U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1999
[ ] 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: 0-8328
DYNAMIC MATERIALS CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 84-0608431
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
551 ASPEN RIDGE DRIVE, LAFAYETTE 80026
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including Area Code (303) 665-5700
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.05 PAR VALUE
(TITLE OF CLASS)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 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 number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 2,828,577 SHARES OF COMMON
STOCK AS OF JULY 31,1999.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
ASSETS 1999 1998
----- ------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Accounts receivable, net of allowance for doubtful
accounts of $133,000 and $225,000, respectively $ 4,753,979 $ 4,832,658
Inventories 4,002,421 5,373,829
Prepaid expenses and other 230,014 214,776
Income tax receivable 1,195,409 499,932
Deferred tax asset 224,800 224,800
------------ ------------
Total current assets 10,406,623 11,145,995
------------ ------------
PROPERTY, PLANT AND EQUIPMENT 12,307,882 12,729,209
Less- Accumulated depreciation (3,951,930) (3,931,495)
------------ ------------
Property, plant and equipment-net 8,355,952 8,797,714
------------ ------------
CONSTRUCTION IN PROCESS 5,434,720 1,853,723
RESTRICTED CASH AND INVESTMENTS 2,260,374 5,048,981
RECEIVABLE FROM RELATED PARTY 318,882 280,000
INTANGIBLE ASSETS, net of accumulated amortization
of $626,871 and $459,759, respectively 5,440,749 5,607,861
OTHER ASSETS 415,986 467,304
------------ ------------
TOTAL ASSETS $ 32,633,286 $ 33,201,578
============ ============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
1
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC MATERIALS CORPORATION
CONDENSED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
------------------------------------ ----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Bank overdraft $ 801,706 $ 805,304
Accounts payable 1,412,878 2,348,090
Accrued expenses 1,578,218 1,734,282
Current maturities on long-term debt (see note 5) 16,850,000 1,148,924
Current portion of capital lease obligation 33,122 32,450
----------- -----------
Total current liabilities 20,675,924 6,069,050
LONG-TERM DEBT -- 14,306,818
CAPITAL LEASE OBLIGATION 18,983 38,299
DEFERRED TAX LIABILITY 158,500 158,500
----------- -----------
Total liabilities 20,853,407 20,572,667
----------- -----------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.05 par value;
4,000,000 shares authorized: no issued and
outstanding shares -- --
Common stock, $.05 par value; 15,000,000 shares
authorized; 2,828,577 and 2,798,391 shares
issued and outstanding, respectively 141,429 139,920
Additional paid-in capital 7,109,263 7,022,450
Deferred compensation (46,407) (54,845)
Retained earnings 4,575,594 5,521,386
----------- -----------
11,779,879 12,628,911
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $32,633,286 $33,201,578
=========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
2
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC MATERIALS CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
---- ----- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 7,737,924 $ 11,372,968 $ 17,444,185 $ 20,868,122
COST OF PRODUCTS SOLD 6,924,649 9,000,356 14,768,711 16,515,635
------------ ------------ ------------ ------------
Gross profit 813,275 2,372,612 2,675,474 4,352,487
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
General and administrative expenses 927,743 749,701 1,882,107 1,358,038
Selling expenses 388,733 478,123 783,185 1,000,623
New facility start up costs 143,735 -- 208,958 --
Plant closing costs 549,298 -- 549,298 --
Impairment of long-lived assets 188,079 -- 188,079 --
Costs related to sale of bonding
business 199,007 -- 199,007 --
------------ ------------ ------------ ------------
2,396,595 1,227,824 3,810,634 2,358,661
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS (1,583,320) 1,144,788 (1,135,160) 1,993,826
OTHER INCOME (EXPENSE):
Other income 1,583 5,482 8,315 5,482
Interest expense (217,172) (94,297) (426,749) (123,647)
Interest income 274 796 1,802 2,085
------------ ------------ ------------ ------------
Income (loss) before income
taxes (1,798,635) 1,056,769 (1,551,792) 1,877,746
INCOME TAX BENEFIT (EXPENSE) 708,000 (420,000) 606,000 (732,000)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (1,090,635) $ 636,769 $ (945,792) $ 1,145,746
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE
Basic $ (0.39) $ 0.23 $ (0.34) $ 0.41
============ ============ ============ ============
Diluted $ (0.39) $ 0.22 $ (0.34) $ 0.39
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic 2,817,891 2,796,636 2,815,685 2,766,149
============ ============ ============ ============
Diluted 2,817,891 2,932,188 2,815,685 2,901,232
============ ============ ============ ============
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC MATERIALS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
Additional
Common Stock Paid-In Deferred Retained
Shares Amount Capital Compensation Earnings
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances, December 31, 1998 2,798,391 $ 139,920 $ 7,022,450 $ (54,845) $ 5,521,386
Common stock issued for
stock option exercises 19,500 974 52,150 -- --
Amortization of deferred
compensation -- -- -- 8,438 --
Common stock issued in
connection with the
employee stock purchase
plan 10,686 535 34,663 -- --
Net loss -- -- -- -- (945,792)
--------- ----------- ----------- ----------- -----------
Balances, June 30, 1999 2,828,577 $ 141,429 $ 7,109,263 $ (46,407) $ 4,575,594
========= =========== =========== =========== ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC MATERIALS CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (945,792) $ 1,145,746
Adjustments to reconcile net income
to net cash from operating activities-
Depreciation 532,013 447,149
Amortization 167,110 69,281
Amortization of deferred compensation 8,438 --
Impairment of long-lived assets 188,079 --
Change in (excluding acquisitions)-
Accounts receivable, net 78,679 (1,594,629)
Inventories 1,371,408 417,603
Prepaid expenses and other (15,238) (185,041)
Income tax receivable (695,477) 258,294
Bank overdraft (3,598) 269,541
Accounts payable (935,212) (809,351)
Accrued expenses (156,064) (117,078)
----------- -----------
Net cash flows from operating activities (405,654) (98,485)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Release of restricted cash and investments 2,788,607 --
Cash paid in connection with the construction
of the new facility (3,580,997) --
Purchase of AMK assets -- (905,873)
Purchase of Spin Forge assets -- (2,348,589)
Acquisition of property, plant and equipment (278,328) (351,727)
Loan to related party (38,882) (280,000)
Change in other noncurrent assets 51,318 (96,462)
----------- -----------
Net cash flows from investing activities (1,058,282) (3,982,651)
----------- -----------
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
<TABLE>
<CAPTION>
DYNAMIC MATERIALS CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit, net 1,400,000 3,955,000
Payments on long-term debt (5,742) (52,785)
Payments on capital lease obligation (18,644) (12,831)
Net proceeds from issuance of common stock 88,322 137,943
---------- ----------
Net cash flows from financing activities 1,463,936 4,027,327
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS -- (53,809)
CASH AND CASH EQUIVALENTS, beginning of the period -- 53,809
---------- ----------
CASH AND CASH EQUIVALENTS, end of the period $ -- $ --
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest, net of amounts capitalized $ 283,191 $ 66,820
========== ==========
Income taxes $ 6,518 $ 344,587
========== ==========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
6
<PAGE>
DYNAMIC MATERIALS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The information included in the Condensed Financial Statements is unaudited but
includes all normal and recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the interim periods
presented. These Condensed Financial Statements should be read in conjunction
with the financial statements that are included in the Company's Annual Report
filed on Form 10-K for the year ended December 31, 1998.
