agree as follows:
1. Definitions.
When the following terms appear in this Agreement they shall
have the respective meanings set forth below, unless the context
clearly indicates to the contrary:
(a) "Base Salary" means the highest annual rate of
Executive's base salary in effect on either the date of the
Change of Control or the Termination Date, including any
amounts by which the base salary was reduced prior to the
Change of Control at the request of the person or entity
acquiring control of Elco or reasonably shown to be related to
the Change of Control.
(b) "Bonus" means the highest amount payable to
Executive under Elco's annual bonus plan in effect on either
the date of the Change of Control or the Termination Date,
assuming the highest performance targets are met for such
bonus plan, including any amounts by which the Executive's
annual bonus was reduced prior to the Change of Control at
the request of the person or entity acquiring control of Elco
or reasonably shown to be related to the Change of Control.
(c) "Cause" means either of the following:
(i) Executive's willful malfeasance having a
material adverse effect on Elco; or
(ii) Executive's conviction of a felony;
provided, that any action or refusal by Executive shall not
constitute "Cause" if, in good faith, Executive believed such
action or refusal to be in, or not opposed to, the best
interests of Elco, or if Executive shall be entitled, under
applicable law or under an applicable Certificate of
Incorporation or By-Laws, as they may be amended or
restated from time to time, to be indemnified with respect to
such action or refusal.
(d) "Change of Control" means the first to occur of
any of the following dates:
(i) the date the Elco Board of Directors votes
to approve:
(A) any consolidation or merger of Elco;
(B) any sale, lease, exchange or other
transfer (in one transaction or a series of
related transactions) of all, or substantially all,
of the assets of Elco other than any sale, lease,
exchange or other transfer to any corporation
where Elco owns, directly or indirectly, at least
seventy percent (70%) of the outstanding voting
securities of such corporation after any such
transfer; or
(C) any plan or proposal for the
liquidation or dissolution of Elco;
(ii) the date any person (as such term is used
in Section 13(d) of the Securities Exchange Act of
1934, hereinafter the "1934 Act"), other than one or
more trusts established by Elco for the benefit of
employees of Elco or its subsidiaries, shall become the
beneficial owner (within the meaning of Rule 13d-3
under the 1934 Act) of thirty percent (30%) or more of
outstanding Common Stock;
(iii) the date the Board of Directors of Elco
authorizes and approves any transaction which has
either a reasonable likelihood or a purpose of causing,
whether directly or indirectly:
(A) Common Stock to be held of record
by less than [300] persons; or
(B) Common Stock to be neither listed
on any national securities exchange nor
authorized to be quoted on an inter-dealer
quotation system of any registered national
securities association;
(iv) the date, during any period of twenty-
four (24) consecutive months, on which individuals
who at the beginning of such period constitute the
entire Board of Directors of Elco shall cease for any
reason to constitute a majority thereof unless the
election, or the nomination for election by Elco
stockholders, of each new director comprising the
majority was approved by a vote of at least a majority
of the Continuing Directors as hereinafter defined, in
office on the date of such election or nomination for
election of the new director. For purposes hereof, a
"Continuing Director" shall mean:
(A) any member of the Board of
Directors of Elco at the close of business on
March 30, 1995.
(B) any member of the Board of
Directors of Elco who succeeds any Continuing
Director described in subparagraph (A) above
if such successor was elected, or nominated for
election by Elco stockholders, by a majority of
the Continuing Directors then still in office; or
(C) any director elected, or nominated
for election by Elco stockholders, to fill any
vacancy or newly created directorship on the
Board of Directors of Elco by a majority of the
Continuing Directors then still in office; or
(v) the date of commencement by any entity,
person, or group (including any affiliate thereof,
other than Elco) of a tender offer or exchange offer
for more than twenty percent (20%) of the outstanding
Common Stock.
(e) "Code" means the Internal Revenue Code of
1986, as amended.
(f) "Common Stock" means the $5 par value common
stock of Elco.
(g) "Confidential Information" means nonpublic
information relating to the business plans, marketing plans,
customers or employees of Elco other than information the
disclosure of which cannot reasonably be expected to
adversely affect the business of Elco.
(h) "Elco" means Elco Industries, Inc., a Delaware
corporation, and any successor or successors thereto.
(i) "Fringe Benefits" means the fair market value of
the highest level of fringe benefits payable to Executive by
Elco on either the date of the Change of Control or the
Termination Date, including any amounts by which the
Executive's fringe benefits were reduced prior to the Change
of Control at the request of the person or entity acquiring
control of Elco or reasonably shown to be related to the
Change of Control. For these purposes, "Fringe Benefits"
do not include welfare benefits, such as medical coverage
(including prescription drug coverage), dental coverage, life
insurance, disability insurance and accidental death and
dismemberment benefits.
(j) "Good Reason" means any of the following
actions,without Executive's express prior written approval,
other than due to Executive's Permanent Disability or death:
(i) any diminution in Executive's titles,
duties, responsibilities, status or reporting
relationship from the positions, duties,
responsibilities, status or reporting relationship
existing immediately prior to a Change of Control;
(ii) the removal of Executive from, or any
failure to re-elect Executive to, any of the positions
Executive holds immediately prior to a Change of
Control;
(iii) the failure of Elco to pay Executive's Base
Salary when due;
(iv) any reduction of Executive's Base Salary,
or Bonus, or any reduction in the aggregate amount of
Fringe Benefits provided to Executive;
(v) the change of Executive's principal place
of employment to a location more than 50 miles from
Executive's principal place of employment immediately
prior to the Change of Control; or
(vi) any breach by Elco of any provision of
this Agreement;
(vii) the failure of Elco to obtain a satisfactory
agreement from any successor to assume and agree to
perform this Agreement, as contemplated by Section 12
hereof; or
(viii) any purported termination of Executive's
employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of Section
2(i) hereof (and, if applicable, the requirements of
Section 13 hereof); for purposes of this Agreement, no
such purported termination shall be effective.
provided, however, that if any of the actions described in
subparagraphs (i) - (viii) above occur prior to a Change of
Control at the request of any individual or entity acquiring
ownership or control of Elco, or is reasonably shown to be
related to a prospective Change of Control, and if such
actions occur without Executive's express prior written
approval, other than due to Executive's Permanent Disability
or death, then the existence of such actions shall also
constitute "Good Reason."
(k) "Permanent Disability" means Executive's
inability, by reason of any physical or mental impairment, to
substantially perform the significant aspects of his regular
duties which inability is reasonably contemplated to continue
for at least one (1) year from its inception.
2. Change of Control Benefits.
If Executive's employment with Elco is terminated at any time
within the two (2) years following a Change of Control of Elco
without Cause, or by Executive for Good Reason (the effective date
of either such termination hereafter referred to as the "Termination
Date"), Executive shall be entitled to the benefits provided
hereafter in this Section 2 and as set forth in this Agreement. If
Executive's employment with Elco is terminated by Elco without
Cause prior to a Change of Control at the request of any individual
or entity acquiring ownership or control of Elco, or is reasonably
shown to be related to a prospective Change of Control, or by
Executive for Good Reason, or if the person or entity acquiring
control fails to assume Elco's liabilities to Executive under this
Agreement, the Executive's Termination Date shall be deemed to
have occurred immediately upon the Executive's effective date of
termination (in the case of a termination of employment at the
request of the acquirer), or immediately following the Change of
Control (in the case of the acquirer's failure to assume Elco's
liabilities under this Agreement), and therefore Executive shall be
entitled to the benefits provided hereafter in this Section 2 and as
set forth in this Agreement.
(a) Severance Benefits. Within five (5) business
days after the Termination Date, Elco shall pay Executive a
lump sum amount, in cash, equal to two (2) times the sum of:
(i) Executive's Base Salary;
(ii) Executive's Bonus; and
(iii) Executive's Fringe Benefits.
(b) Performance Award. Any unpaid Target Award
previously granted to an Executive under the Elco
Industries, Inc. 1988 Performance Share Plan (the "Share
Plan") shall be paid to the Executive within five (5) days of
the Termination Date as if such Target Award was 100 earned
during the relevant Performance Period (as such term is
defined in the Share Plan), irrespective of Elco's actual
performance during the relevant Performance Period.
(c) Welfare Benefits. Elco shall, until the second
anniversary of the Termination Date, and at its expense,
provide Executive with medical (including prescription drug
coverage), dental, life insurance and accidental death and
dismemberment benefits at the highest level provided to
Executive, his dependents and beneficiaries, either on the
date of a Change of Control or the Termination Date,
including any coverage or benefits that were reduced prior
to the Change of Control at the request of the person or
entity acquiring control of Elco or reasonably shown to be
related to the Change of Control. During the period that
Elco is providing Executive, his dependents and
beneficiaries, with these benefits, Executive shall be entitled
to elect such changes and take such actions the same as a
similarly situated active employee.
(d) Payment of Accrued But Unpaid
Amounts. Within five (5) business days after the
Termination Date, Elco shall pay Executive (i) any unpaid
portion of Executive's Bonus accrued with respect to the full
fiscal year ended prior to the Termination Date; and (ii) all
compensation previously deferred by Executive but not yet
paid.
(e) Post-Retirement Welfare Benefits. On the
Termination Date, for purposes of determining Executive's
eligibility for post-retirement benefits under any welfare
benefit plan (as defined in section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended)
maintained by Elco immediately prior to the Change of Control
and in which Executive participated, immediately prior to the
Change of Control (or, with respect to an Executive who is
terminated prior to a Change of Control, the Termination
Date), Executive shall be credited with the excess of two
years of participation in the applicable medical plan and two
years of age over the actual years and fractional years of
participation and age credited to Executive as of the Change
of Control (or Termination Date, as the case may be). If,
after taking into account such participation and age,
Executive would have been eligible to receive such post-
retirement benefits had Executive retired immediately prior
to the Change of Control (or Termination Date, as the case
may be), Executive shall receive, commencing on the
Termination Date, post-retirement benefits based on the
terms and conditions of the applicable plans in effect
immediately prior to the Change of Control (or Termination
Date, as the case may be).
(f) Retirement Benefits. For purposes of
determining the Executive's retirement benefits under the
various Elco retirement benefit plans, Executive shall be
deemed to be an active employee receiving his Base Salary
and shall accordingly continue to earn service and accrue
benefits under such plans for an additional period of two
years following the Termination Date.
(g) Effect on Existing Plans. All Change of Control
provisions applicable to Executive and contained in any plan,
program, agreement or arrangement maintained on the
Effective Date (or thereafter) by Elco (including, but not
limited to, any stock option, restricted stock or pension
plan) shall remain in effect through the date of a Change of
Control, and for such period thereafter as is necessary to
carry out such provisions and provide the benefits payable
thereunder, and may not be altered in a manner which
adversely affects Executive without Executive's prior written
approval.
(h) Cessation of Benefits. Notwithstanding the
foregoing, no service of the Executive for Elco after age 65
shall be taken into account for purposes of determining the
Executive's benefits under this Agreement.
(i) Notice of Termination. Any purported
termination of Executive's employment by Elco or by
Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with
Section 13 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
3. Gross-Up Payment.
(a) In the event it shall be determined that any
payment, benefit or distribution (or combination thereof) by
Elco or one or more trusts established by Elco for the benefit
of its employees, to or for the benefit of Executive (whether
paid or payable or distributed or distributable pursuant to
the terms of this Agreement, or otherwise) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of
the Code, or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), Executive shall
be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that, after payment by
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes and excise taxes (and any
interest and penalties imposed with respect thereto) imposed
upon the Gross-Up Payment itself, Executive retains an
amount of such additional payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 3(c), all
determinations required to be made under this Section 3,
including whether and when a Gross-Up Payment is required
and the amount of such Gross-up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by Coopers & Lybrand or such other nationally
recognized certified public accounting firm as may be
designated by Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to Elco and
Executive within fifteen (15) business days of the receipt of
notice from Executive that there has been a Payment, or such
earlier time as it requested by Elco. In the event that the
Accounting Firm is serving as accountant or auditor for an
individual, entity or group effecting the change in ownership
or effective control (within the meaning of Section 280G of the
Code), Executive shall appoint another nationally recognized
accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to
as the "Accounting Firm" hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by Elco. Any
Gross-Up Payment, as determined pursuant to this Section 3,
shall be paid by Elco to Executive within five (5) days after
the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by
Executive, it shall so indicate to Executive in writing. Any
determination by the Accounting Firm shall be binding upon
Elco and Executive.
(c) For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amount of
such Excise Tax: (i) any payments or benefits received or
to be received by Executive pursuant to the terms of this
Agreement shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by Elco's
independent auditors and acceptable to Executive such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax; (ii) the amount of
the Payments which shall be treated as subject to the Excise
Tax shall be equal to the lesser of: (1) the total amount of
the Payments; or (2) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) (after
applying clause (i), above); and (iii) the value of any non-
cash benefits or any deferred payment or benefit shall be
determined by Elco's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay Federal income
taxes at the highest marginal rate of Federal income taxation
in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Executive's
residence on the Termination Date, net of the maximum
reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes. In the event
that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay
to Elco at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of
the Gross-Up Payment attributable to the Excise Tax and
Federal and state and local income tax imposed on the Gross-
Up Payment being repaid by Executive if such repayment
results in a reduction in Excise Tax and/or a Federal and
state and local income tax deduction) plus interest on the
amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account
hereunder at the time of the termination of Executive's
employment (including by reason of any payment the
existence or amount of which cannot be determined at the time
of the Gross-Up Payment), Elco shall make an additional
gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that
the amount of such excess is finally determined.
(d) Executive shall notify Elco in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by Elco of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed
in writing of such claim and shall apprise Elco of the nature
of such claim and the date on which such claim is requested
to be paid. Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on
which it gives such notice to Elco (or such shorter period
ending on the date that any payment of taxes with respect to
such claim is due). If Elco notifies Executive in writing prior
to the expiration of such period that it desires to contest
such claim, Executive shall:
(i) give Elco any information reasonably
requested by Elco relating to such claim;
(ii) take such action in connection with
contesting such claim as Elco shall reasonably request
in writing from time to time, including, without
limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by
Elco;
(iii) cooperate with Elco in good faith in order
to effectively contest such claim; and
(iv) permit Elco to participate in any
proceedings relating to such claim; provided,
however, that Elco shall bear and pay directly all costs
and expenses (including additional interest and
penalties) incurred in connection with such contest
and shall indemnify and hold Executive harmless, on
an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and
payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 3(d), Elco
shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or
forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed
and sue for a refund or contest the claim in any
permissible manner, and Executive agrees to prosecute
such contest to a determination before any
administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as
Elco shall determine; provided, however, that if Elco
directs Executive to pay such claim and sue for a
refund, Elco shall advance the amount of such payment
to Executive, on an interest-free basis, and shall
indemnify and hold Executive harmless, on an after-
tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto)
imposed with respect to such advance or with respect
to any imputed income with respect to such advance;
and provided further, that if Executive is required to
extend the statute of limitations to enable Elco to
contest such claim, Executive may limit this extension
solely to such contested amount. Elco's control of the
contest shall be limited to issues with respect to which
a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(e) If, after the receipt by Executive of an amount
advanced by Elco pursuant to Section 3(d), Executive
becomes entitled to receive any refund with respect to such
claim, Executive shall (subject to Elco complying with the
requirements of Section 3(d)) promptly pay to Elco the
amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after
the receipt by Executive of an amount advanced by Elco
pursuant to Section 3(d), a determination is made that
Executive shall not be entitled to any refund with respect to
such claim and Elco does not notify Executive in writing of its
intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to
be paid.
4. Indemnification; Director's and Officer's Liability
Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under Elco's Certificate
of Incorporation or By-Laws, as they may be amended or restated
from time to time, to the extent any such amendment or restatement
expands the Executive's rights to indemnification. In addition, Elco
shall maintain Director's and Officer's liability insurance on behalf
of Executive, provided Executive is eligible to be covered and has
in fact been covered by such insurance, at the highest level in
effect immediately prior to either the Date of a Change of Control or
the Termination Date, including any such insurance that was
reduced prior to a Change of Control at the request of the person
or entity acquiring control of Elco or reasonably shown to the
related to the Change of Control, for the seven (7) year period
following the Termination Date.
5. Termination for Cause.
Nothing in this Agreement shall be construed to prevent Elco
from terminating Executive's employment for Cause. If Executive
is terminated for Cause, Elco shall have no obligation to make any
payments under this Agreement, except for payments that may
otherwise be payable under then existing employee benefit plans,
programs and arrangements of Elco.
6. Mitigation.
Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by
seeking other employment or otherwise, and compensation earned
from such employment or otherwise shall not reduce the amounts
otherwise payable under this Agreement. Except as provided in
Section 10, no amounts payable under this Agreement shall be
subject to reduction or offset in respect of any claims which Elco (or
any other person or entity) may have against Executive.
7. Restrictive Covenants.
(a) Confidential Information. During the two (2)
year period following the Termination Date, Executive shall
not disclose to any person, or use to the significant
disadvantage of Elco any Confidential Information; provided
that nothing contained in this Section 7 shall prevent
Executive from being employed by a competitor of Elco or
utilizing Executive's general skills, experience, and
knowledge, including those developed while employed by
Elco.
(b) Release. In consideration for the protection and
benefits provided for under this Agreement, Executive
hereby agrees to execute a release substantially in the form
of Schedule A.
8. Disputes.
Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois, or, at the option of Executive, in the county
where Executive then resides, in accordance with the Rules of the
American Arbitration Association then in effect, except that if
Executive institutes an action relating to this Agreement, Executive
may, at Executive's option, bring that action in a court of
competent jurisdiction. Judgment may be entered on an arbitrator's
award relating to this Agreement in any court having jurisdiction.
Notwithstanding the pendency of any dispute in connection with
this Agreement, Elco will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute
was given and continue Executive as a participant in all
compensation, benefit and insurance plans in which Executive was
participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with this Section
8. Amounts paid under this Section 8 are in addition to all other
amounts due under this Agreement and shall not be offset against
or reduce any other amounts due under this Agreement.
9. Costs of Proceedings.
Elco shall pay all costs and expenses, including attorneys'
fees and disbursements, at least monthly, of Executive in
connection with any legal proceeding (including arbitration),
whether or not instituted by Elco or Executive, relating to the
interpretation or enforcement of any provision of this Agreement,
except that if Executive instituted the proceeding and the judge,
arbitrator or other individual presiding over the proceeding
affirmatively finds the Executive instituted the proceeding in bad
faith, Executive shall pay all costs and expenses, including
attorney's fees and disbursements, of Elco. Elco shall pay
prejudgment interest on any money judgment obtained by Executive
as a result of such a proceeding, calculated at the rate which Bank
of America announces from time to time as its prime lending rate as
in effect from time to time, from the date that payment should have
been made to Executive under this Agreement.
10. Withholding.
Notwithstanding the provisions of Sections 3 and 6 hereof,
Elco may, to the extent required by law, withhold applicable
federal, state and local income and other taxes from any payments
due to Executive hereunder.
11. Beneficiary Designation.
In the event of the Executive's death prior to his receipt of
all payments and benefits due to him under this Agreement, all such
amounts shall be paid to his designated beneficiary, as set forth on
the form attached hereto as Schedule B.
12. Assignment; Successors.
Except as otherwise provided herein, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by Elco
and Executive and their respective heirs, personal or legal
representatives, executors, administrators, successors, assigns,
distributees, divisees and legatees. If Executive should die while
any amount would still be payable to Executive hereunder had
Executive continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if
there is no such designee, to Executive's estate. If Elco shall be
merged into or consolidated with another entity, the provisions of
this Agreement shall be binding upon and inure to the benefit of the
entity surviving such merger or resulting from such consolidation.
Elco will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of Elco by agreement in
form and substance satisfactory to Executive, to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that Elco would be required to perform it if no such
succession had taken place. The provisions of this Section 12 shall
continue to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger, consolidation or
transfer of assets of such subsequent employer.
13. Notices.
Any notice to be provided under the terms of this Agreement
shall be in writing and shall be sufficient if delivered in person or
sent by registered or certified mail, return receipt requested,
addressed as follows:
If to the Executive:
James R. Stenberg
5727 Wedgewood Ct.
Rockford, IL 61107
If to the Company:
Elco Industries, Inc.
1111 Samuelson Road
Rockford, Illinois 61125-7009
Attn: Secretary
or to such other place as either party may specify in writing,
delivered in accordance with the provisions of this Section.
14. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois applicable to
contracts made and to be performed therein.
15. Effective Date; Term.
This Agreement shall be effective as of March 30, 1995 (the
"Effective Date"") and shall remain in effect thereafter until March
30, 1998, unless Elco and Executive agree in writing to continue
this Agreement for such additional period of time as the parties
shall specify. Notwithstanding the foregoing, this Agreement
shall, if in effect on the date of a Change of Control, remain in
effect for at least two (2) years following such Change of Control,
and such additional time as may be necessary to give effect to the
terms of the Agreement.
16. Amendment.
This Agreement may be changed only by a written agreement
executed by Elco and Executive.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
ELCO INDUSTRIES, INC.
By: /s/ John C. Lutz
Its President
/s/ James R. Stenberg
Executive
/s/ David Peterson
Chairman,
Compensation Committee
<PAGE>
Schedule A
CHANGE OF CONTROL AGREEMENT
RELEASE
For and in consideration of the payment of such
amounts and benefits as are set forth in the Change of Control
Agreement dated March 30, 1995 by and between James R. Stenberg
and Elco Industries, Inc. ("Elco"), Executive, together with his
heirs, beneficiaries, personal or legal representatives, executors,
administrators, successors, assigns, distributees, devisees and
legatees, hereby waives, releases, and discharges Elco and the
present, future, or former employees, agents, officers, directors,
successors, assigns and affiliated entities of Elco, (herein referred
to collectively as the "Released Parties"), with respect to any and
all causes of action, potential causes of action, suits, disputes,
liabilities, claims in law and equity, rights, damages, demands,
personal injuries, and attorney's fees and costs by reason of any
matter, cost, or thing whatsoever against and as to Elco, which in
any way results from, arises out of, or pertains to Executive's
employment, termination of employment, benefits, awards,
insurance coverage, hiring, wages, or any other terms and
conditions of employment at Elco, or any other events which are
unknown, fixed or contingent, and by reason of any matter, cause,
thing, charge, claim, right or action whatsoever, against and as to
Elco and/or any of the other Released Parties, and which are in any
way related to any violation of any provision of federal and state
statutory or common law or regulation, including claims arising
under any federal, state, or local laws prohibiting employment
discrimination on any basis or claims arising out of any legal
restrictions on Elco's rights to terminate its employees, any
contract claim for the alleged breach of any implied, express, or
other type of employment contract, wrongful, abusive or retaliatory
discharge, and any tort claim, including, but not limited to, fraud,
misrepresentation, deceit, defamation, slander, libel, interference
with employment relations, intentional or negligent infliction of
emotional distress, breach of any fiduciary duties, or any other
tort-type causes of action.
This Release applies to any relief or benefit sought by
the Executive, no matter how denominated, including, but not
limited to, claims for compensation for any physical or mental
injury, pain and suffering, reinstatement, back pay, front pay,
prejudgment interest, compensatory damages, punitive damages,
insurance coverage, benefits, premiums, medical expenses, or
attorneys' fees and costs.
In addition, Executive together with his heirs,
beneficiaries, personal or legal representatives, executors,
administrators, successors, distributees, devisees and legatees,
agrees and covenants not to file a lawsuit or administrative
complaint to assert any claim with respect to his employment with
Elco, the payment of wages to him by Elco, or the cessation of his
employment with Elco which occurred prior to the execution of this
Release. Any such lawsuit or administrative complaint filed in
violation of this Release shall automatically constitute a breach of
this Release. If any government agency or court assumes
jurisdiction of any charge, complaint, cause of action or claim
covered by this Release against Elco or any of the Released Parties,
on behalf of or related to Executive, Executive agrees and
covenants he will withdraw from and/or dismiss the matter with
prejudice. Executive agrees he will not participate or cooperate in
such matter(s) except as required by law.
Executive understands and acknowledges that he has
expressly waived all his rights under this Release. Executive
further acknowledges that he understands the legal effect of this
Release, and that, to the extent he has deemed necessary, he has
consulted with his attorney or other counsel regarding the legal
effect of this Release.
Executive represents and warrants to Elco that he has
the full power, capacity, and authority to enter into this Release,
and that no portion of any claim, right, demand, action, or cause
of action that Executive has, or might have had arising out of the
acts, events, transactions, and occurrences referred to herein has
been assigned, transferred, or conveyed to any person not a party
to this Release, by way of subrogation, operation of law, or
otherwise, and that no releases or settlement agreements are
necessary or need to be obtained from any other person or entity to
release and discharge completely any of the claims of Executive
released in this Release.
IN WITNESS WHEREOF, Executive has signed this
instrument this 30th day of March, 1995.
/s/ James R. Stenberg
Executive
<PAGE>
Schedule B
CHANGE OF CONTROL AGREEMENT
BENEFICIARY DESIGNATION FORM
TO: Elco Industries, Inc.
FROM: James R. Stenberg
DATE: March 30, 1995
In the event of my death prior to my receipt of all payments
and benefits due me under the Change of Control Agreement dated
March 30, 1995, I hereby designate the person or persons named
below who are living at the time of my death to receive all amounts
and benefits due me under the terms of such Agreement as follows:
Name and Address: Kathryn R. Stenberg
5727 Wedgewood Ct.
Rockford, IL 61107
S.S. Number: ###-##-####
Relationship: Wife
Percent of Total: 100%
Total: 100%
<PAGE>
I hereby revoke all prior Beneficiary Designations made
previously and expressly reserve the right to change or revoke this
Beneficiary Designation, but understand that no such change or
revocation shall be effective unless it is signed by me and filed with
Elco Industries, Inc.
/s/ James R. Stenberg
Signature
Accepted by Elco Industries, Inc.
By: /s/ D. M. Hasse 03/30/95
Date
Exhibit 10.23
CHANGE OF CONTROL AGREEMENT
This Agreement is made this 30th day of March, 1995, by and
between Elco Industries, Inc., a Delaware corporation ("Elco") and
Kenneth L. Heal ("Executive").
RECITALS:
Executive is a skilled and dedicated employee who has
important management responsibilities and talents. Elco believes
that its best interests will be served if Executive is encouraged to
remain with Elco. Elco has determined that Executive's ability to
perform his responsibilities and utilize his talents for the benefit of
Elco, as well as Elco's ability to retain Executive as an employee,
will be significantly enhanced if Executive is provided with fair and
reasonable protection from the risks of a change in ownership or
control of Elco. Accordingly, Elco and Executive agree as follows:
1. Definitions.
When the following terms appear in this Agreement they shall
have the respective meanings set forth below, unless the context
clearly indicates to the contrary:
(a) "Base Salary" means the highest annual rate of
Executive's base salary in effect on either the date of the
Change of Control or the Termination Date, including any
amounts by which the base salary was reduced prior to the
Change of Control at the request of the person or entity
acquiring control of Elco or reasonably shown to be related to
the Change of Control.
(b) "Bonus" means the highest amount payable to
Executive under Elco's annual bonus plan in effect on either
the date of the Change of Control or the Termination Date,
assuming the highest performance targets are met for such
bonus plan, including any amounts by which the Executive's
annual bonus was reduced prior to the Change of Control at
the request of the person or entity acquiring control of Elco
or reasonably shown to be related to the Change of Control.
(c) "Cause" means either of the following:
(i) Executive's willful malfeasance having a
material adverse effect on Elco; or
(ii) Executive's conviction of a felony;
provided, that any action or refusal by Executive shall not
constitute "Cause" if, in good faith, Executive believed such
action or refusal to be in, or not opposed to, the best
interests of Elco, or if Executive shall be entitled, under
applicable law or under an applicable Certificate of
Incorporation or By-Laws, as they may be amended or
restated from time to time, to be indemnified with respect to
such action or refusal.
(d) "Change of Control" means the first to occur of
any of the following dates:
(i) the date the Elco Board of Directors votes
to approve:
(A) any consolidation or merger of Elco;
(B) any sale, lease, exchange or other
transfer (in one transaction or a series of
related transactions) of all, or substantially all,
of the assets of Elco other than any sale, lease,
exchange or other transfer to any corporation
where Elco owns, directly or indirectly, at least
seventy percent (70%) of the outstanding voting
securities of such corporation after any such
transfer; or
(C) any plan or proposal for the
liquidation or dissolution of Elco;
(ii) the date any person (as such term is used
in Section 13(d) of the Securities Exchange Act of
1934, hereinafter the "1934 Act"), other than one or
more trusts established by Elco for the benefit of
employees of Elco or its subsidiaries, shall become the
beneficial owner (within the meaning of Rule 13d-3
under the 1934 Act) of thirty percent (30%) or more of
outstanding Common Stock;
(iii) the date the Board of Directors of Elco
authorizes and approves any transaction which has
either a reasonable likelihood or a purpose of causing,
whether directly or indirectly:
(A) Common Stock to be held of record
by less than [300] persons; or
(B) Common Stock to be neither listed
on any national securities exchange nor
authorized to be quoted on an inter-dealer
quotation system of any registered national
securities association;
(iv) the date, during any period of twenty-
four (24) consecutive months, on which individuals
who at the beginning of such period constitute the
entire Board of Directors of Elco shall cease for any
reason to constitute a majority thereof unless the
election, or the nomination for election by Elco
stockholders, of each new director comprising the
majority was approved by a vote of at least a majority
of the Continuing Directors as hereinafter defined, in
office on the date of such election or nomination for
election of the new director. For purposes hereof, a
"Continuing Director" shall mean:
(A) any member of the Board of
Directors of Elco at the close of business on
March 30, 1995.