Certain prior period amounts have been reclassified to conform to the current
year presentation.
2. NEW ACCOUNTING PRINCIPLE
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), which requires that companies recognize all
derivatives as either assets or liabilities in the balance sheet at fair value.
Under SFAS 133, accounting for changes in fair value of a derivative depends on
its intended use and designation. SFAS 133, as amended, is effective for fiscal
years beginning after June 15, 2000. The Company is currently assessing the
effect of this new standard.
3. INVENTORIES
This caption on the Condensed Balance Sheet includes the following:
June 30, December 31,
1999 1998
---- ----
Raw Materials $1,705,890 $1,534,800
Work-in-Process 2,127,817 3,614,485
Supplies 168,714 224,544
---------- ----------
$4,002,421 $5,373,829
========== ==========
4. CONSTRUCTION IN PROCESS
The construction in process balance of $5,434,720 represents costs incurred
through June 30, 1999 related to the construction of the Company's new
manufacturing facility and acquisition of related
7
<PAGE>
manufacturing equipment for the Company's explosive metalworking business.
Construction began in September 1998 and is expected to be completed during the
third quarter of 1999, at which time the assets placed in service will be
depreciated consistent with other similar assets of the Company. The project is
being financed using proceeds from the issuance of industrial development
revenue bonds (the "Bonds") . The Company is capitalizing the interest expense
related to the Bonds net of the interest earned on the investments purchased
with the excess proceeds. The portion of the borrowings on the bonds not yet
expended for construction was $2,260,374 (which includes accrued interest) as of
June 30, 1999 and was classified as restricted cash and investments
(non-current) in the accompanying balance sheet. The proceeds are held by a
trustee until qualified expenditures are made and reimbursed to the Company.
5. LONG-TERM DEBT
Long-term debt consists of the following at June 30, 1999 and December 31, 1998:
June 30, December, 31
1999 1998
---- ----
Lines of credit $ 10,000,000 $ 8,600,000
Industrial development
revenue bonds 6,850,000 6,850,000
Notes payable to financial
institution -- 5,742
------------ ------------
Total long-term debt 16,850,000 15,455,742
Less current maturities (16,850,000) (1,148,924)
------------ ------------
$ -- $ 14,306,818
============ ============
As a result of the operating loss incurred by the Company during the three
months ended June 30, 1999, the Company violated certain financial covenants
under both its amended and restated credit facility with its bank and its
reimbursement agreement relating to the bank's letter of credit that supports
payment of principal and interest under the industrial development revenue
bonds. The Company has received a waiver letter from its bank that waives
compliance with these covenant requirements until September 30, 1999. Since the
waiver extends only through September 30, 1999 and covenant violations are
likely to continue beyond this date, generally accepted accounting principles
require that the entire amount of the subject debt be classified as a current
liability. The Company believes that proceeds from the pending sale of certain
assets of the Explosive Metalworking Group (see note 8) will enable the Company
to fully retire the bonds and repay the majority of these debt obligations by
the end of 1999. After the sale closes, the Company expects to negotiate a new
credit facility with its bank.
6. BUSINESS SEGMENTS
The Company is organized in the following two segments: the Explosive
Metalworking Group and the Aerospace Group. The Explosive Metalworking Group
uses explosives to perform metal cladding, metal forming and shock synthesis.
The most significant product of this group is clad metal which is used in the
fabrication of pressure vessels, heat exchangers and transition joints used in
the hydrocarbon processing, chemical processing, power generation,
petrochemical, pulp and paper, mining, shipbuilding and heat, ventilation and
air conditioning industries. The Aerospace Group machines, forms and welds parts
for the commercial aircraft, aerospace and defense industries.
8
<PAGE>
The accounting policies of both segments are the same as those described in the
summary of significant accounting policies.