(B) any member of the Board of
Directors of Elco who succeeds any Continuing
Director described in subparagraph (A) above
if such successor was elected, or nominated for
election by Elco stockholders, by a majority of
the Continuing Directors then still in office; or
(C) any director elected, or nominated
for election by Elco stockholders, to fill any
vacancy or newly created directorship on the
Board of Directors of Elco by a majority of the
Continuing Directors then still in office; or
(v) the date of commencement by any entity,
person, or group (including any affiliate thereof,
other than Elco) of a tender offer or exchange offer
for more than twenty percent (20%) of the outstanding
Common Stock.
(e) "Code" means the Internal Revenue Code of
1986, as amended.
(f) "Common Stock" means the $5 par value common
stock of Elco.
(g) "Confidential Information" means nonpublic
information relating to the business plans, marketing plans,
customers or employees of Elco other than information the
disclosure of which cannot reasonably be expected to
adversely affect the business of Elco.
(h) "Elco" means Elco Industries, Inc., a Delaware
corporation, and any successor or successors thereto.
(i) "Fringe Benefits" means the fair market value of
the highest level of fringe benefits payable to Executive by
Elco on either the date of the Change of Control or the
Termination Date, including any amounts by which the
Executive's fringe benefits were reduced prior to the Change
of Control at the request of the person or entity acquiring
control of Elco or reasonably shown to be related to the
Change of Control. For these purposes, "Fringe Benefits"
do not include welfare benefits, such as medical coverage
(including prescription drug coverage), dental coverage, life
insurance, disability insurance and accidental death and
dismemberment benefits.
(j) "Good Reason" means any of the following
actions,without Executive's express prior written approval,
other than due to Executive's Permanent Disability or death:
(i) any diminution in Executive's titles,
duties, responsibilities, status or reporting
relationship from the positions, duties,
responsibilities, status or reporting relationship
existing immediately prior to a Change of Control;
(ii) the removal of Executive from, or any
failure to re-elect Executive to, any of the positions
Executive holds immediately prior to a Change of
Control;
(iii) the failure of Elco to pay Executive's Base
Salary when due;
(iv) any reduction of Executive's Base Salary,
or Bonus, or any reduction in the aggregate amount of
Fringe Benefits provided to Executive;
(v) the change of Executive's principal place
of employment to a location more than 50 miles from
Executive's principal place of employment immediately
prior to the Change of Control; or
(vi) any breach by Elco of any provision of
this Agreement;
(vii) the failure of Elco to obtain a satisfactory
agreement from any successor to assume and agree to
perform this Agreement, as contemplated by Section 12
hereof; or
(viii) any purported termination of Executive's
employment which is not effected pursuant to a Notice
of Termination satisfying the requirements of Section
2(i) hereof (and, if applicable, the requirements of
Section 13 hereof); for purposes of this Agreement, no
such purported termination shall be effective.
provided, however, that if any of the actions described in
subparagraphs (i) - (viii) above occur prior to a Change of
Control at the request of any individual or entity acquiring
ownership or control of Elco, or is reasonably shown to be
related to a prospective Change of Control, and if such
actions occur without Executive's express prior written
approval, other than due to Executive's Permanent Disability
or death, then the existence of such actions shall also
constitute "Good Reason."
(k) "Permanent Disability" means Executive's
inability, by reason of any physical or mental impairment, to
substantially perform the significant aspects of his regular
duties which inability is reasonably contemplated to continue
for at least one (1) year from its inception.
2. Change of Control Benefits.
If Executive's employment with Elco is terminated at any time
within the two (2) years following a Change of Control of Elco
without Cause, or by Executive for Good Reason (the effective date
of either such termination hereafter referred to as the "Termination
Date"), Executive shall be entitled to the benefits provided
hereafter in this Section 2 and as set forth in this Agreement. If
Executive's employment with Elco is terminated by Elco without
Cause prior to a Change of Control at the request of any individual
or entity acquiring ownership or control of Elco, or is reasonably
shown to be related to a prospective Change of Control, or by
Executive for Good Reason, or if the person or entity acquiring
control fails to assume Elco's liabilities to Executive under this
Agreement, the Executive's Termination Date shall be deemed to
have occurred immediately upon the Executive's effective date of
termination (in the case of a termination of employment at the
request of the acquirer), or immediately following the Change of
Control (in the case of the acquirer's failure to assume Elco's
liabilities under this Agreement), and therefore Executive shall be
entitled to the benefits provided hereafter in this Section 2 and as
set forth in this Agreement.
(a) Severance Benefits. Within five (5) business
days after the Termination Date, Elco shall pay Executive a
lump sum amount, in cash, equal to two (2) times the sum of:
(i) Executive's Base Salary;
(ii) Executive's Bonus; and
(iii) Executive's Fringe Benefits.
(b) Performance Award. Any unpaid Target Award
previously granted to an Executive under the Elco
Industries, Inc. 1988 Performance Share Plan (the "Share
Plan") shall be paid to the Executive within five (5) days of
the Termination Date as if such Target Award was 100 earned
during the relevant Performance Period (as such term is
defined in the Share Plan), irrespective of Elco's actual
performance during the relevant Performance Period.
(c) Welfare Benefits. Elco shall, until the second
anniversary of the Termination Date, and at its expense,
provide Executive with medical (including prescription drug
coverage), dental, life insurance and accidental death and
dismemberment benefits at the highest level provided to
Executive, his dependents and beneficiaries, either on the
date of a Change of Control or the Termination Date,
including any coverage or benefits that were reduced prior
to the Change of Control at the request of the person or
entity acquiring control of Elco or reasonably shown to be
related to the Change of Control. During the period that
Elco is providing Executive, his dependents and
beneficiaries, with these benefits, Executive shall be entitled
to elect such changes and take such actions the same as a
similarly situated active employee.
(d) Payment of Accrued But Unpaid
Amounts. Within five (5) business days after the
Termination Date, Elco shall pay Executive (i) any unpaid
portion of Executive's Bonus accrued with respect to the full
fiscal year ended prior to the Termination Date; and (ii) all
compensation previously deferred by Executive but not yet
paid.
(e) Post-Retirement Welfare Benefits. On the
Termination Date, for purposes of determining Executive's
eligibility for post-retirement benefits under any welfare
benefit plan (as defined in section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended)
maintained by Elco immediately prior to the Change of Control
and in which Executive participated, immediately prior to the
Change of Control (or, with respect to an Executive who is
terminated prior to a Change of Control, the Termination
Date), Executive shall be credited with the excess of two
years of participation in the applicable medical plan and two
years of age over the actual years and fractional years of
participation and age credited to Executive as of the Change
of Control (or Termination Date, as the case may be). If,
after taking into account such participation and age,
Executive would have been eligible to receive such post-
retirement benefits had Executive retired immediately prior
to the Change of Control (or Termination Date, as the case
may be), Executive shall receive, commencing on the
Termination Date, post-retirement benefits based on the
terms and conditions of the applicable plans in effect
immediately prior to the Change of Control (or Termination
Date, as the case may be).
(f) Retirement Benefits. For purposes of
determining the Executive's retirement benefits under the
various Elco retirement benefit plans, Executive shall be
deemed to be an active employee receiving his Base Salary
and shall accordingly continue to earn service and accrue
benefits under such plans for an additional period of two
years following the Termination Date.
(g) Effect on Existing Plans. All Change of Control
provisions applicable to Executive and contained in any plan,
program, agreement or arrangement maintained on the
Effective Date (or thereafter) by Elco (including, but not
limited to, any stock option, restricted stock or pension
plan) shall remain in effect through the date of a Change of
Control, and for such period thereafter as is necessary to
carry out such provisions and provide the benefits payable
thereunder, and may not be altered in a manner which
adversely affects Executive without Executive's prior written
approval.
(h) Cessation of Benefits. Notwithstanding the
foregoing, no service of the Executive for Elco after age 65
shall be taken into account for purposes of determining the
Executive's benefits under this Agreement.
(i) Notice of Termination. Any purported
termination of Executive's employment by Elco or by
Executive shall be communicated by written Notice of
Termination to the other party hereto in accordance with
Section 13 hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the
specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
3. Gross-Up Payment.
(a) In the event it shall be determined that any
payment, benefit or distribution (or combination thereof) by
Elco or one or more trusts established by Elco for the benefit
of its employees, to or for the benefit of Executive (whether
paid or payable or distributed or distributable pursuant to
the terms of this Agreement, or otherwise) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of
the Code, or any interest or penalties are incurred by
Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, hereinafter
collectively referred to as the "Excise Tax"), Executive shall
be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that, after payment by
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes and excise taxes (and any
interest and penalties imposed with respect thereto) imposed
upon the Gross-Up Payment itself, Executive retains an
amount of such additional payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 3(c), all
determinations required to be made under this Section 3,
including whether and when a Gross-Up Payment is required
and the amount of such Gross-up Payment and the
assumptions to be utilized in arriving at such determination,
shall be made by Coopers & Lybrand or such other nationally
recognized certified public accounting firm as may be
designated by Executive (the "Accounting Firm") which shall
provide detailed supporting calculations both to Elco and
Executive within fifteen (15) business days of the receipt of
notice from Executive that there has been a Payment, or such
earlier time as it requested by Elco. In the event that the
Accounting Firm is serving as accountant or auditor for an
individual, entity or group effecting the change in ownership
or effective control (within the meaning of Section 280G of the
Code), Executive shall appoint another nationally recognized
accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to
as the "Accounting Firm" hereunder). All fees and expenses
of the Accounting Firm shall be borne solely by Elco. Any
Gross-Up Payment, as determined pursuant to this Section 3,
shall be paid by Elco to Executive within five (5) days after
the receipt of the Accounting Firm's determination. If the
Accounting Firm determines that no Excise Tax is payable by
Executive, it shall so indicate to Executive in writing. Any
determination by the Accounting Firm shall be binding upon
Elco and Executive.
(c) For purposes of determining whether any of the
Payments will be subject to the Excise Tax and the amount of
such Excise Tax: (i) any payments or benefits received or
to be received by Executive pursuant to the terms of this
Agreement shall be treated as "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax,
unless in the opinion of tax counsel selected by Elco's
independent auditors and acceptable to Executive such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for
services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within
the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax; (ii) the amount of
the Payments which shall be treated as subject to the Excise
Tax shall be equal to the lesser of: (1) the total amount of
the Payments; or (2) the amount of excess parachute
payments within the meaning of Section 280G(b)(1) (after
applying clause (i), above); and (iii) the value of any non-
cash benefits or any deferred payment or benefit shall be
determined by Elco's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay Federal income
taxes at the highest marginal rate of Federal income taxation
in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of Executive's
residence on the Termination Date, net of the maximum
reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes. In the event
that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay
to Elco at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of
the Gross-Up Payment attributable to the Excise Tax and
Federal and state and local income tax imposed on the Gross-
Up Payment being repaid by Executive if such repayment
results in a reduction in Excise Tax and/or a Federal and
state and local income tax deduction) plus interest on the
amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax
is determined to exceed the amount taken into account
hereunder at the time of the termination of Executive's
employment (including by reason of any payment the
existence or amount of which cannot be determined at the time
of the Gross-Up Payment), Elco shall make an additional
gross-up payment in respect of such excess (plus any
interest payable with respect to such excess) at the time that
the amount of such excess is finally determined.
(d) Executive shall notify Elco in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by Elco of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no
later than ten (10) business days after Executive is informed
in writing of such claim and shall apprise Elco of the nature
of such claim and the date on which such claim is requested
to be paid. Executive shall not pay such claim prior to the
expiration of the thirty (30) day period following the date on
which it gives such notice to Elco (or such shorter period
ending on the date that any payment of taxes with respect to
such claim is due). If Elco notifies Executive in writing prior
to the expiration of such period that it desires to contest
such claim, Executive shall:
(i) give Elco any information reasonably
requested by Elco relating to such claim;
(ii) take such action in connection with
contesting such claim as Elco shall reasonably request
in writing from time to time, including, without
limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by
Elco;
(iii) cooperate with Elco in good faith in order
to effectively contest such claim; and
(iv) permit Elco to participate in any
proceedings relating to such claim; provided,
however, that Elco shall bear and pay directly all costs
and expenses (including additional interest and
penalties) incurred in connection with such contest
and shall indemnify and hold Executive harmless, on
an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto)
imposed as a result of such representation and
payment of costs and expenses. Without limitation on
the foregoing provisions of this Section 3(d), Elco
shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or
forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed
and sue for a refund or contest the claim in any
permissible manner, and Executive agrees to prosecute
such contest to a determination before any
administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as
Elco shall determine; provided, however, that if Elco
directs Executive to pay such claim and sue for a
refund, Elco shall advance the amount of such payment
to Executive, on an interest-free basis, and shall
indemnify and hold Executive harmless, on an after-
tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto)
imposed with respect to such advance or with respect
to any imputed income with respect to such advance;
and provided further, that if Executive is required to
extend the statute of limitations to enable Elco to
contest such claim, Executive may limit this extension
solely to such contested amount. Elco's control of the
contest shall be limited to issues with respect to which
a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(e) If, after the receipt by Executive of an amount
advanced by Elco pursuant to Section 3(d), Executive
becomes entitled to receive any refund with respect to such
claim, Executive shall (subject to Elco complying with the
requirements of Section 3(d)) promptly pay to Elco the
amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after
the receipt by Executive of an amount advanced by Elco
pursuant to Section 3(d), a determination is made that
Executive shall not be entitled to any refund with respect to
such claim and Elco does not notify Executive in writing of its
intent to contest such denial of refund prior to the expiration
of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to
be paid.
4. Indemnification; Director's and Officer's Liability
Insurance.
Executive shall, after the Termination Date, retain all rights
to indemnification under applicable law or under Elco's Certificate
of Incorporation or By-Laws, as they may be amended or restated
from time to time, to the extent any such amendment or restatement
expands the Executive's rights to indemnification. In addition, Elco
shall maintain Director's and Officer's liability insurance on behalf
of Executive, provided Executive is eligible to be covered and has
in fact been covered by such insurance, at the highest level in
effect immediately prior to either the Date of a Change of Control or
the Termination Date, including any such insurance that was
reduced prior to a Change of Control at the request of the person
or entity acquiring control of Elco or reasonably shown to the
related to the Change of Control, for the seven (7) year period
following the Termination Date.
5. Termination for Cause.
Nothing in this Agreement shall be construed to prevent Elco
from terminating Executive's employment for Cause. If Executive
is terminated for Cause, Elco shall have no obligation to make any
payments under this Agreement, except for payments that may
otherwise be payable under then existing employee benefit plans,
programs and arrangements of Elco.
6. Mitigation.
Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by
seeking other employment or otherwise, and compensation earned
from such employment or otherwise shall not reduce the amounts
otherwise payable under this Agreement. Except as provided in
Section 10, no amounts payable under this Agreement shall be
subject to reduction or offset in respect of any claims which Elco (or
any other person or entity) may have against Executive.
7. Restrictive Covenants.
(a) Confidential Information. During the two (2)
year period following the Termination Date, Executive shall
not disclose to any person, or use to the significant
disadvantage of Elco any Confidential Information; provided
that nothing contained in this Section 7 shall prevent
Executive from being employed by a competitor of Elco or
utilizing Executive's general skills, experience, and
knowledge, including those developed while employed by
Elco.