The Company's reportable segments are strategic business units that offer
different products and services and are separately managed. Each segment is
marketed to different customer types and requires different manufacturing
processes and technologies. Segment information is presented for the three and
six months ended June 30, 1999 and 1998 as follows:
<TABLE>
<CAPTION>
Explosive
Metalworking Aerospace Total
------------ ----------- -----------
<S> <C> <C> <C>
For the three months ended June 30, 1999:
Net sales $ 4,529,853 $ 3,208,071 $ 7,737,924
=========== =========== ===========
Depreciation and amortization $ 198,897 $ 176,237 $ 375,134
=========== =========== ===========
Income (loss) from operations $(1,853,809) $ 270,489 $(1,583,320)
Unallocated amounts:
Other income 1,583
Interest expense (217,172)
Interest income 274
-----------
Consolidated loss before income tax provision $(1,798,635)
===========
Explosive
Metalworking Aerospace Total
------------ ----------- -----------
For the three months ended June 30, 1998:
Net sales $ 9,010,723 $ 2,362,245 $11,362,968
=========== =========== ===========
Depreciation and amortization $ 207,951 $ 81,162 $ 289,113
=========== =========== ===========
Income from operations $ 913,446 $ 231,342 $ 1,144,788
Unallocated amounts:
Other income 5,482
Interest expense (94,297)
Interest income 796
-----------
Consolidated income before income tax provision $ 1,056,769
===========
Explosive
Metalworking Aerospace Total
------------ ----------- -----------
For the six months ended June 30, 1999:
Net sales $10,895,341 $ 6,548,844 $17,444,185
=========== =========== ===========
Depreciation and amortization $ 364,424 $ 350,134 $ 714,558
=========== =========== ===========
9
<PAGE>
Income (loss) from operations $(1,818,824) $ 683,664 $(1,135,160)
Unallocated amounts:
Other income 8,315
Interest expense (426,749)
Interest income 1,802
-----------
Consolidated loss before income tax provision $(1,551,792)
===========
Explosive
Metalworking Aerospace Total
------------ ----------- -----------
For the six months ended June 30, 1998:
Net sales $17,706,516 $ 3,161,606 $20,868,122
=========== =========== ===========
Depreciation and amortization $ 407,360 $ 109,070 $ 516,430
=========== =========== ===========
Income from operations $ 1,515,632 $ 478,194 $ 1,993,826
Unallocated amounts:
Other income 5,482
Interest expense (123,647)
Interest income 2,085
-----------
Consolidated income before income tax provision $ 1,877,746
===========
</TABLE>
All of the Company's sales are shipped from domestic locations and all of the
Company's assets are located within the United States. The following represents
the Company's net sales based on the geographic location of the customer:
<TABLE>
<CAPTION>
For the three months ended June 30,
1999 1998
---- ----
----------- -----------
<S> <C> <C>
United States $ 7,303,003 $ 8,969,497
Canada 351,441 2,038,684
Australia 36,800 31,777
Other foreign countries 46,680 333,010
----------- -----------
Total consolidated net sales $ 7,737,924 $11,372,968
=========== ===========
For the six months ended June 30,
1999 1998
---- ----
----------- -----------
United States $16,068,278 $16,601,843
Canada 1,031,191 2,720,569
Australia 149,626 --
Other foreign countries 195,090 1,545,710
----------- -----------
Total consolidated net sales $17,444,185 $20,868,122
=========== ==========
</TABLE>
10
<PAGE>
During the three months and six months ended June 30, 1999, one customer
accounted for 13% and 14% of net sales, respectively. During the three months
and six months ended June 30, 1998, no one customer accounted for more than 10%
of net sales.
7. PLANT CLOSING/ IMPAIRMENT OF LONG-LIVED ASSETS
On April 22, 1999, the Company announced that it would be closing its
Louisville, Colorado-based explosion bonded clad metal plate manufacturing
facility in the third quarter of 1999 and consolidating all of its Explosive
Metalworking Group operations into the new Pennsylvania-based clad plate
manufacturing facility. The Company recorded non-recurring charges of $549,298
in the second quarter of 1999 to cover costs associated with this plant closing.
Plant closing costs include severance pay to terminated employees, outplacement
service fees and certain expenses to be incurred in connection with final plant
shutdown, clean-up and site reclamation work subsequent to the discontinuation
of manufacturing activities at this facility in July.
In connection with the plant closing discussed above, the Company identified
certain long-lived assets associated with its Colorado manufacturing operations
that will be abandoned and have negligible fair market values. Accordingly, the
Company recorded asset impairment write-downs of $188,079 during the second
quarter of 1999. The impaired assets, which after the write-down have no
carrying value, will be disposed of in the third and fourth quarters of 1999.
The Company also identified certain inventory that was determined to have little
value as a result of the plant closing. This inventory, which totaled
approximately $108,000, was consequently written off in the second quarter of
1999. This charge is included in cost of products sold.
8. DIVESTITURE OF EXPLOSIVE METALWORKING BUSINESS SEGMENT
On June 23, 1999, the Company announced that it had entered into an agreement to
sell certain assets relating to its Explosive Metalworking Group to AMETEK,
Inc. ("AMETEK") for approximately $17 million. The closing of the transaction is
expected to occur in the third or fourth quarter of 1999, pending the
satisfaction of certain conditions. The sale will enable DMC to focus its
business strategy on consolidating suppliers in the aerospace manufacturing
industry through the acquisition of complementary businesses. Upon the closing
of this sale, the Company's Explosive Metalworking business segment will be
discontinued.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Financial Statements included elsewhere within this quarterly report.
Fluctuations in annual and quarterly operating results may occur as a result of
certain factors such as the size and timing of customer orders and competition.
Due to such fluctuations, historical results and percentage relationships are
not necessarily indicative of the results for any future period. Statements
which are not historical facts contained in this report are forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from projected results. Factors that could cause actual
results to differ materially include, but are not limited to the following: the
proposed sale of certain assets of the Company's Explosive Metalworking Group,
the ability to obtain new contracts at attractive prices; the size and timing of
customer orders; fluctuations in customer demand; competitive factors; the
timely completion of contracts; construction-related delays and associated
costs; the timing and size of expenditures; the timely receipt of government
approvals and permits; the adequacy of local labor supplies at the Company's
facilities; the availability and cost of funds; and general economic conditions,
both domestically and abroad. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's analysis only as
of the date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements which may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. The Company further directs readers to the
factors discussed in the Company's Form 10-K for the year ended December 31,
1998.
GENERAL
Dynamic Materials Corporation ("DMC" or the "Company") is a worldwide leader in
the high energy metal working business. The high energy metal working business
includes the use of explosives to perform both metallurgical bonding, or metal
"cladding," and metal forming. The Company performs metal cladding using its
proprietary Dynaclad( and Detaclad(R) technologies. The Explosive Metalworking
Group comprised a substantial portion of the Company's business until 1998 when
the Company formed its Aerospace Group as a result of the acquisition of AMK
Welding, Inc. ("AMK"), Spin Forge, LLC ("Spin Forge") and Precision Machined
Products, Inc. ("PMP"). The revenues from the Aerospace Group accounted for 22%
of the Company's revenues and 51% of the Company's operating income for the year
ended December 31, 1998. The proportion of revenues accounted for by the
Aerospace Group for the quarter and six months ended June 30, 1999 was 41% and
38%, respectively, compared to 21% and 15% for the comparable periods of 1998.
On June 23, 1999, the Company announced that it had entered into an agreement to
sell certain assets relating to its Explosive Metalworking Group to AMETEK for
approximately $17 million. The closing of the transaction is expected to occur
in the third or fourth quarter of 1999, pending the satisfaction of certain
conditions. The sale will enable DMC to focus its business strategy on
consolidating suppliers in the aerospace manufacturing industry through the
acquisition of complementary businesses. Upon the closing of this sale, the
Company's Explosive Metalworking business segment will be discontinued.