(b) Release. In consideration for the protection and
benefits provided for under this Agreement, Executive
hereby agrees to execute a release substantially in the form
of Schedule A.
8. Disputes.
Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in
Chicago, Illinois, or, at the option of Executive, in the county
where Executive then resides, in accordance with the Rules of the
American Arbitration Association then in effect, except that if
Executive institutes an action relating to this Agreement, Executive
may, at Executive's option, bring that action in a court of
competent jurisdiction. Judgment may be entered on an arbitrator's
award relating to this Agreement in any court having jurisdiction.
Notwithstanding the pendency of any dispute in connection with
this Agreement, Elco will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute
was given and continue Executive as a participant in all
compensation, benefit and insurance plans in which Executive was
participating when the notice giving rise to the dispute was given,
until the dispute is finally resolved in accordance with this Section
8. Amounts paid under this Section 8 are in addition to all other
amounts due under this Agreement and shall not be offset against
or reduce any other amounts due under this Agreement.
9. Costs of Proceedings.
Elco shall pay all costs and expenses, including attorneys'
fees and disbursements, at least monthly, of Executive in
connection with any legal proceeding (including arbitration),
whether or not instituted by Elco or Executive, relating to the
interpretation or enforcement of any provision of this Agreement,
except that if Executive instituted the proceeding and the judge,
arbitrator or other individual presiding over the proceeding
affirmatively finds the Executive instituted the proceeding in bad
faith, Executive shall pay all costs and expenses, including
attorney's fees and disbursements, of Elco. Elco shall pay
prejudgment interest on any money judgment obtained by Executive
as a result of such a proceeding, calculated at the rate which Bank
of America announces from time to time as its prime lending rate as
in effect from time to time, from the date that payment should have
been made to Executive under this Agreement.
10. Withholding.
Notwithstanding the provisions of Sections 3 and 6 hereof,
Elco may, to the extent required by law, withhold applicable
federal, state and local income and other taxes from any payments
due to Executive hereunder.
11. Beneficiary Designation.
In the event of the Executive's death prior to his receipt of
all payments and benefits due to him under this Agreement, all such
amounts shall be paid to his designated beneficiary, as set forth on
the form attached hereto as Schedule B.
12. Assignment; Successors.
Except as otherwise provided herein, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by Elco
and Executive and their respective heirs, personal or legal
representatives, executors, administrators, successors, assigns,
distributees, divisees and legatees. If Executive should die while
any amount would still be payable to Executive hereunder had
Executive continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if
there is no such designee, to Executive's estate. If Elco shall be
merged into or consolidated with another entity, the provisions of
this Agreement shall be binding upon and inure to the benefit of the
entity surviving such merger or resulting from such consolidation.
Elco will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of Elco by agreement in
form and substance satisfactory to Executive, to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that Elco would be required to perform it if no such
succession had taken place. The provisions of this Section 12 shall
continue to apply to each subsequent employer of Executive
hereunder in the event of any subsequent merger, consolidation or
transfer of assets of such subsequent employer.
13. Notices.
Any notice to be provided under the terms of this Agreement
shall be in writing and shall be sufficient if delivered in person or
sent by registered or certified mail, return receipt requested,
addressed as follows:
If to the Executive:
Kenneth L. Heal
1231 Cerasus Drive
Rockford, IL 61108
If to the Company:
Elco Industries, Inc.
1111 Samuelson Road
Rockford, Illinois 61125-7009
Attn: Secretary
or to such other place as either party may specify in writing,
delivered in accordance with the provisions of this Section.
14. Applicable Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois applicable to
contracts made and to be performed therein.
15. Effective Date; Term.
This Agreement shall be effective as of March 30, 1995 (the
"Effective Date"") and shall remain in effect thereafter until March
30, 1998, unless Elco and Executive agree in writing to continue
this Agreement for such additional period of time as the parties
shall specify. Notwithstanding the foregoing, this Agreement
shall, if in effect on the date of a Change of Control, remain in
effect for at least two (2) years following such Change of Control,
and such additional time as may be necessary to give effect to the
terms of the Agreement.
16. Amendment.
This Agreement may be changed only by a written agreement
executed by Elco and Executive.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
ELCO INDUSTRIES, INC.
By: /s/ John C. Lutz
Its President
/s/ Kenneth L. Heal
Executive
/s/ David Peterson
Chairman,
Compensation Committee
<PAGE>
Schedule A
CHANGE OF CONTROL AGREEMENT
RELEASE
For and in consideration of the payment of such
amounts and benefits as are set forth in the Change of Control
Agreement dated March 30, 1995 by and between Kenneth L. Heal
and Elco Industries, Inc. ("Elco"), Executive, together with his
heirs, beneficiaries, personal or legal representatives, executors,
administrators, successors, assigns, distributees, devisees and
legatees, hereby waives, releases, and discharges Elco and the
present, future, or former employees, agents, officers, directors,
successors, assigns and affiliated entities of Elco, (herein referred
to collectively as the "Released Parties"), with respect to any and
all causes of action, potential causes of action, suits, disputes,
liabilities, claims in law and equity, rights, damages, demands,
personal injuries, and attorney's fees and costs by reason of any
matter, cost, or thing whatsoever against and as to Elco, which in
any way results from, arises out of, or pertains to Executive's
employment, termination of employment, benefits, awards,
insurance coverage, hiring, wages, or any other terms and
conditions of employment at Elco, or any other events which are
unknown, fixed or contingent, and by reason of any matter, cause,
thing, charge, claim, right or action whatsoever, against and as to
Elco and/or any of the other Released Parties, and which are in any
way related to any violation of any provision of federal and state
statutory or common law or regulation, including claims arising
under any federal, state, or local laws prohibiting employment
discrimination on any basis or claims arising out of any legal
restrictions on Elco's rights to terminate its employees, any
contract claim for the alleged breach of any implied, express, or
other type of employment contract, wrongful, abusive or retaliatory
discharge, and any tort claim, including, but not limited to, fraud,
misrepresentation, deceit, defamation, slander, libel, interference
with employment relations, intentional or negligent infliction of
emotional distress, breach of any fiduciary duties, or any other
tort-type causes of action.
This Release applies to any relief or benefit sought by
the Executive, no matter how denominated, including, but not
limited to, claims for compensation for any physical or mental
injury, pain and suffering, reinstatement, back pay, front pay,
prejudgment interest, compensatory damages, punitive damages,
insurance coverage, benefits, premiums, medical expenses, or
attorneys' fees and costs.
In addition, Executive together with his heirs,
beneficiaries, personal or legal representatives, executors,
administrators, successors, distributees, devisees and legatees,
agrees and covenants not to file a lawsuit or administrative
complaint to assert any claim with respect to his employment with
Elco, the payment of wages to him by Elco, or the cessation of his
employment with Elco which occurred prior to the execution of this
Release. Any such lawsuit or administrative complaint filed in
violation of this Release shall automatically constitute a breach of
this Release. If any government agency or court assumes
jurisdiction of any charge, complaint, cause of action or claim
covered by this Release against Elco or any of the Released Parties,
on behalf of or related to Executive, Executive agrees and
covenants he will withdraw from and/or dismiss the matter with
prejudice. Executive agrees he will not participate or cooperate in
such matter(s) except as required by law.
Executive understands and acknowledges that he has
expressly waived all his rights under this Release. Executive
further acknowledges that he understands the legal effect of this
Release, and that, to the extent he has deemed necessary, he has
consulted with his attorney or other counsel regarding the legal
effect of this Release.
Executive represents and warrants to Elco that he has
the full power, capacity, and authority to enter into this Release,
and that no portion of any claim, right, demand, action, or cause
of action that Executive has, or might have had arising out of the
acts, events, transactions, and occurrences referred to herein has
been assigned, transferred, or conveyed to any person not a party
to this Release, by way of subrogation, operation of law, or
otherwise, and that no releases or settlement agreements are
necessary or need to be obtained from any other person or entity to
release and discharge completely any of the claims of Executive
released in this Release.
IN WITNESS WHEREOF, Executive has signed this
instrument this 30th day of March, 1995.
/s/ Kenneth L. Heal
Executive
<PAGE>
Schedule B
CHANGE OF CONTROL AGREEMENT
BENEFICIARY DESIGNATION FORM
TO: Elco Industries, Inc.
FROM: Kenneth L. Heal
DATE: March 30, 1995
In the event of my death prior to my receipt of all payments
and benefits due me under the Change of Control Agreement dated
March 30, 1995, I hereby designate the person or persons named
below who are living at the time of my death to receive all amounts
and benefits due me under the terms of such Agreement as follows:
Name and Address: Barbara A. Heal
1231 Cerasus Drive
Rockford, IL 61108
S.S. Number: ###-##-####
Relationship: Spouse
Percent of Total: 100%
Total: 100%
<PAGE>
I hereby revoke all prior Beneficiary Designations made
previously and expressly reserve the right to change or revoke this
Beneficiary Designation, but understand that no such change or
revocation shall be effective unless it is signed by me and filed with
Elco Industries, Inc.
/s/ Kenneth L. Heal
Signature
Accepted by Elco Industries, Inc.
By: /s/ D. M. Hasse, V.P. 04/13/95
Date
Exhibit 11
ELCO INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Computations of Per Share Earnings
For the Three Years Ended June 30, 1995
(Amounts in thousand, except per share amounts)
1995 1994 1993
Net income $10,262 $8,229 $4,869
======= ====== ======
PRIMARY EARNINGS PER SHARE
Average shares outstanding 4,933 4,977 4,956
Common stock equivalents assuming average
market price using treasury stock meth 34 41 7
------ ------ -----
Average shares outstanding including
common stock equivalents 4,967 5,018 4,963
====== ====== ======
Primary earnings per share of common stock $2.08(1) $1.65(1) $.98(1)
====== ====== ======
FULLY DILUTED EARNINGS PER SHARE
Average shares outstanding 4,933 4,977 4,956
Common stock equivalents, assuming year-end
market price 46 41 27
------ ------ ------
Average shares outstanding including common
stock equivalents assuming full dilution 4,979 5,018 4,983
====== ====== ======
Fully diluted earnings per share $2.08(2) $1.65(2) $.98(2)
====== ====== ======
(1) As common stock equivalents had less than 3% dilution, average shares
outstanding is used in the computation of primary earnings per share.
(2) As there was less than 3% dilution for purposes of computing fully
diluted earnings per share, average shares outstanding is used in the
computation of diluted earnings per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
-------------------------------------------------------------------------------
ELCO INDUSTRIES, INC.
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED TO FISCAL 1994
For the year ended June 30, 1995, net sales were a record $249,254, an
increase of 10.3% over last year's sales of $225,901. Net income was $10,262, or
$2.08 per share, compared to $8,229, or $1.65 per share, the prior year.
Sales in the Industrial Products Group were $190,944, a 12.9% increase
over last year's sales. This represented approximately 94% of the total sales
increase. Sales to automotive customers were up 10% on a 6% increase in
automotive and light truck production. This resulted in sales per car and light
truck produced increasing to $8.79 per vehicle versus $8.42 the prior year.
Sales to the transplant market, which includes both automotive and nonautomotive
customers, increased 58%. Sales to nonautomotive industrial markets were up 18%,
with especially strong growth in computers and business equipment, power and
hand tools, and compressors and refrigeration. Growth in the nonautomotive
markets resulted from generally favorable economic conditions and targeted
marketing efforts. Sales in the Home and Construction Products Group increased
slightly. Sales growth in this group was lower than expected because of weak
market conditions caused by a reduction in housing starts.
Gross profit margin increased to 19.3% from 18.9% last year. Material costs
and wages and benefits, as a percentage of sales, decreased modestly compared to
the prior year. Repairs and maintenance costs were up slightly because of the
high level of manufacturing activity.
Selling and administrative expenses increased at the same rate as sales,
remaining at 11.6% of sales as in the prior year.
Income from operations was $19,106, or 7.7% of sales, compared to $16,569
and 7.3% of sales last year. Operating income in the Industrial Products Group
increased 36% on a 13% sales increase. Several factors, such as high levels of
capacity utilization, new products and equipment, and cost savings ideas,
contributed to improving margins. Operating income in the Home and Construction
Products Group decreased $2,147 to $2,176. This segment incurred unusually high
costs associated with gaining business at two major home centers. Also, the weak
market conditions caused by the low level of housing starts resulted in low
sales growth which made it difficult to absorb cost increases.
[Chart]
[Chart]
Fifteen
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
-------------------------------------------------------------------------------
For the year, net interest expense increased. A major portion of the
Company's debt is subject to interest rate fluctuations and during the year
interest rates increased, more than offsetting the favorable benefit of lower
debt levels.
The decline in the effective income tax rate was caused primarily by a
reduction in previously established accruals, including the projected impact of
utilizing research and experimentation tax credits, and, to a lesser extent,
lower effective rates of state taxes.
Performance of Rocknel Fastener, Inc., a joint venture company, improved
because of higher sales and improved manufacturing efficiencies. Elco's share of
Rocknel's profits was $324 versus $189 last year.
FISCAL 1994 COMPARED TO FISCAL 1993
For the year ended June 30, 1994, net sales were a record $225,901, an
increase of 13.4% over the prior year's sales of $199,179. Net income increased
69.0% to $8,229, or $1.65 per share, from $4,869, or $.98 per share.
Sales in the Industrial Products Group were $169,078, a 16.4% increase
which represented approximately 90% of the total sales increase. Sales to the
automotive market increased 19% on a 11% increase in automotive production. This
resulted in sales per car and light truck produced increasing to $8.42 per
vehicle versus $7.78 the prior year. Sales to the nonautomotive industrial
markets increased 12%, with especially strong growth to manufacturers of
controls and instruments, hand tools and compressors. Sales in the Home and
Construction Group increased 5.5%. Sales growth in this segment was adversely
impacted by the loss of two significant customers. However, new business gained
at two home center customers more than offset this loss.
Gross profit margin increased to 18.9% from 18.3% in the prior year as a
result of higher capacity utilization and cost containment efforts. Raw material
cost and wages measured as a percentage of sales remained constant. Benefit
costs increased at a higher rate than sales because of increases in medical
costs and employee incentive programs.
Selling and administrative expenses increased at a lower rate than sales.
The majority of the increase was caused by higher benefits costs, higher
professional expenses primarily resulting from expenses associated with an
industrial bond refinancing, additional employees and higher wage rates.
Measured as a percentage of sales, selling and administrative expenses were
11.5%, the lowest level in over 10 years.
[Chart]
[Chart]
Sixteen
<PAGE>
-------------------------------------------------------------------------------
Income from operations was $16,569, or 7.3% of sales, versus $12,427, or
6.2% of sales, in the prior year. This improvement was primarily due to strong
performance from the Industrial Products Group where greater capacity
utilization and a shift in sales to higher margin products contributed to a 54%
increase in operating income. The Home and Construction Products Group
experienced a decrease in operating income due to an expense of approximately
$500 related to the loss of one of the customers mentioned previously and to
initial stocking and product introduction costs associated with new business
gained at two home center customers.
Interest expense was lower because of lower debt levels and the refinancing
of two industrial revenue bonds at lower interest rates.