EXPLOSIVE METALWORKING GROUP. Clad metal products are used in
manufacturing processes or environments which involve highly corrosive
chemicals, high temperatures and/or high pressure conditions. For example, the
Company fabricates clad metal tube sheets for heat exchangers. Heat exchangers
are used in a variety of high temperature, high pressure, highly corrosive
chemical processes, such as processing crude oil in the petrochemical industry
and processing chemicals used in
12
<PAGE>
the manufacture of synthetic fibers. In addition, the Company has produced
titanium clad plates used in the fabrication of metal autoclaves to replace
autoclaves made of brick and lead for two customers in the mining industry. The
Company believes that its clad metal products are an economical,
high-performance alternative to the use of solid corrosion-resistant alloys. In
addition to clad metal products, the explosive metalworking business includes
shock synthesis of synthetic diamonds and, through the first half of 1999,
included explosive forming of metal parts. Concurrent with the closing of its
Colorado explosive metalworking manufacturing facility in July, the Company
discontinued its explosive forming manufacturing activities.
AEROSPACE GROUP. Formed metal products are made from sheet metal and
forgings that are subsequently formed into precise, three-dimensional shapes
that are held to tight tolerances. Metal forming is accomplished through
traditional forming technologies, including spinning, machining, rolling and
hydraulic expansion. DMC also performs welding services utilizing a variety of
manual and automatic welding techniques that include electron beam and gas
tungsten arc welding processes. The Company's forming and welding operations are
often performed to support the manufacture of completed assemblies and
sub-assemblies required by its customers. Assembly and fabrication services are
performed utilizing the Company's close-tolerance machining, forming, welding,
inspection and other special service capabilities. The Company's forming,
machining, welding and assembly operations serve a variety of product
applications in the commercial aircraft, aerospace, defense and power generation
industries.
STRATEGY. The Company is continually working to generate solutions to
the materials needs of customers in its target markets. Key elements of the
Company's strategy include continual improvement of its basic processes and
product offerings and the acquisition of businesses that broaden or complement
the Company's existing product lines. The Company completed three separate
acquisitions during 1998. In January 1998, the Company completed its acquisition
of AMK, a supplier of commercial aircraft and aerospace-related automatic and
manual gas tungsten and arc welding services. The Company completed its
acquisition of Spin Forge, one of the country's leading manufacturers of
tactical missile motor cases and titanium pressure vessels for commercial
aerospace and defense industries, in March 1998. In December 1998, the Company
completed its acquisition of PMP, a contract machining shop specializing in high
precision, high quality, complex machined parts used in the aerospace,
satellite, medical equipment and high technology industries.
RISKS. The Company has experienced and expects to continue to
experience, quarterly fluctuations in operating results caused by various
factors, including the changes related to the recent closing of the Company's
Colorado manfuacuring facility, timing and size of orders from major customers,
worldwide industry demand, customer inventory levels, shifts in product mix, the
occurrence of acquisition-related costs and general economic conditions. In
addition, the Company typically does not obtain long-term volume purchase
contracts from its customers. Quarterly sales and operating results therefore
depend on the volume and timing of backlog as well as bookings received during
the quarter. A significant portion of the Company's operating expenses are
fixed, and planned expenditures are based primarily on sales forecasts and
product development programs. If sales do not meet the Company's expectations in
any given period, the adverse impact on operating results may be magnified by
the Company's inability to adjust operating expenses sufficiently or quickly
enough to compensate for such a shortfall. In addition, the Company uses
numerous suppliers of alloys, steels and other materials for its operations. The
Company typically bears a short-term risk of alloy, steel and other component
price increases, which could adversely affect the Company's gross profit
margins. Although the Company will work with customers and suppliers to minimize
the impact of any component shortages, component shortages have had, and are
expected from time to time to have, short-term adverse effects on the Company's
business. Results of operations in any period should not be considered
indicative of
13
<PAGE>
the results to be expected for any future period. Fluctuations in operating
results may also result in fluctuations in the price of the Company's Common
Stock.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of many computer programs being written such
that they will malfunction when reading a year of "00." This problem could cause
system failure or miscalculations causing disruptions of business processes. For
the past year and a half, the Company has pursued a two-prong approach to the
Year 2000 issue.
The first prong has and continues to involve an internal evaluation of the
Company's computer systems. The Company has completed a risk assessment to
identify Year 2000 priorities by analyzing and determining whether the Year 2000
related risks were low, medium or high and whether the business impact would be
marginal, manageable, critical or fatal for each system and device that may be
affected by the Year 2000 issue. Based on this risk assessment, the Company
determined that its first priority would be evaluating its MRP software. The
Company found this software to be Year 2000 compliant as certified by the vendor
and through internal testing. The Company continued this procedure for each of
the areas identified during its risk assessment as follows. The Company's
hardware was tested by advancing dates and checking for power-off date changes
and power-on date changes as well as software and hardware operation at the
advanced dates. Based upon those tests the Company believes its hardware to be
Year 2000 compliant. The Company's network operating system became Year 2000
compliant with the installation of a patch from the vendor in January 1999. The
Company expects that its desktop applications will be Year 2000 compliant before
the end of the third quarter of 1999 with the announced patches that are
forthcoming from various vendors. Finally, the Company has determined through
testing that its various computer controlled manufacturing equipment is either
Year 2000 compliant or will not have any adverse effects on manufacturing
processes in the Year 2000.
The second prong of the Company's approach, which the Company began to emphasize
in the second and third quarter of 1998 and expects to complete before the end
of the third quarter of 1999, is an integrated process of working with suppliers
and customers to ensure that the flow of goods, services or payments will not be
interrupted because of Year 2000 issues. To achieve this, the Company has been
working to implement mechanical or manual workarounds even if Year 2000 problems
arise. In many cases, such workarounds are already in place. Additionally, the
Company is requesting that its suppliers and customers include language in their
material subcontractor and consulting agreements that request these third
parties to be "internally" Year 2000 capable.
However, there can be no assurance that the failure of the Company's suppliers
and customers to be Year 2000 compliant would not have a material adverse effect
on the Company's business, financial condition or results of operations. In
addition, the Company may be adversely affected by disruptions in the operations
of other companies with which the Company does business, from general widespread
problems or an economic crisis resulting from non-compliant Year 2000 systems.