Elco's share of profits from Rocknel Fastener, Inc., a joint venture
company, was $189 versus a loss of $258 in the prior year. This reduction in
losses was a result of continued cost containment efforts, productivity
improvements and introduction of new products.
OUTLOOK
Management believes sales and earnings will increase next year. This
assumes that auto production will remain flat or increase modestly and that the
general economy continues to expand and does not enter a recession. Management
also assumes only small changes in interest rates. Operating income should grow
slightly faster than sales.
In the Industrial Products Group, sales should increase because of
shipments of new products. Sales of these new programs will be offset somewhat
because of discontinued products and possibly lower vehicle production levels.
Sales to nonautomotive industrial markets will increase modestly as demand from
these markets adjusts to lower economic growth. Operating income is expected to
increase as a result of higher sales. This segment will continue to be adversely
impacted by pricing pressures, especially in the automotive industry.
Sales in the Home and Construction Products Group are expected to increase
modestly. This assumes that the economy, and especially home sales, expands
modestly. Operating margins should improve because the major portion of the
initial stocking and product introduction costs associated with the new home
center business will have been absorbed.
The Company is currently involved in matters of litigation arising from the
normal course of business, including certain environmental and product liability
matters. For a further discussion of these issues, refer to Notes to
Consolidated Financial Statements, Footnote 14, "Contingencies," on page 27.
BALANCE SHEET DISCUSSION
Total assets increased approximately 4% to $156,968 on a 10.3% increase in
sales.
At June 30, 1995, working capital was $33,952, about the same as the prior
year and within a range the Company believes is desirable. Total property, plant
and equipment at cost increased $13,674, reflecting capital expenditures of
$16,085 less retirements and disposals of $2,411. The capital expenditures
program was the highest ever and was financed through internally generated cash
flow. Approximately 91% of capital expenditures were for the Industrial Products
Group.
Total interest bearing debt decreased $4,437 from $46,297 to $41,860 as a
result of scheduled payments. Scheduled payments are $4,560 for fiscal year
1996. The weighted average interest rate on the indebtedness was 8.4% at June
30, 1995 versus 6.8% at June 30, 1994. Rising interest rates in fiscal year 1995
decreased the benefit from interest rates swaps resulting in higher interest
expense. If interest rates remain approximately constant during the year,
interest expense should decrease because of lower debt.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL 1995
For the year, operating activities generated $21,978 of cash flow, a $4,888
increase over the prior year. Net income and depreciation produced $21,123 of
cash flow. The major operating activities requiring cash flow were a $2,358
increase in inventories and a $1,022 decrease in accounts payable.
Investing activities consisted primarily of capital expenditures of
$16,085. Purchases of machinery and equipment represented 87% of the total
expenditures. The purchase of a building and two plant expansions required
$2,021. For fiscal year 1996, capital expenditures are forecasted to be
approximately $16 million.
Seventeen
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Dollars in thousands, except per share amounts)
-------------------------------------------------------------------------------
[Chart]
Financing activities consisted primarily of scheduled debt payments of
$4,430 and dividend payments of $2,960.
For fiscal year 1996, the Company expects to be able to finance its
operations, excluding any possible acquisitions, with internally generated
funds. If operations do require additional debt capital, the Company has
approximately $20 million of lines of credit available.
FISCAL 1994
For fiscal 1994, operating activities generated $17,090 of cash flow, a
level lower than in 1993. While net income, depreciation and amortization
generated additional cash, other noncash working capital, primarily inventories,
required significant cash to finance the increasing sales base.
Investing activities consisted primarily of $12,388 of additions to
property, plant and equipment, an amount 25% greater than the level of
depreciation. Machinery and equipment represented 73% of the total expenditures.
During the past three years, capital expenditures were $32,507, compared to
$27,773 of depreciation. Capital expenditures for fiscal 1995 are expected to
approximate $14,500.
Financing activities consisted primarily of the refinancing of $7,000 of
industrial development revenue bonds to obtain lower interest rates and the
payment of $3,705 of required principal. While the Company has $18,000 of bank
lines of credit, no borrowings were required during the year. Dividend payments
of $.52 per share totaled $2,593. In August 1994, the Company increased the
dividend to an annual rate of $.60 per share, a 15% increase. In June 1994, the
Company purchased 135,000 shares of its stock for $2,498 from a major
stockholder.
NEW ACCOUNTING PRONOUNCEMENTS
On July 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits." The
effects of this change were immaterial, and, accordingly, no cumulative effect
adjustment for the adoption was required.
During December 1991, the FASB issued SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," which will require additional disclosures
regarding long-term debt and other financial instruments. The Company must adopt
SFAS No. 107 no later than June 30, 1996. Adoption of this statement will not
impact the carrying value of the Company's assets and liabilities.
Eighteen
<PAGE>
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
ELCO INDUSTRIES, INC. June 30,
1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 3,110 $ 3,861
Accounts receivable--less allowances (1995, $307;
1994, $473). . . . . . . . . . . . . . . . . . . . . . 32,517 32,684
Inventories . . . . . . . . . . . . . . . . . . . . . . . . 28,010 25,652
Deferred taxes on income. . . . . . . . . . . . . . . . . . 2,219 2,055
Prepaid and other current assets. . . . . . . . . . . . . . 460 562
-------- --------
Total current assets . . . . . . . . . . . . . . . . . 66,316 64,814
-------- --------
PROPERTY, PLANT Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 712 449
AND EQUIPMENT Land and leasehold improvements . . . . . . . . . . . . . . 3,246 3,260
Buildings and building equipment. . . . . . . . . . . . . . 27,693 25,052
Machinery and equipment . . . . . . . . . . . . . . . . . . 124,458 114,458
Furniture and office equipment. . . . . . . . . . . . . . . 9,278 8,489
Construction in progress. . . . . . . . . . . . . . . . . . 1,505 1,510
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . 166,892 153,218
Less accumulated depreciation and amortization. . . . . . . 93,062 83,901
-------- --------
Property, plant and equipment--net. . . . . . . . . . . 73,830 69,317
-------- --------
INTANGIBLES, NET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,522 10,101
-------- --------
INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATE . . . . . . . . . . . . . . . . . 2,233 1,908
-------- --------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,067 5,324
-------- --------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $156,968 $151,464
-------- --------
-------- --------
-----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities Accounts payable--trade creditors. . . . . . . . . . . . . . $ 11,823 $ 12,845
Current maturities of long-term obligations . . . . . . . . 4,560 4,437
Accrued liabilities:
Salaries, wages and commissions. . . . . . . . . . . . 5,550 5,001
Compensated absences . . . . . . . . . . . . . . . . . 2,486 2,234
Federal and state taxes on income. . . . . . . . . . . 408 736
Other taxes. . . . . . . . . . . . . . . . . . . . . . 1,931 1,189
Retirement plans . . . . . . . . . . . . . . . . . . . 1,050 961
Interest . . . . . . . . . . . . . . . . . . . . . . . 789 764
Other. . . . . . . . . . . . . . . . . . . . . . . . . 3,767 3,267
-------- --------
Total current liabilities . . . . . . . . . . . . 32,364 31,434
-------- --------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,300 41,860
-------- --------
CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DEFERRED TAXES ON INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,105 8,117
-------- --------
OTHER DEFERRED LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,464 5,087
-------- --------
STOCKHOLDERS' EQUITY Capital Stock:
Preferred--Authorized, 250,000 shares at $1 par value;
issued and outstanding--none
Common--Authorized, $5 par value, 20,000,000 shares;
issued, 4,987,635 shares. . . . . . . . . . . . . 24,938 24,938
Additional paid-in capital. . . . . . . . . . . . . . . . . 7,681 7,872
Retained earnings . . . . . . . . . . . . . . . . . . . . . 41,350 34,048
-------- --------
Total . . . . . . . . . . . . . . . . . . . . . . . 73,969 66,858
Less common stock in treasury at cost--
1995, 12,721 shares; 1994, 103,081 shares. . . . . . . . 234 1,892
-------- --------
Total stockholders' equity . . . . . . . . . . . . . . 73,735 64,966
-------- --------
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $156,968 $151,464
-------- --------
-------- --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Nineteen
<PAGE>
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
ELCO INDUSTRIES, INC. Years Ended June 30,
1995 1994 1993
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $249,254 $225,901 $199,179
Cost of products sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,270 183,258 162,768
-------- -------- --------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,984 42,643 36,411
Selling and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . 28,878 26,074 23,984
-------- -------- --------
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,106 16,569 12,427
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,543 3,162 3,701
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211 106 113
-------- -------- --------
Income before provision for taxes and equity in income (loss) of
unconsolidated affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,774 13,513 8,839
-------- -------- --------
Provision for taxes on income:
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,798 3,880 2,709
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,271 1,224 829
Deferred. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (233) 369 174
-------- -------- --------
Total provision for taxes on income . . . . . . . . . . . . . . . . . . . . . . 5,836 5,473 3,712
-------- -------- --------
Income before equity in income (loss) of unconsolidated affiliate. . . . . . . . . . 9,938 8,040 5,127
Equity in income (loss) of unconsolidated affiliate. . . . . . . . . . . . . . . . . 324 189 (258)
-------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,262 $ 18,229 $ 4,869
-------- -------- --------
-------- -------- --------
Net income per common share. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.08 $ 1.65 $ .98
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------
ELCO INDUSTRIES, INC. COMMON STOCK
-------------------------------------------------------
ISSUED IN TREASURY
------------------------- ----------------------- ADDITIONAL
NUMBER NUMBER PAID-IN RETAINED
OF SHARES PAR VALUE OF SHARES AT COST CAPITAL EARNINGS
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1992 . . . . . . . . . 4,929,043 $24,645 5,081 $ 61 $7,412 $26,119
Net income . . . . . . . . . . . . . . . 4,869
Issued pursuant to option plans. . . . . (1,000) (12) 2
Issued pursuant to director
compensation plan. . . . . . . . . . . 10,212 51 69
Issued as contribution to ESOP . . . . . 45,000 225 384
Cash dividends-
$.52 per common share. . . . . . . . . (2,576)
--------- ------- -------- ------ ------ --------
BALANCE, JUNE 30, 1993 . . . . . . . . . 4,984,255 $24,921 4,081 $ 49 $7,867 $28,412
Net income . . . . . . . . . . . . . . . 8,229
Treasury stock purchased . . . . . . . . 135,000 2,498
Issued pursuant to option plans. . . . . (1,000) (12) 9
Issued pursuant to director
compensation plan. . . . . . . . . . . 3,380 17 43
Issued as contribution to ESOP . . . . . (35,000) (643) (47)
Cash dividends-
$.52 per common share. . . . . . . . . (2,593)
--------- ------- -------- ------ ------ --------
BALANCE, JUNE 30, 1994 . . . . . . . . . 4,987,635 $24,938 103,081 $1,892 $7,872 $34,048
Net income . . . . . . . . . . . . . . . 10,262
Issued pursuant to director
compensation plan. . . . . . . . . . . (8,750) (161) (20)
Issued pursuant to award plans . . . . . (2,783) (50) (4)
Issued as contribution to ESOP . . . . . (78,827) (1,447) (167)
Cash dividends-
$.60 per common share. . . . . . . . . (2,960)
--------- ------- -------- ------ ------ --------
BALANCE, JUNE 30, 1995 . . . . . . . . . 4,987,635 $24,938 12,721 $ 234 $7,681 $41,350
--------- ------- -------- ------ ------ --------
--------- ------- -------- ------ ------ --------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Twenty
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
ELCO INDUSTRIES, INC. Years Ended June 30,
1995 1994 1993
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,262 $ 8,229 $ 4,869
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, plant and equipment . . . . . . . . . . . . . . 10,861 9,881 9,129
Amortization of intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 579 1,100 787
Loss (gain) on retirement and disposal of property, plant and equipment. . . . . . . . . . (43) 244 39
Change in assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 (3,402) (3,479)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,358) (3,328) 1,233
Prepaid and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102 (116) 203
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,022) (308) 2,740
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,829 2,312 1,830
Deferred taxes on income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (176) 369 316
Other deferred liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377 934 122
ESOP contribution from common and treasury shares. . . . . . . . . . . . . . . . . . . . . 1,280 596 609
Equity in loss (income) of unconsolidated affiliate. . . . . . . . . . . . . . . . . . . . (324) (189) 258
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444 768 759
------- ------- -------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . 21,978 17,090 19,415
------- ------- -------
Cash flows from investing activities:
Additions to property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . (16,085) (12,388) (9,569)
Proceeds from retirement and disposal of property, plant and equipment . . . . . . . . . . . 754 367 414
Decrease in construction/project funds held in trust . . . . . . . . . . . . . . . . . . . . 2,226
Increase in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (303) (637)
Investment in unconsolidated affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . (250)
Advances to unconsolidated affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) (91) (7)
------- ------- -------
Net cash required for investing activities . . . . . . . . . . . . . . . . . . . . . . . . (15,332) (12,415) (7,823)
------- ------- -------
Cash flows from financing activities:
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,430) (10,705) (2,980)
Payments on long-term lease obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . (7) (31) (585)
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,498)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,960) (2,593) (2,576)
------- ------- -------
Net cash required for financing activities . . . . . . . . . . . . . . . . . . . . . . . . (7,397) (8,827) (6,141)
------- ------- -------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . (751) (4,152) 5,451
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . 3,861 8,013 2,562
------- ------- -------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,110 $ 3,861 $ 8,013
------- ------- -------
------- ------- -------
Cash paid for: Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,703 $ 3,342 $ 3,941
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,338 $ 5,620 $ 2,873
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
Twenty-one
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
-------------------------------------------------------------------------------
ELCO INDUSTRIES, INC.
1. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Elco
Industries, Inc. and its wholly-owned subsidiaries. The Company's investment in
its affiliate is accounted for under the equity method.
Inventories are carried at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) and first-in, first-out (FIFO) methods.
Property, plant and equipment is carried at cost. Depreciation and
amortization is designed to amortize costs over the estimated service lives or
lease periods using the straight-line method. Maintenance and repairs are
charged to expense.
Deferred taxes on income are recorded to reflect the tax consequences on
future years of differences between the tax bases of assets and liabilities and
their financial amounts at each year-end.
Intangibles, net consist of excess of cost over net assets of businesses
acquired of $6,637 and $6,870 and other intangible assets of $2,885 and $3,231
at June 30, 1995 and 1994, respectively. Intangibles are being amortized on a
straight-line basis over useful lives ranging from 5-39 years, subject to
impairment write-offs determined by underlying cash flow. Accumulated
amortization was $5,269 and $4,690 at June 30, 1995 and 1994, respectively.
The Company enters into interest rate swap and forward rate agreements with
the objective of converting fixed rate debt to variable rate debt in order to
take advantage of lower variable rates expected over the period of the
agreement. The swaps are settled every six months and the effect is recorded as
an adjustment to current interest expense during each six-month period.
Net income per common share has been computed using the average number of
shares outstanding during each year.
The Company capitalizes interest costs relating to construction of
property, plant and equipment and its investment in unconsolidated affiliate
during the affiliate's start-up period. Interest capitalized was $185, $132 and
$90 for the years ended June 30, 1995, 1994 and 1993, respectively.
For purposes of the Statements of Consolidated Cash Flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
2. PRODUCTS AND MAJOR CUSTOMERS
The Company is a leading domestic manufacturer and supplier of specialty
metal fasteners and custom-engineered metal and plastic components and products.
The Company's operations can be classified into two segments:
A. Industrial Products--the manufacture and sale of custom-engineered and
specialty components sold primarily to original equipment manufacturers in
a variety of markets including the transportation, electrical and
electronics, fabricated metal and other industrial markets.
B. Home and Construction Products--the packaging and merchandising of a full
line of screws, nails, consumer and hobby wire, picture hanging wire and
other standard fasteners and fastening-related products for consumer use.
Also, the design, manufacture and marketing of specialty product lines and
fastening systems for the commercial construction market.
Certain financial information by industry segment follows. Since the
Company does not maintain complete financial information by segment, the
following information includes both items directly traceable to each segment as
well as an allocation to segments (based on reasonable estimates) for items not
directly traceable to a given segment. Intersegment sales are made primarily at
cost plus a markup.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
YEARS ENDED JUNE 30,
1995 1994 1993
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Sales to unaffiliated customers:
Industrial Products. . . . . . . . . . . . . . . $190,944 $169,078 $145,308
Home and Construction
Products. . . . . . . . . . . . . . . . . . . 58,310 56,823 53,871
Intersegment sales:
Industrial Products. . . . . . . . . . . . . . . 25,789 23,650 20,384
Home and Construction
Products. . . . . . . . . . . . . . . . . . . 3,347 2,725 1,957
Adjustments and eliminations . . . . . . . . . . . (29,136) (26,375) (22,341)
-------- -------- --------
Consolidated net sales . . . . . . . . . . . . . . $249,254 $225,901 $199,179
-------- -------- --------
-------- -------- --------
INCOME FROM OPERATIONS
Industrial Products. . . . . . . . . . . . . . . . $ 19,820 $ 14,589 $ 19,444
Home and Construction
Products . . . . . . . . . . . . . . . . . . . . 2,176 4,323 4,751
Corporate expenses . . . . . . . . . . . . . . . . (2,890) (2,343) (1,768)
-------- -------- --------
Total income
from operations. . . . . . . . . . . . . . . . . $ 19,106 $ 16,569 $ 12,427
-------- -------- --------
-------- -------- --------
TOTAL ASSETS
Industrial Products. . . . . . . . . . . . . . . . $107,987 $ 99,868 $ 94,500
Home and Construction
Products . . . . . . . . . . . . . . . . . . . . 38,322 40,291 37,576
-------- -------- --------
Total identifiable assets. . . . . . . . . . . . . 146,309 140,159 132,076
Equity and investment in
unconsolidated affiliate . . . . . . . . . . . . 2,233 1,908 1,628
Corporate assets . . . . . . . . . . . . . . . . . 8,426 9,397 13,485
-------- -------- --------
Total assets at June 30. . . . . . . . . . . . . . $156,968 $151,464 $147,189
-------- -------- --------
-------- -------- --------
ADDITIONS TO PROPERTY, PLANT AND EQUIPMENT
Industrial Products. . . . . . . . . . . . . . . . $ 14,629 $ 10,499 $ 8,209
Home and Construction
Products . . . . . . . . . . . . . . . . . . . . 1,456 1,889 1,360
-------- -------- --------
Total additions. . . . . . . . . . . . . . . . . . $ 16,085 $ 12,388 $ 9,569
-------- -------- --------
-------- -------- --------
DEPRECIATION AND AMORTIZATION
Industrial Products. . . . . . . . . . . . . . . . $ 8,975 $ 8,169 $ 7,665
Home and Construction
Products . . . . . . . . . . . . . . . . . . . . 1,886 1,712 1,464
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . $ 10,861 $ 9,881 $ 9,129
-------- -------- --------
-------- -------- --------
</TABLE>
-------------------------------------------------------------------------------
Twenty-two
<PAGE>
-------------------------------------------------------------------------------
Sales to the Company's largest customer are included in the industrial
products segment and totaled approximately $39,066, $39,723 and $33,947 in 1995,
1994 and 1993, respectively. Sales to the Company's second largest customer,
also included in the industrial products segment, totaled approximately $34,620,
$30,733 and $26,769 in 1995, 1994 and 1993, respectively. The Company's accounts
receivable from these two customers were approximately $8,048 and $7,336 at June
30, 1995 and 1994, respectively.
3. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for approximately 48% and 46% of the
Company's inventories at June 30, 1995 and 1994, respectively, and by the
first-in, first-out (FIFO) method for all other inventories. The inventories are
summarized as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
JUNE 30,
1995 1994
-------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies . . . . . . . . . . . . $13,896 $13,350
Work in process. . . . . . . . . . . . . . . . . . 9,311 8,609
Finished goods . . . . . . . . . . . . . . . . . . 13,600 12,288
------- --------
36,807 34,247
Less LIFO reserve. . . . . . . . . . . . . . . . . (8,797) (8,595)
------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . $28,010 $25,652
------- --------
------- --------
-------------------------------------------------------------------------------
</TABLE>
The replacement cost of inventories at June 30, 1995 and 1994 approximates
FIFO value.
4. INVESTMENT IN UNCONSOLIDATED AFFILIATE
Elco and Nagoya Screw Manufacturing Co., Ltd. ("Nagoya") have a 50%
interest each in a joint venture known as Rocknel Fastener, Inc. ("Rocknel").
The following represents condensed financial information of Rocknel as of and
for the periods ended June 30, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
JUNE 30,
1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Current assets . . . . . . . . . . . . . . $ 5,139 $ 4,585 $ 3,374
Noncurrent assets. . . . . . . . . . . . . 7,096 6,480 7,083
------- ------- -------
Total assets . . . . . . . . . . . . . . . $12,235 $11,065 $10,457
------- ------- -------
------- ------- -------
Current liabilities. . . . . . . . . . . . $10,832 $10,350 $10,108
Noncurrent liabilities . . . . . . . . . . 65 25 36
Stockholders' equity . . . . . . . . . . . 1,338 690 313
------- ------- -------
Total liabilities and equity . . . . . . . $12,235 $11,065 $10,457
------- ------- -------
------- ------- -------
Net sales. . . . . . . . . . . . . . . . . $16,256 $12,198 $ 9,424
Costs and expenses . . . . . . . . . . . . 15,608 11,821 9,939
------- ------- -------
Net income (loss). . . . . . . . . . . . . $ 648 $ 377 $ (515)
------- ------- -------
------- ------- -------
-------------------------------------------------------------------------------
</TABLE>
Rocknel had $6,000 of unsecured lines of credit, $5,500 of which were
utilized at June 30, 1995. The lines require no compensating balances or
commitment fees. Elco and Nagoya are each contingently liable as guarantors of
50% of amounts used under $5,000 of the lines.
5. SHORT-TERM LINES OF CREDIT
At June 30, 1995, the Company had unused bank lines of credit permitting
borrowing at the banks' corporate base rate or at a fixed rate (at the option of
the Company) as defined in the agreements. The lines require no compensating
balances or commitment fees. The lines, generally reviewed annually for renewal,
are subject to the usual terms and conditons applied by the banks. Contingent
debt in the form of standby letters of credit have reduced the amount available
under one of the lines. The unused and uncommitted lines of credit totaled
$20,127 at June 30, 1995.
6. LONG-TERM DEBT
Long-term debt at June 30, 1995 and 1994 (exclusive of current maturities)
consisted of the following:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
JUNE 30,
1995 1994
-------------------------------------------------------------------------------
<S> <C> <C>
Notes payable to institutional investors:
10.04% due serially 1997-2001. . . . . . . . . . . . $22,800 $25,200
9.15% due 1997 . . . . . . . . . . . . . . . . . . . 1,000 3,000
Economic development revenue bonds . . . . . . . . . . 13,500 13,500
Other. . . . . . . . . . . . . . . . . . . . . . . . . 160
------- -------
$37,300 $41,860
------- -------
------- -------
-------------------------------------------------------------------------------
</TABLE>
Maturities of long-term debt outstanding at June 30, 1995, in aggregate
amounts, are as follows for years ended June 30: 1996, $4,560; 1997, $4,000;
1998, $4,100; 1999, $6,900; and 2000, $7,400.
At June 30, 1995, the Company had two interest rate swap agreements. One
agreement matures on April 16, 1997 and has a notional amount of $25,200. The
notional amount incrementally decreases to $21,600 by October 16, 1996. The
agreement, which effectively converts the fixed-rate debt into variable-rate
debt, is indexed to the six-month LIBOR rate. The counterparty to this agreement
is a major financial institution. The notional amount is used to measure the
volume of this agreement and does not represent exposure to credit loss. The
market risk is that the LIBOR rate, which is reset every six months, will exceed
the fixed rate of 5.93%. Payments due to or from the counterparty are payable at
the end of each six-month period. To limit its market risk, the Company entered
into two forward rate agreements which cap the LIBOR rate at 5.72% through April
1996 and 5.75% through October 1996. Payments due to or from the counterparty
are payable at the end of each six-month period.
Twenty-three
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
-------------------------------------------------------------------------------
The other agreement matures on November 2, 1996 and has a notional amount
of $7,000. The agreement, which effectively converts the fixed-rate debt into
variable-rate debt, is indexed to the six-month LIBOR rate. The counterparty to
this agreement is a major financial institution. The notional amount is used to
measure the volume of this agreement and does not represent exposure to credit
loss. The market risk is that the LIBOR rate, which is reset every six months,
will exceed the fixed rate of 4.28%.
Economic development revenue bonds include four issues by two
municipalities. Two issues have interest rates varying with maturity and average
5.2%. Those bonds, initially issued in 1988, were refunded in October 1993. The
other two issues have variable interest rates which were 4.2% and 4.1% at June
30, 1995. The bonds are collateralized by either certain property and equipment
with a book value of approximately $3,911 at June 30, 1995 or collateralized by
a letter of credit.
Interest expense on long-term debt, net of the effect of the interest rate
swap, was recorded at a weighted-average rate of approximately 8.4% and 6.8% at
June 30, 1995 and 1994, respectively.
The Company must meet certain debt covenants. Under the most restrictive
covenant, $6,274 of retained earnings at June 30, 1995 is not restricted as to
payments of dividends. The agreements include a change in control provision,
which may result in a prepayment penalty and all unpaid principal and interest
due immediately.
During December 1991, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about
Fair Value of Financial Instruments," which will require additional disclosures
regarding long-term debt and other financial instruments. The Company must adopt
SFAS No. 107 no later than June 30, 1996. Adoption of this statement will not
impact the carrying value of the Company's assets and liabilities.
7. RETIREMENT PLANS AND POSTRETIREMENT HEALTH CARE
The Company and its subsidiaries have defined benefit and defined
contribution pension plans covering substantially all employees. The Company
also has an unfunded retirement plan for certain key employees, which is being
provided for by charges to earnings sufficient to meet the benefit obligation.
Charges to consolidated income for retirement plans were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
YEARS ENDED JUNE 30,
1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plans. . . . . . . . . . . . $ 328 $ 306 $ 177
Defined contribution plans . . . . . . . . . 1,467 1,413 737
Employee Stock Ownership
Plan (ESOP) . . . . . . . . . . . . . . . 1,650 1,200 1,300
------ ------ ------
$3,445 $2,919 $2,214
------ ------ ------
------ ------ ------
-------------------------------------------------------------------------------
</TABLE>
Actuarially computed information on net defined benefit plan costs includes
the following components:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
YEARS ENDED JUNE 30,
1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned
during the period. . . . . . . . . . . . . $ 341 $412 $ 221
Interest cost on projected
benefit obligation . . . . . . . . . . . . 868 892 975
Actual return on assets. . . . . . . . . . . (1,991) (272) (1,442)
Net amortization and deferral. . . . . . . . 1,110 (726) 423
------ ------ ------
$ 328 $306 $ 177
------ ------ ------
------ ------ ------
Major assumptions:
Discount rate. . . . . . . . . . . . . . . 8.00% 7.25% 7.75%
Rate of increase in future
compensation . . . . . . . . . . . . . . . 5.00% 5.00% 6.00%
Expected long-term rate
of return . . . . . . . . . . . . . . . 8.00% 8.00% 8.50%
-------------------------------------------------------------------------------
</TABLE>
The following table sets forth the plans' funded status:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
JUNE 30, JUNE 30,
1995 1994
STATUS OF PLANS STATUS OF PLANS
------------------------ ------------------------
PLANS PLANS PLANS PLANS
WHERE WHERE WHERE WHERE
ASSETS BENEFITS ASSETS BENEFITS
EXCEED EXCEED EXCEED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation. . . . . . . . . . . . . . . . . . . $ 8,880 $ 841 $ 7,558 $ 847
------- ------- ------- -------
------- ------- ------- -------
Accumulated benefit
obligation . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,891 $ 2,046 $ 7,585 $ 1,860
------- ------- ------- -------
------- ------- ------- -------
Plan assets at fair value. . . . . . . . . . . . . . . . . . . . $12,210 $11,043
Projected benefit obligation . . . . . . . . . . . . . . . . . . 10,637 $ 2,046 8,861 $ 1,860
------- ------- ------- -------
Plan assets in excess of
(less than) projected
benefit obligation . . . . . . . . . . . . . . . . . . . . . . 1,573 (2,046) 2,182 (1,860)
Unrecognized net loss
(gain) due to changes
in assumptions . . . . . . . . . . . . . . . . . . . . . . . . 949 42 400 (51)
Unrecognized prior
service cost . . . . . . . . . . . . . . . . . . . . . . . . . 47 51
Unrecognized net assets
being recognized over
approximately 18 years . . . . . . . . . . . . . . . . . . . . (163) (3) (179) (5)
Minimum liability. . . . . . . . . . . . . . . . . . . . . . . . (39)
------- ------- ------- -------
Pension assets (liabilities) . . . . . . . . . . . . . . . . . . $ 2,406 $(2,046) $ 2,454 $(1,916)
------- ------- ------- -------
------- ------- ------- -------
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Contributions to defined contribution plans are prescribed in the plan
agreements and may include discretionary amounts as determined by the Board of
Directors.
Twenty-four
<PAGE>
-------------------------------------------------------------------------------
The Company has an Employee Stock Ownership Plan (ESOP) that is not
currently leveraged covering substantially all employees. Contributions may be
made in cash, newly issued stock or treasury stock. Cash contributions may be
used to purchase shares from the Company or on the open market, depending on the
Company's financing needs and the market price of its common shares.
The fiscal 1995 contributions were made using 77% stock and 23% cash. The
fiscal 1994 contributions were made using 50% cash and 50% stock. The fiscal
1993 contributions were made using 53% cash and 47% stock.
In addition to providing pension and other supplemental benefits, certain
health care benefits are provided for eligible retired employees. Employees
become eligible for these benefits if they meet minimum age and service
requirements, are eligible for retirement benefits and contribute a portion of
the cost. The accounting for the unfunded health care plan incorporates the
pattern of cost-sharing of changes to the existing plan. The plan benefits are
discretionary and are subject to modification or termination.