The Company has not incurred any material historical Year 2000 costs to date.
Management expects future incremental Year 2000 project costs to be minimal
since all Year 2000 compliance work is expected to be performed by Company
employees. Management expects, but makes no assurance that,
14
<PAGE>
future Year 2000 project costs will not have a material adverse effect on its
financial condition and results of operations.
The Company has not yet formulated contingency plans in the event that systems
are not Year 2000 compliant. While management does not believe there to be
significant Year 2000 risks for the Company, manual workarounds will be
developed as part of the Company's Year 2000 compliance program.
15
<PAGE>
Quarter Ended June 30, 1999 Compared to June 30, 1998
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain income statement data:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Products Sold 89.5% 79.1% 84.7% 79.1%
----- ----- ----- -----
Gross Margin 10.5% 20.9% 15.3% 20.9%
General & Administrative 12.0% 6.6% 10.8% 6.5%
Selling Expenses 5.0% 4.2% 4.5% 4.8%
New Facility Start-up Costs 1.9% -- 1.2% --
Plant Closing Costs 7.1% -- 3.1% --
Asset Impairments 2.4% -- 1.1% --
Costs related to sale of
bonding business 2.6% -- 1.1% --
Income (Loss) from Operations -20.5% 10.1% -6.5% 9.6%
Interest Expense 2.8% 0.8% 2.4% 0.6%
Income Tax (Expense) Benefit 9.2% -3.7% 3.5% -3.5%
Net Income (Loss) -14.1% 5.6% -5.4% 5.5%
</TABLE>
NET SALES. Net sales for the quarter ended June 30, 1999 decreased 32.0% to
$7,737,924 from $11,372,968 in the second quarter of 1998. The Company's
Aerospace Group, which was formed in 1998 as a result of the acquisitions of
AMK, Spin Forge and PMP, contributed $3,208,070 (41.5% of total sales) to second
quarter 1999 sales versus sales of $2,362,245 (20.8% of total sales) in the
second quarter of 1998. Sales by the Company's Explosive Metalworking Group,
which includes explosion bonding of clad metal, explosively formed metal
products and shock synthesis of synthetic diamonds, decreased 49.7% from
$9,010,723 in the second quarter of 1998 to $4,529,854 in the second quarter of
1999. For the six months ended June 30, 1999, net sales decreased 16.4% to
$17,444,185 from $20,868,122 for the comparable period of 1998. Aerospace Group
sales for the six months ended June 30, 1999 totaled $6,548,844 (37.5% of total
sales), an increase of 107% from sales of $3,161,606 (15.1% of total sales)
reported for the comparable period of 1998. These increases were largely due to
the December 1, 1998 acquisition of PMP whose results are included in the
Aerospace Group's sales and operating income calculations for 1999 but not 1998.
Sales by the Explosive Metalworking Group for the comparable six-month period
decreased by 38.5% from $17,706,516 in 1998 to $10,895,342 in 1999. The
decreases in Explosive Metalworking Group sales for both the three-month and
six-month periods reflect what management believes is a temporary slowdown in
global market demand for explosion bonded clad metal plate that is expected to
continue for at least the remainder of 1999.
GROSS PROFIT. As a result of the sharp decline in the Company's net sales, gross
profit for the quarter ended June 30, 1999 decreased by 65.9% to $813,275 from
$2,372,612 in the second quarter of 1998. The gross profit margin for the
quarter ended June 30, 1999 was 10.5%, representing a 50% decline from the gross
profit margin of 20.9% for the second quarter of 1998. For the six months ended
June 30,
16
<PAGE>
1999, gross profit decreased 38.5% to $2,675,474 from $4,352,487 in the
comparable period of 1998. The gross profit margin for the six months ended June
30, 1999 was 15.3%, representing a 26.8% decline from the gross profit margin of
20.9% for the first six months of 1998. The gross profit margin for the
Company's Explosive Metalworking Group decreased from 20.6% in the second
quarter of 1998 to a negative gross margin of 0.3% in the second quarter of
1999. For the comparable six-month periods, Explosive Metalworking gross margins
decreased from 20.0% in 1998 to 7.8% in 1999. The significant decrease in gross
profit margins for the Explosive Metalworking Group are due to unfavorable fixed
manufacturing overhead cost variances associated with the sharp declines in
production and sales of clad plate and a significant reduction in sales of
higher margin explosively formed products. Concurrently with the closing of its
Colorado manufacturing facility in July 1999, the Company discontinued its
explosive forming manufacturing activities. The gross profit margin for the
Aerospace Group was 25.8% for the quarter ended June 30, 1999 as compared to
22.4% in the second quarter of 1998. For the comparable six-month periods,
Aerospace Group gross margins increased from 26.5% in 1998 to 27.9% in 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the quarter
ended June 30, 1999 increased 23.7% to $927,743 from $749,701 in the second
quarter of 1998. This increase of $178,042 reflects an increase of $143,135 in
direct general and administrative expenses of the Company's Aerospace Group. For
the six months ended June 30, 1999, general and administrative expenses
increased 38.6% to $1,882,107 from $1,358,038 in the comparable period of 1998.
The increase of $524,069 for the six-month period includes a $464,152 increase
in direct Aerospace Group general and administrative expenses. The increases in
direct general and administrative expenses of the Aerospace Group relate to the
timing of the 1998 acquisitions of AMK, Spin Forge and PMP which were completed
on January 5, March 18 and December 1, 1998, respectively. As a percentage of
net sales, general and administrative expenses increased from 6.6% in the second
quarter of 1998 to 12.0% for the quarter ended June 30, 1999 and from 6.5% to
10.8% for the comparable six- month periods. These increased percentages are
largely attributable to the significant decrease in sales by the Explosive
Metalworking Group.
SELLING EXPENSE. Selling expenses decreased by 18.7% to $388,733 for the quarter
ended June 30, 1999 from $478,123 in the second quarter of 1998. For the six
months ended June 30, 1999, selling expenses decreased 21.7% to $783,185 from
$1,000,623 in the comparable period of 1998. These decreases reflect lower
expense levels in a number of categories, including compensation and benefits,
advertising and promotion, reserves for bad debts and travel and entertainment
expenses. Selling expenses as a percentage of net sales increased from 4.2% in
the second quarter of 1998 to 5.0% for the quarter ended June 30, 1999, and
decreased from 4.8% for the six months ended June 30, 1998 to 4.5% for the
comparable period of 1999.