The following table sets forth the plan's obligation.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
June 30,
1995 1994
-------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees . . . . . . . . . . . . . . . . . . . . . . . . $1,513 $1,277
Fully eligible active plan participants. . . . . . . . . 17 31
Other active plan participants . . . . . . . . . . . . . 1,595 1,428
------ ------
Accumulated postretirement benefit obligation. . . . . . . $3,125 2,736
Unrecognized net loss from past
experience different from that assumed. . . . . . . . (561) (336)
------ ------
Total accumulated postretirement
benefit liability. . . . . . . . . . . . . . . . . . . . $2,564 $2,400
------ ------
------ ------
Current liabilities. . . . . . . . . . . . . . . . . . . . $1,450 $1,450
Other deferred liabilities . . . . . . . . . . . . . . . . 2,114 1,950
------ ------
Total liability. . . . . . . . . . . . . . . . . . . . . . $2,564 $2,400
------ ------
------ ------
</TABLE>
Postretirement benefit costs include the following components:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Years Ended June 30,
1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits attributed to service
during the period. . . . . . . . . . . . . . . . $192 $102 $172
Interest cost on accumulated
postretirement benefit obligation. . . . . . . . 215 200 176
Other. . . . . . . . . . . . . . . . . . . . . . . 1 4
---- ---- ----
Net periodic postretirement benefit cost . . . . . $308 $306 $248
---- ---- ----
---- ---- ----
</TABLE>
The discount rates used in determining the accumulated postretirement benefit
obligation were 7.25% and 8.0% for fiscal years 1995 and 1994, respectively. The
actuarial calculations for fiscal 1995, 1994 and 1993 assume an increase in the
health care cost trend rate of 10%, 10% and 11%, respectively. The assumed rate
decreases gradually to 5.5% in 2023 and remains constant beyond that point. A 1%
increase in the health care trend rate would increase the accumulated
postretirement benefit obligation by $136 at year end 1995 and the net periodic
cost by $9 for the year.
8. Leases
At June 30, 1995, minimum future lease payments on all noncancelable leases
are as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------
Operating
Years ending June 30: Leases
-------------------------------------------------------------
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . $2,664
1997 . . . . . . . . . . . . . . . . . . . . . . . 2,011
1998 . . . . . . . . . . . . . . . . . . . . . . . 936
1999 . . . . . . . . . . . . . . . . . . . . . . . 695
2000 . . . . . . . . . . . . . . . . . . . . . . . 528
Thereafter . . . . . . . . . . . . . . . . . . . . 1,896
------
$8,730
------
------
</TABLE>
Rental expense on operating leases for the years ended
June 30, 1995, 1994 and 1993 approximated $3,656, $3,328
and $3,267, respectively.
Certain leases require payments by the Company, as lessee, for insurance,
maintenance and property taxes.
9. PERFORMANCE AWARD PLAN
The Company has a long-term incentive plan under which key employees may be
granted a monetary target award. The awards are earned only to the extent that
the Company achieves predetermined performance goals during a three-year
performance period. Payment for awards earned is payable in cash or shares of
common stock, or a combination thereof, at the sole discretion of the Board of
Directors.
A maximum of 19,606 awards were earned in 1995 and were paid in August 1995 by
the issuance of 6,268 shares of common stock with the balance paid in cash, such
allocation determined by the Board of Directors.
A maximum of 14,189 awards were earned in 1994 and were paid by the issuance of
4,062 shares of common stock with the balance paid in cash, such allocation
determined by the Board of Directors.
There were no performance share awards earned in 1993.
Twenty-five
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
-------------------------------------------------------------------------------
At June 30, 1995, a maximum of 229,175 shares remained available for issuance
under the 1988 Performance Share Plan.
The Company recognizes compensation costs attributable to the plan on a basis
that spreads estimates of such costs over the performance period. Such costs
totaled $409, $382 and $150 in 1995, 1994 and 1993, respectively.
10. STOCK OPTIONS
Under the 1991 Stock Option Plan, a nonqualified plan, 175,000 shares of the
Company's common stock are reserved for issuance upon the exercise of options
granted. Options are not exercisable until five years after date of grant.
A summary of the option transactions follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
NUMBER OF SHARES
------------------------
YEARS ENDED JUNE 30,
1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, July 1. . . . . . . . . . . . . . . . 100,700 105,400 76,700
Granted. . . . . . . . . . . . . . . . . . . . . . 37,975 -0- 31,100
Exercised. . . . . . . . . . . . . . . . . . . . . -0- -0- -0-
Cancelled. . . . . . . . . . . . . . . . . . . . . (4,700) (4,700) (2,400)
-------- ------- -------
Outstanding, June 30 . . . . . . . . . . . . . . . 133,975 100,700 105,400
-------- ------- -------
-------- ------- -------
Exercisable, June 30 . . . . . . . . . . . . . . . 6,600 5,500 -0-0
-------- ------- -------
-------- ------- -------
</TABLE>
The outstanding options at June 30, 1995, 1994 and 1993 had an average
exercise price of $12.71, $10.91 and $10.91 per share, or $1,703, $1,099 and
$1,150 in total, respectively.
In October 1992, the Company adopted the 1992 Stock Option Plan for
Nonemployee Directors. Under the plan, 50,000 shares of the Company's common
stock are reserved for issuance to nonemployee directors upon the exercise of
options granted. Options are not exercisable until six months after the grant
date.
A summary of the directors' option transactions follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
NUMBER OF SHARES
----------------
YEARS ENDED JUNE 30,
1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, July 1. . . . . . . . . . . . . . . . 14,000 7,000 -0-
Granted. . . . . . . . . . . . . . . . . . . . . . 8,000 8,000 8,000
Exercised. . . . . . . . . . . . . . . . . . . . . -0- (1,000) (1,000)
Cancelled. . . . . . . . . . . . . . . . . . . . . (1,000) -0- -0-
-------- ------- -------
Outstanding, June 30 . . . . . . . . . . . . . . . 21,000 14,000 7,000
-------- ------- -------
-------- ------- -------
Exercisable. . . . . . . . . . . . . . . . . . . . 21,000 14,000 7,000
-------- ------- -------
-------- ------- -------
</TABLE>
The outstanding options at June 30, 1995, 1994 and 1993 had an average
exercise price of $15.45, $15.32 and $11.75 per share, respectively, or $324,
$214 and $82 in total, respectively.
11. DIRECTOR COMPENSATION PLAN
The Company has a plan that requires the payment of the annual retainer for
nonemployee directors under 60 years of age in common stock of the Company
rather than in cash. This plan also allows nonemployee directors over 60 years
of age the option of receiving the annual retainer in common stock rather than
cash. The directors' rights to the shares vest over five-year periods at the
rate of 20% per year. However, each director is entitled to receive dividends
and exercise voting rights with respect to all shares prior to vesting. Any
unvested shares are forfeited if the director ceases to be a director for any
reason other than death or disability.
12. STOCKHOLDER RIGHTS PLAN
During 1988, the Company adopted and amended a Stockholder Rights Plan and
issued common stock purchase rights at the rate of one right for each
outstanding share of common stock.
Each right will entitle stockholders, other than those held by person or group
that has acquired more than 20% of the Company's voting stock without board
approval, to buy one newly-issued share of common stock of the Company at an
exercise price of $40 or, in the alternative, allows the board (by vote of
disinterested directors) to exchange rights for shares of common stock. The
rights may be exercised or exchanged only if a person or group, without Elco
board approval, acquires beneficial ownership of more than 20% of the Company's
voting stock. The Company will generally be entitled to redeem the rights at
$.025 per right at anytime until 15 days following a public announcement that a
greater than 20% position has been acquired.
If the Company is involved in a merger or other business combination
transaction, without board approval, with any other person or group in which the
Company's common stock is changed or converted, or sells 50% or more of the
Company's assets or earning power to any other person or group, each right
entitles its holder to purchase, at the right's exercise price, shares of common
stock of such other person having a value of twice the right's then current
exercise price.
In addition, if without Elco board approval, any person or group becomes the
beneficial owner of more than 20% of the Company's voting stock, then each right
not owned by such other person or related parties entitles its holder to
purchase, at the right's then current exercise price, shares of common stock of
Elco with a market value of twice the right's then current exercise price.
Benefits under certain agreements with Company management are also effective
upon certain change of control events.
Twenty-six
<PAGE>
-------------------------------------------------------------------------------
In August 1989, the Company's Board of Directors approved an agreement with
Okabe Company Limited permitting Okabe to increase its ownership to not more
than 21% of the Company's outstanding shares provided that, for a period of 10
years, Okabe will limit its ownership to no more than 21%. Because the Company's
board approved this increase, Okabe's cumulative purchases of amounts of not
more than 21% will not trigger the Company's Stockholder Rights Plan.
On June 15, 1994, the Company purchased 135,000 shares of its common stock for
$2,498 from Okabe Company Limited pursuant to the terms of a share purchase
agreement dated as of June 7, 1994.
13. TAXES ON INCOME
Taxes on income differed from calculations at the U.S. Federal statutory rate
as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
YEARS ENDED JUNE 30,
1995 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate . . . . . . . $5,444 $4,630 $3,005
Add (deduct):
State income taxes, net of
Federal tax benefit . . . . . . . . . . . . . 788 796 547
Amortization of excess of cost over
net assets of businesses acquired . . . . . . 114 95 105
Reduction of previously established
accruals . . . . . . . . . . . . . . . . . . . . (386)
Other items, net . . . . . . . . . . . . . . . . . (124) (48) 55
-------- ------- -------
Total provision. . . . . . . . . . . . . . . . . . $5,836 $5,473 $3,712
-------- ------- -------
-------- ------- -------
-------------------------------------------------------------------------------
</TABLE>
Effective July 1, 1993, the Company adopted SFAS 109, "Accounting for Income
Taxes." The primary effect of adoption on the Company is that the balance sheet
classification of deferred taxes now corresponds to the related asset or
liability. Under the previous method, the balance sheet classification of
deferred taxes was based on when the temporary differences between financial
reporting and tax reporting were expected to reverse. The effect of the change
on net income was immaterial to the Company. Accordingly, no cumulative effect
adjustment for the adoption of SFAS 109 was required.
The components of the Company's net deferred tax liability as of June 30, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
JUNE 30,
1995 1994
-------------------------------------------------------------------------------
<S> <C> <C>
Taxable temporary differences:
Depreciation . . . . . . . . . . . . . . . . . . $ (9,234) $ (9,185)
Other. . . . . . . . . . . . . . . . . . . . . . (1,395) (1,117)
-------- ---------
Total taxable temporary differences . . . . . (10,629) (10,302)
Deductible temporary differences . . . . . . . . . 4,743 4,240
-------- ---------
Net deferred tax liability. . . . . . . . . . $ (5,886) $ (6,062)
-------- ---------
-------- ---------
-------------------------------------------------------------------------------
</TABLE>
For 1993, the provision for taxes payable in future years, arising from the
temporary differences between the financial statement and tax bases of assets
and liabilities, at the tax rates in effect when these differences are expected
to reverse, are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
YEAR ENDED JUNE 30,
1993
---------------------------------------------------------------------
<S> <C>
Depreciation . . . . . . . . . . . . . . . . . . . $(219)
Retirement and performance award plans . . . . . . (147)
Tax credit usage (carryforwards) . . . . . . . . . 693
Vacation pay . . . . . . . . . . . . . . . . . . . (52)
Inventory reserves . . . . . . . . . . . . . . . . (69)
Workers compensation/product
liability insurance. . . . . . . . . . . . . . . (84)
Accounts receivable reserves . . . . . . . . . . . (48)
Other items, net . . . . . . . . . . . . . . . . . 100
-----
Total. . . . . . . . . . . . . . . . . . . . . . . $ 174
-----
-----
</TABLE>
14. CONTINGENCIES
The Company is currently involved in matters of litigation arising from the
normal course of business, including certain environmental and product liability
matters. At June 30, 1995 and 1994, the Company had accruals of approximately
$1,500 and $1,100, respectively, related to such matters based on the Company's
current estimate of the most likely amount of losses that it believes will be
incurred. These amounts, which are expected to be paid over the next several
years, have been included in current and other deferred liabilities. The most
significant portion of this accrual relates to the following two paragraphs:
The Company, together with other parties, has been designated a "potentially
responsible party" (PRP) by the United States Environmental Protection Agency
(USEPA) with respect to the cost of investigation and cleanup of a third-party
site in Illinois. Certain removal and other interim remediations have been
completed and paid for by the PRPs. The Company's current accrual for this
matter is based on the percentage of costs incurred to date that have been
allocated to the Company and its estimate of the most likely future
investigation and cleanup costs. At June 30, 1995 and 1994, the Company had
separately recorded a receivable related to this matter of approximately $400
and $300, respectively, for the amount it believes is probable of recovery under
insurance contracts.
Twenty-seven
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
-------------------------------------------------------------------------------
The Company is also a third-party defendant in a federal enforcement action
brought by the USEPA against several other primary defendants. The Company's
accrual for this matter is based on a settlement offer proposed in July 1994.
Two complaints seeking class action status on behalf of stockholders of the
Company have been filed in the State Chancery Court in Delaware against the
Company and its directors alleging breach of fiduciary duties in their response
to an unsolicited offer to purchase the Company.
It is the opinion of management, after consultation with counsel, that
additional liabilities, if any, resulting from litigation matters are not
expected to have a material adverse effect on the financial condition of the
Company, although such matters could have a material effect on quarterly or
annual operating results when (or if) resolved in a future period.
In January 1994, the USEPA notified the Company that it is one of over 300
PRPs with respect to the old Southington Landfill Superfund Site in Southington,
Connecticut. Elco was identified as a successor to a company that allegedly used
the site. The USEPA has not yet selected a plan of remediation for the site. The
Company has insufficient information to determine its potential exposure in
connection with the site, when (or if) it will incur such costs and the ultimate
impact of the costs upon the Company's financial condition and results of
operations.
Included in Other Assets is the remaining balance of notes receivable from
Acme Rivet and Machine Corp. ("Acme"). The notes were written down approximately
$489 in 1995 and $1,150 in 1994 as the value of collateral underlying the notes
declined, primarily as a result of higher than anticipated environmental
remediation costs. Environmental cost estimates are based on information
provided by environmental consultants involved in the cleanup efforts and
reflect future cleanup costs.
Twenty-eight
<PAGE>
RESPONSIBILITY FOR FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
The management of Elco Industries, Inc. is responsible for the preparation
and integrity of the Company's financial statements. These financial statements
have been prepared in accordance with generally accepted accounting principles
and include the use of manage-ment's reasonable and prudent judgments and
estimates where necessary. All other financial data in this report have been
presented on a basis consistent with the information included in the financial
statements.
Elco maintains a system of internal accounting controls, policies and
procedures designed to provide reasonable assurance that its financial records
are materially accurate, that the assets of the Company are protected and that
the financial statements present fairly the financial position and results of
operations of the Company. The Company also maintains an internal auditing
function that evaluates the adequacy and effectiveness of such internal
accounting controls, policies and procedures.