START-UP COSTS. Starting in the third quarter of 1998, the Company began to
separately report the start-up costs associated with the construction of the new
facility in Pennsylvania. Start-up costs for the quarter and six months ended
June 30, 1999 totaled $143,735 and $208,958, respectively, and include salaries,
benefits and travel expenses for Company employees assigned to this project,
field office expenses and other operating expenses directly associated with this
project. The Company will continue to incur and separately report start-up costs
until the new facility commences operations during the third quarter of 1999.
PLANT CLOSING COSTS. On April 23, 1999, the Company announced that it would be
closing its Louisville, Colorado-based explosive metalworking manufacturing
facility in the third quarter of 1999 and consolidating all of its Explosive
Metalworking Group operations into the new Pennsylvania-based explosive
metalworking manufacturing facility. The Company recorded non-recurring charges
of
17
<PAGE>
$549,298 in the second quarter of 1999 to cover costs associated with this plant
closing. Plant closing costs include severance pay to terminated employees,
outplacement service fees and certain expenses to be incurred in connection with
final plant shutdown, clean-up and site reclamation work subsequent to the
discontinuation of manufacturing activities at this facility in July.
IMPAIRMENT OF LONG-LIVED ASSETS. In connection with the plant closing discussed
above, the Company identified certain long-lived assets associated with its
Colorado manufacturing operations that will be abandoned and have negligible
fair market values. Accordingly, the Company recorded asset impairment
write-downs in the amount of $188,079 during the second quarter of 1999.
The Company also identified certain inventory that was determined to have little
value as a result of the plant closing. This inventory, which totaled
approximately $108,000, was consequently written off in the second quarter of
1999. This charge is included in cost of products sold.
COSTS RELATED TO SALE OF EXPLOSIVE METALWORKING GROUP. On June 23, 1999, the
Company announced that it had entered into an agreement to sell certain assets
relating to its Explosive Metalworking Group to AMETEK for approximately $17
million. The closing of the transaction is expected to occur in the third or
fourth quarter of 1999, pending the satisfaction of certain conditions. The sale
will enable DMC to focus its business strategy on consolidating suppliers in the
aerospace manufacturing industry through the acquisition of complementary
businesses. Upon the closing of this sale, the Company's Explosive Metalworking
business segment will be discontinued. In connection with the pending sale of
the Company's Explosive Metalworking Group, the Company recorded expenses of
$199,007 for both the three and six months ended June 30, 1999. These expenses
relate principally to investment banking, legal and other third party fees
associated with the pending sales transaction and will continue to be incurred
by the Company until the expected closing of the sale in the third or fourth
quarter of 1999.
INCOME (LOSS) FROM OPERATIONS. For the second quarter ended June 30, 1999, the
Company reported a $1,583,320 loss from operations compared to income from
operations of $1,144,788 for the second quarter of 1998. This decrease is a
result of the 32% decrease in net sales in the second quarter ended June 30,
1999 as compared to the comparable quarter in 1998 and non-recurring charges
incurred in the second quarter of 1999 in the aggregate amount of $1,080,119
associated with plant closing costs, new facility start-up costs, asset
impairment write-downs and expenses incurred in connection with the pending sale
of the Company's Explosive Metalworking Group. For the six months ended June 30,
1999, the Company reported an operating loss of $1,135,160 compared to income
from operations of $1,993,826 in the comparable period of 1998. This decrease is
a result of the 16.4% decrease in sales for the six month period and
non-recurring charges in the aggregate amount of $1,145,342 associated with
plant closing costs, new facility start-up costs, asset impairment write-downs
and expenses incurred in connection with the pending sale of the Company's
Explosive Metalworking Group. For the quarter and six months ended June 30,
1999, the Company's Aerospace Group reported income from operations of $270,489
and $683,664, respectively, as compared to $231,342 and $478,194 for the
respective comparable periods of 1998. For the quarter and six months ended
June 30, 1999, the Company's Explosive Metalworking Group reported a loss from
operations of $1,853,809 and $1,818,824, respectively, as compared to income
from operations of $913,446 and $1,516,632 for the respective comparable periods
of 1998.
INTEREST EXPENSE. Interest expense increased to $217,172 for the quarter ended
June 30, 1999 from $94,297 in the second quarter of 1998. For the six months
ended June 30, 1999, interest expense increased to $426,749 from $123,647 in the
comparable period of 1998. These increases are principally due to borrowings
under the Company's revolving line of credit with with the Company's financial
institutions that were required to finance the AMK, Spin Forge and PMP
acquisitions.
INCOME TAX BENEFIT (EXPENSE). Due to losses before income taxes and the ability
to carry-back losses to prior years in which the Company generated taxable
income, the Company recorded tax benefits of $708,000 and $606,000 for the
quarter and six months ended June 30, 1999. For the comparable periods of 1998,
the Company recorded income tax expense of $420,000 and $732,000,
18
<PAGE>
respectively. For the quarter and six months ended June 30, 1999, the effective
tax rate was 39.4% and 39.1%, respectively, as compared to 39.7% and 39.0% for
the comparable 1998 periods.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has secured the major portion of its operational
financing from operating activities and an asset-backed revolving credit
facility. In connection with the Detaclad acquisition, the Company entered into
a $7,500,000 asset-backed revolving credit facility ("Original Line") with
its financial institution in July of 1996. The Original Line was to
expire on July 19, 1999, at which time all or part of the outstanding balance
could have been converted to a term loan which would mature on July 19, 2003.
The maximum amount available under the line of credit was subject to borrowing
base restrictions that were a function of defined balances in accounts
receivable, inventory, real property and equipment.
On November 30, 1998 the Company and its financial institution entered into an
amended and restated credit facility and security agreement which was further
amended on December 31, 1998. The amended credit facility allows for maximum
borrowings of $14,000,000 under the following three separate lines of credit: an
"acquisition line" of $5,700,000, an "accommodation line" of $2,300,000 and a
"working capital line" of $6,000,000 (subject to borrowing base restrictions).
Beginning on September 30, 1999 and on the last day of each calendar quarter
thereafter, the maximum borrowings available under the acquisition line become
permanently reduced by $259,091, with ultimate maturity on December 31, 2004.
Beginning on September 30, 1999 and on the last day of each calendar quarter
thereafter, the maximum borrowings available under the accommodation line become
permanently reduced by $230,000, with ultimate maturity on December 31, 2001.
The working capital line expires on November 30, 2000. At the Company's option,
the borrowings under the acquisition line and working capital line may be in the
form of loans bearing an interest rate of 1 to 2% above the Libor rate,
depending on certain financial ratios, or loans bearing an interest rate of 2%
above the Federal Funds rate. Loans under the accommodation line bear interest
at .25% above the bank's Prime Rate. The lines of credit are secured by the
Company's accounts receivable, inventory and property, plant and equipment.
Outstanding borrowings at June 30, 1999 on the acquisition line, accommodation
line and working capital line totaled $5,700,000, $2,300,000 and $2,000,000,
respectively.
In March 1998, the Company's Board of Directors approved the Company's proposal
to build a new manufacturing facility in Pennsylvania at a cost of approximately
$6.8 million. The project is being financed with proceeds from $6,850,000 in
industrial development revenue bonds issued by Fayette County Industrial
Development Authority (IDA). The Company closed its loan agreement with Fayette
County IDA on September 17, 1998 and has established a bank letter of credit in
favor of the bond trustee for the principal amount of the bonds plus 98 days of
accrued interest. The letter of credit is secured by the Company's accounts
receivable, inventory, property, plant and equipment, and bond proceeds not yet
expended for construction of the facility and purchase of related equipment
(classified as "Restricted Cash and Investments" on the Condensed Balance
Sheets). Construction of the new facility began during the third quarter of
1998, and the new facility should become fully operational during the second
half of 1999.
During the six months ended June 30, 1999, the Company used $405,654 in cash to
fund operating activities as compared to using $98,485 during the first six
months of 1998. The principal sources of
19
<PAGE>
cash flow from operations for the six months ended June 30, 1999 were
depreciation and amortization charges of $722,998 and a decrease in inventories
of $1,371,408. These sources of operating cash flow were more than offset by the
net loss of $945,792, a $695,477 increase in income tax receivable and a
$1,091,276 decrease in accounts payable and accrued expenses. Investing
activities for the six months ended June 30, 1999 used $1,058,282 of cash,
including expenditures of $3,580,997 on the new Pennsylvania manufacturing
facility and $278,328 for other capital expenditures, and are stated net of
$2,788,607 in reimbursement of bond proceeds from the trustee. Financing
activities provided $1,463,936 of net cash for the six months ended June 30,
1999, including new line of credit borrowings of $1,400,000.
As a result of the operating loss the Company incurred for the quarter ended
June 30, 1999, the Company violated certain financial covenants under both its
amended and restated credit facility with its bank and its reimbursement
agreement relating to the bank's letter of credit that supports payment of
principal and interest under the industrial development revenue bonds. The
Company has received a waiver from the bank that waives compliance with these
covenant requirements until September 30, 1999. Proceeds from the pending sale
to AMTEK of a substantial portion of the the Company's Explosive Metalworking
Group would enable the Company to redeem $6,850,000 in outstanding industrial
development revenue bonds and retire the majority of outstanding borrowings
under its credit facility. Additionally, the closing of the sale would likely
require significant amendments to the existing credit facility or replacement of
this facility with a new facility. While the closing of the transaction with
AMETEK is dependent on the satisfaction of certain conditions, management is not
currently aware of any circumstances that would result in the Company's failure
to satisfy any of these conditions. If the sale does not close on or before
September 30, 1999 and the Company fails to meet financial covenants as of that
date, the Company believes that its financial institution will extend the
current waiver if the closing of the sale is expected to occur within a
reasonable time period.
Although the Company believes that the closing of the transaction with AMETEK
will occur during the third or fourth quarter of 1999, if the sale does not
close as expected and sales by its Explosive Metalworking Group continue to be
depressed, the Company is likely to incur additional operating losses. Such
operating losses could result in continued violation of financial covenants and
failure by the Company to meet debt service requirements under its existing
credit facilities. If this were to occur, a major restructuring of the Company's
credit facilities would be required.
Assuming that the closing of the transaction with AMETEK occurs as expected, the
Company believes that its cash flow from operations and funds expected to be
available under an amended or new credit facility will be sufficient to fund
working capital and capital expenditure requirements of its current business
operations. However, a significant portion of the Company's sales is derived
from a relatively small number of customers; therefore, the failure to perform
existing contracts on a timely basis, and to receive payment for such services
in a timely manner, or to enter into future contracts at projected volumes and
profitability levels could adversely affect the Company's ability to meet its
cash requirements exclusively through operating activities. Consequently, any
restriction on the availability of borrowing under the line of credit could
negatively affect the Company's ability to meet its future cash requirements. In
addition, the Company plans to grow both internally and through the acquisition
of complementary businesses. A significant acquisition may require the Company
to secure additional debt or equity financing. While the Company believes it
would be able to secure such additional financing at reasonable terms, there is
no assurance that this would be the case.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company had been named as a defendant in a lawsuit filed in France by a
French company with which the Company had preliminary acquisition discussions
during 1997. On February 10, 1999, the Company reached a settlement with the
plaintiff that effectively dropped all claims by each party and provided no
damages to either party related to the lawsuit. Each party was deemed to be
responsible for only its own legal costs. The Company is not a party to any
other legal proceedings, the adverse outcome of which would, in management's
opinion, have a material adverse effect on the Company's business, operation
results and financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders (the "Annual Meeting") was held on
May 21, 1999. At the Annual Meeting, the stockholders of the Company (i) elected
the person listed below to serve as a director of the Company until the 2002
Annual Meeting of Shareholders or until his successor is elected, (ii) approved
the amendment and restatement of the Company's Employee Stock Purchase Plan and
increased the aggregate number of shares of Common Stock authorized for issuance
under such plan by 75,000 shares, (iii) ratified the selection of Arthur
Andersen LLP as independent accountants of the Company for its fiscal year
ending December 31, 1999.