Four directors of the Company, not members of management, serve as the
Audit Committee of the Board of Directors and meet periodically with the
independent and internal auditors and with management to review accounting,
auditing and financial reporting matters. The Audit Committee, the independent
auditors and the internal auditors have unrestricted access to one another.
The Company's independent auditors, Coopers & Lybrand L.L.P., audited the
financial statements prepared by the management of Elco Industries, Inc. Their
opinion on these statements is presented on the following page.
/s/ John C. Lutz /s/ August F. DeLuca
John C. Lutz August F. DeLuca
President Vice President - Finance
Chief Executive Officer Chief Financial Officer
Twenty-nine
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
-------------------------------------------------------------------------------
The Board of Directors
Elco Industries, Inc.
We have audited the accompanying consolidated balance sheets of Elco
Industries, Inc. and Subsidiaries as of June 30, 1995 and 1994, and the related
statements of consolidated income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Elco
Industries, Inc. and Subsidiaries as of June 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles.
Coopers & Lyband L.L.P.
Rockford, Illinois
August 18, 1995
Thirty
<PAGE>
QUARTERLY FINANCIAL DATA
(Dollars and shares in thousands, except per share amounts)
-------------------------------------------------------------------------------
ELCO INDUSTRIES, INC.
Selected unaudited quarterly financial information for the years ended June 30,
1995 and 1994 follows:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1995:
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $59,805 $58,906 $66,726 $63,817 $249,254
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 11,741 10,457 13,881 11,905 47,984
Income from operations . . . . . . . . . . . . . . . . . . 4,739 3,606 6,282 4,479 19,106
Income before equity in income of
unconsolidated affiliate. . . . . . . . . . . . . . . . 2,333 1,599 3,187 2,819 9,938
Equity in income of unconsolidated affiliate . . . . . . . 91 51 169 13 324
Net income . . . . . . . . . . . . . . . . . . . . . . . . 2,424 1,650 3,356 2,832 10,262
Net income per common share. . . . . . . . . . . . . . . . .50 .34 .68 .57 2.08
Dividends per common share . . . . . . . . . . . . . . . . .15 .15 .15 .15 .60
Average shares outstanding . . . . . . . . . . . . . . . . 4,886 4,923 4,950 4,975 4,933
1994:
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $52,877 $53,439 $57,692 $61,893 $225,901
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 10,813 9,772 10,992 11,066 42,643
Income from operations . . . . . . . . . . . . . . . . . . 4,092 3,588 4,417 4,472 16,569
Income before equity in income (loss) of
unconsolidated affiliate. . . . . . . . . . . . . . . . 1,944 1,636 2,145 2,315 8,040
Equity in income (loss) of
unconsolidated affiliate. . . . . . . . . . . . . . . . (19) 2 94 112 189
Net income . . . . . . . . . . . . . . . . . . . . . . . . 1,925 1,638 2,239 2,427 8,229
Net income per common share. . . . . . . . . . . . . . . . .39 .33 .45 .49 1.65
Dividends per common share . . . . . . . . . . . . . . . . .13 .13 .13 .13 .52
Average shares outstanding . . . . . . . . . . . . . . . . 4,980 4,983 4,984 4,963 4,977
</TABLE>
Thirty-one
<PAGE>
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
ELCO INDUSTRIES, INC. Compound Growth Rate
Years Ended June 30 5-Year 10-Year 1995 1994 1993 1992 1991
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales. . . . . . . . . . . . . . 10.6% 8.6% $ 249,254 $ 225,901 $ 199,179 $ 189,337 $ 156,391
Income from operations . . . . . . . 11.4% 5.5% 19,106 16,569 12,427 9,243 6,372
Net income (loss). . . . . . . . . . 16.3% 6.6% 10,262 8,229 4,869 (2,525) 195
Depreciation and
amortization . . . . . . . . . . . . 10.5% 11.2% 10,861 9,881 9,129 8,763 7,997
Additions to property, plant and
equipment. . . . . . . . . . . . . . .1% 6.0% 16,085 12,388 9,569 10,550 10,776
Average number of employees. . . . . 6.6% 5.1% 2,180 1,971 1,833 1,755 1,608
PER SHARE OF COMMON STOCK:
Net income (loss). . . . . . . . . . 15.5% 4.0% $ 2.08 $ 1.65 $ .98 $ (.52) $ .04
Dividends. . . . . . . . . . . . . . 2.9% 5.2% .60 .52 .52 .52 .52
Stockholders' equity . . . . . . . . 2.2% 4.5% 14.82 13.30 12.28 11.80 12.84
Average shares
outstanding. . . . . . . . . . . . . .6% 2.5% 4,933 4,977 4,956 4,876 4,850
Dividends paid . . . . . . . . . . . 3.5% 7.7% $ 2,960 $ 2,593 $ 2,576 $ 2,537 $ 2,523
BALANCE SHEET:
Current assets . . . . . . . . . . . 9.9% 5.3% $ 66,316 $ 64,814 $ 61,231 $ 53,938 $ 52,517
Current liabilities. . . . . . . . . 6.9% 10.2% 32,364 31,434 28,729 23,669 21,723
Working capital. . . . . . . . . . . 13.2% 2.2% 33,952 33,380 32,502 30,269 30,794
Property, plant and equipment-net. . 3.2% 7.8% 73,830 69,317 67,421 67,434 66,232
Total assets . . . . . . . . . . . . 4.2% 6.9% 156,968 151,464 147,189 142,911 147,866
Long-term debt . . . . . . . . . . . 5.8% 10.8% 37,300 41,860 46,290 49,995 52,975
Long-term lease obligations. . . . . -- -- -- -- 7 357 732
Stockholders' equity . . . . . . . . 2.7% 5.2% 73,735 64,966 61,151 58,115 62,287
SELECTED RATIOS:
Operating margin . . . . . . . . . . 7.7% 7.3% 6.2% 4.9% 4.1%
Return on sales. . . . . . . . . . . 4.1% 3.6% 2.4% (1.3%) .1%
Current ratio. . . . . . . . . . . . 2.0 to 1 2.1 to 1 2.1 to 1 2.3 to 1 2.4 to 1%
Return on beginning equity . . . . . 15.8% 13.5% 8.4% (4.1%) .3%
Return on beginning assets . . . . . 6.8% 5.6% 3.4% (1.7%) .1%
Thirty-two
<PAGE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
ELCO INDUSTRIES, INC.
Years Ended June 30 1990 1989 1988 1987 1986 1985
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales. . . . . . . . . . . . . . $ 150,706 $ 155,390 $ 140,526 $ 127,989 $ 125,668 $ 108,802
Income from operations . . . . . . . 11,144 14,016 13,795 11,607 10,861 11,151
Net income (loss). . . . . . . . . . 4,819 7,843 7,736 4,010 5,070 5,410
Depreciation and
amortization . . . . . . . . . . . . 6,586 5,683 5,152 4,760 4,615 3,741
Additions to property, plant and
equipment. . . . . . . . . . . . . . 15,966 13,302 9,433 8,747 11,048 8,979
Average number of employees. . . . . 1,585 1,574 1,514 1,558 1,545 1,325
PER SHARE OF COMMON STOCK:
Net income (loss). . . . . . . . . . $ 1.01 $ 1.65 $ 1.63 $ .85 $ 1.08 $ 1.41
Dividends. . . . . . . . . . . . . . .52 .48 .44 .42 .40 .36
Stockholders' equity . . . . . . . . 13.32 12.79 11.64 10.66 10.22 9.54
Average shares outstanding . . . . . 4,789 4,762 4,753 4,697 4,673 3,845
Dividends paid . . . . . . . . . . . $ 2,488 $ 2,289 $ 2,090 $ 1,974 $ 1,870 $ 1,408
BALANCE SHEET:
Current assets . . . . . . . . . . . $ 41,450 $ 49,768 $ 45,668 $ 40,202 $ 36,267 $ 39,554
Current liabilities. . . . . . . . . 23,147 19,140 16,998 15,032 12,797 12,290
Working capital. . . . . . . . . . . 18,303 30,628 28,670 25,170 23,470 27,264
Property, plant and equipment-net. . 63,025 53,765 46,437 42,289 38,607 34,964
Total assets . . . . . . . . . . . . 127,746 116,245 103,348 94,607 89,472 80,880
Long-term debt . . . . . . . . . . . 28,184 25,390 20,095 20,297 19,998 13,400
Long-term lease obligations. . . . . 1,032 1,341 1,642 1,945 2,264 5,580
Stockholders' equity . . . . . . . . 64,538 60,260 55,735 50,136 47,785 44,488
SELECTED RATIOS:
Operating margin . . . . . . . . . . 7.4% 9.0% 9.8% 9.1% 8.6% 10.2%
Return on sales. . . . . . . . . . . 3.2% 5.0% 5.5% 3.1% 4.0% 5.0%
Current ratio. . . . . . . . . . . . 1.8 to 1 2.6 to1 2.7 to 1 2.7 to 1 2.8 to 1 3.2 to 1
Return on beginning equity . . . . . 8.0% 14.1% 15.4% 8.4% 11.4% 16.6%
Return on beginning assets . . . . . 4.1% 7.6% 8.2% 4.5% 6.3% 8.6%
</TABLE>
NOTES TO ELEVEN-YEAR SUMMARY
Results for the year ended June 30, 1992 include the effects of adopting
Financial Accounting Standards Board Statement No. 106, "Employer's Accounting
for Postretirement Benefits Other Than Pensions."
Results for the year ended June 30, 1990 include the effects of adopting
Financial Accounting Standards Board Statement No. 96, "Accounting for Income
Taxes."
Results of operations, assets and liabilities of Thermoplastics, Inc.,
Anchor Wire Corporation and Bear-Kat Products are included since April 1985,
April 1986 and May 1991, respectively.
Results of operations, assets and liabilities of Acme Rivet and Machine
Corp. are included through divestiture in June 1986.
Thirty-three
<PAGE>
STOCK PRICES AND OTHER MARKET INFORMATION
-------------------------------------------------------------------------------
ELCO INDUSTRIES, INC.
The common stock of Elco Industries, Inc. is traded in the Over-The-Counter
market. It is included in the NASDAQ National Market System under the symbol
ELCN. The table below sets forth the high and low bid prices as reported by
NASDAQ and sets forth cash dividends paid per share of common stock.
As of September 5, 1995, Elco Industries, Inc. had approximately 680 record
holders of common stock. Included in this number are shares held in nominee or
street name.
Payment of dividends is subject to certain restrictions described in Note 6
of Notes to Consolidated Financial Statements. At June 30, 1995, approximately
$6,274 million of retained earnings is not subject to restrictions.
[Chart]
COMMON STOCK PRICE RANGE
<TABLE>
<CAPTION>
Quarter 1st 2nd 3rd 4th 1st 2nd 3rd 4th
1994 1995
Fiscal Year
<S> <C> <C> <C> <C> <C> <C> <C>
14.00 15.125 17.00 17.00 15.50 16.00 14.50 14.75
16.00 20.75 21.25 20.00 18.00 17.50 17.00 19.75
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994
-------------------------- -------------------------------
Quarter Ended HIGH LOW DIVIDEND HIGH LOW DIVIDEND
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
September 30 . . . . . . . . . 18 15-1/2 .15 16 14 $.13
December 31. . . . . . . . . . 17-1/2 16-1/2 .15 20-3/4 15-1/8 .13
March 31 . . . . . . . . . . . 17 14-1/2 .15 21-1/4 17 .13
June 30. . . . . . . . . . . . 19-3/4 14-3/4 .15 20 17 .13
--- ----
Total Dividend . . . . . . . . $.60 $.52
--- ----
--- ----
</TABLE>
Such over-the-counter market quotations reflect interdealer prices, without
retail markup, markdown or commission, and may not necessarily represent actual
transactions.
STOCKHOLDER INFORMATION
-------------------------------------------------------------------------------
CORPORATE HEADQUARTERS
Elco Industries, Inc.
1111 Samuelson Road
P.O. Box 7009
Rockford, Illinois 61125-7009
815/397-5151
PLANT LOCATIONS
ROCKFORD, ILLINOIS:
Construction Products Division
Elco Consumer Products Corp.
Subsidiary of Elco Industries, Inc.
Heat Treat and Plating Division
Precision Automotive Division
Precision Commercial Division
Tool Manufacturing Division
LOGANSPORT, INDIANA:
Precision Stamping Division
Coatings and Finishes Division
MISHAWAKA, INDIANA:
Thermoplastics, Inc.
Subsidiary of Elco Industries, Inc.
GOODLETTSVILLE, TENNESSEE:
Anchor Wire Corporation
of Tennessee
Subsidiary of Elco Industries, Inc.
STOCK LISTING
Elco Industries, Inc. common stock is traded over-the-counter and quoted on a
daily basis in the National Market System (NMS) by the National
Association of Securities Dealers Automated Quotation System (NASDAQ) using the
symbol ELCN.
INFORMATION CONTACT
August F. DeLuca
Vice President-Finance
Chief Financial Officer
Elco Industries, Inc.
1111 Samuelson Road
P.O. Box 7009
Rockford, Illinois 61125-7009
FORM 10-K
The financial statements and financial summary included in this report are an
integral part of the Company's 10-K filed with the Securities and Exchange
Commission. A copy of the Company's 10-K report will be furnished without charge
to interested parties. Written requests should be directed to:
August F. DeLuca
Vice President-Finance
Chief Financial Officer
Elco Industries, Inc.
1111 Samuelson Road
P.O. Box 7009
Rockford, Illinois 61125-7009
Exhibits will likewise be supplied upon payment of a
reasonable fee.
NOTICE OF ANNUAL MEETING
The annual meeting of stockholders will take place at
7:30 p.m. Central time, Friday, November 3, 1995, at the
University of Illinois College
of Medicine at Rockford,
1601 Parkview Avenue,
Rockford, Illinois.
TRANSFER AGENT/REGISTRAR
Harris Trust and Savings Bank
Chicago, Illinois
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Certified Public Accountants
Rockford, Illinois
Thirty-four
Exhibit 21
ELCO INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Subsidiaries of the Registrant
NAME OF CORPORATION STATE OF INCORPORATION
------------------------------------ ----------------------
Anchor Wire Corporation of Tennessee Tennessee
Elco Consumer Products Corp. Illinois
Thermoplastics, Inc. Indiana
Exhibit 23
ELCO INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
Consent of Independent Accountants
We consent to the incorporation by reference in the Prospectus of Elco
Industries, Inc. on Form S-8 (file number 33-11041) and in the prospectus's
relating to Elco Industries, Inc. 1991 Stock Option Plan Plan and 1992 Stock
Option Plan for Non-Employee Directors and the registration statement on
Form S-8 relating thereto (file number 33-54872) of our reports, dated
August 18, 1995, on our audits of the consolidated financial statements and
the financial statement schedules of Elco Industries, Inc. and Subsidiaries
as of June 30, 1995 and 1994 and for the years ended June 30, 1995, 1994, and
1993, which reports are included or incorporated by reference in this Annual
Report on Form 10-K.
Rockford, IL Coopers & Lybrand L.L.P.
September 19, 1994
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