The Company had 2,817,891 shares of Common Stock outstanding as of
April 15, 1999, the record date for the Annual Meeting. At the Annual Meeting,
holders of a total of 2,819,491 shares of Common Stock were present in person or
represented by proxy. The following sets forth information regarding the results
of the voting at the Annual Meeting:
PROPOSAL 1: ELECTION OF DIRECTOR
VOTING SHARES VOTING SHARES VOTING SHARES
DIRECTOR IN FAVOR AGAINST WITHHELD
Dean K. Allen 2,814,531 -- 4,960
PROPOSAL 2: APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE
EMPLOYEE STOCK PURCHASE PLAN
VOTING SHARES VOTING SHARES VOTING SHARES BROKER
IN FAVOR AGAINST ABSTAIN NON-VOTES
1,979,584 48,766 2,840 788,301
PROPOSAL 3: RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
VOTING SHARES VOTING SHARES VOTING SHARES
IN FAVOR AGAINST ABSTAIN
2,808,832 8,389 2,270
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit Number Description of Exhibit
- -------------- ----------------------
2.1 Asset Purchase Agreement, dated as of June 22, 1999, by
and between the Company and AMETEK, Inc. (incorporated
herein by reference to Form 8-K filed on July 25, 1999).
10.1 Change of Control Agreement, dated as of March 26, 1999,
by and between the Company and Joseph P. Allwein.
10.2 Change of Control Agreement, dated as of March 26, 1999,
by and between the Company and Richard A. Santa.
10.3 Change of Control Agreement, dated as of March 26, 1999,
by and between the Company and Mark W. Jarman.
10.4 Engagement Letter, dated as of January 19, 1999, by and
between the Company and The Wallach Company, Inc.
(incorporated herein by reference to Form 8-K filed on
July 25, 1999).
99.1 Press Release dated February 25, 1999 (incorporated herein
by reference to Form 8-K filed on February 25, 1999).
99.2 Press Release dated June 23, 1999 (incorporated herein by
reference to Form 8-K filed on July 25, 1999).
27 Financial Data Schedule
(b) A report on Form 8-K was filed on June 25, 1999 reporting that the
Company had entered into an Asset Purchase Agreement, dated as of June 22, 1999,
to sell certain assets relating to its Explosive Metalworking Group
to AMETEK.
A report on Form 8-K was filed on February 25, 1999 reporting the
fourth quarter 1998 and December 31, 1998 year end financial results.
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DYNAMIC MATERIALS CORPORATION
(Registrant)
Date: August 13, 1999 /s/ RICHARD A. SANTA
------------------------------------
Richard A. Santa, Vice President of
Finance and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting
Officer)
22
CHANGE OF CONTROL AGREEMENT
This CHANGE OF CONTROL AGREEMENT (this "AGREEMENT"), is made this 26th
day of March, 1999, between Joseph P. Allwein ("EXECUTIVE") and Dynamic
Materials Corporation, a Delaware corporation (the "COMPANY").
RECITALS
WHEREAS, the Company wishes to assure itself of continuity of
management in the event of any actual or threatened change in the control of the
Company;
WHEREAS, the Company believes it is important that Executive be able to
assess and advise the Company whether supporting a change in control would be in
the best interests of the Company and its shareholders without being influenced
by the uncertain effect of such a change upon Executive's role within the
Company;
WHEREAS, Executive has been employed by the Company and the Company
wishes to demonstrate to Executive the Company's concern for his welfare.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE I. OPERATION OF AGREEMENT
1.1 This Agreement will be binding immediately upon its execution by
the parties hereto, but will operate as an employment contract only during the
"Term of Employment" as described below.
1.2 The "Term of Employment" is the period beginning on the date of a
"CHANGE OF CONTROL" and ending on the earliest of:
(a) Executive's 65th birthday,
(b) Executive's death,
(c) the date on which the Agreement terminates in accordance
with paragraph 1.4 below, and
(d) the date on which all rights and obligations of the
parties hereto have been satisfied in accordance with the terms of this
Agreement.
Neither the expiration of the Term of Employment nor the termination of this
Agreement will relieve the Company of the obligation to provide Executive, in
accordance with the terms hereof, the payments, benefits and coverage to which
he has become entitled under this Agreement.
-1-
<PAGE>
1.3 "CHANGE OF CONTROL" means a change of control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934,
as amended (the "Act"), whether or not the Company is then subject to such
reporting requirement; provided, however, that without limitation, such a Change
of Control shall be deemed to have occurred if:
(a) the Company has achieved net operating income for the four
quarter period immediately prior to the occurrence of any of the events
described in paragraph 1.3(b) below,
and
(b) the occurrence of any of the following events:
(i) any person or group (as such terms are used in
connection with Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company in an amount sufficient to be deemed an
Acquiring Person as defined in the Company's Rights Agreement dated as of
January 8, 1999;
(ii) the Company is a party to a merger or
consolidation whereby 50% or more of the assets or outstanding shares of Common
and Preferred Stock of the Company are transferred to an acquiror, other than a
merger solely to effect reincorporation or a merger of the Company as to which
stockholder approval is not required pursuant to Section 251(f) or 253 of the
Delaware General Corporation Law;
(iii) sale, lease, exchange or other transfer of 50%
or more of assets or other reorganization, or a proxy contest, as a consequence
of which members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or
(iv) during any period of 12 consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
Notwithstanding the foregoing provisions of this paragraph 1.3, a
"Change of Control" will not be deemed to have occurred solely because of the
acquisition of securities of the Company (or any reporting requirement under the
Act relating thereto) by an employee benefit plan maintained by the Company for
its employees.
1.4 This Agreement shall terminate as of the first anniversary of the
Change of Control.
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ARTICLE II. EMPLOYMENT
2.1 The Company agrees to employ Executive throughout the Term of
Employment as President and Chief Executive Officer of the Company without
materially reducing Executive's authority, status or salary below the level he
possessed immediately prior to the Change of Control. The Company agrees that
Executive's situs of employment will be within a 60 miles radius of such
Executive's situs of employment immediately before the Change of Control.
2.2 For purposes of this Agreement, employment by a subsidiary of the
Company will be deemed to be employment by the Company, and the Company may
cause its obligations hereunder to be discharged through such a subsidiary,
provided that the Company will remain liable for the discharge of all such
obligations and that the rights, benefits, authority, status and salary of the
Executive are in no way diminished thereby. A subsidiary is any corporation of
which more than 50% of the voting stock is owned by the Company or another
subsidiary of the Company.
ARTICLE III. COMPENSATION
3.1 The Company will pay as compensation to Executive for his services
as an employee during the Term of Employment base annual salary and bonus, with
similar performance goals, at a rate equal to or greater than the rate of base
salary and bonus in effect for Executive immediately prior to the Change of
Control as determined and approved by the Board of Directors in its customary
capacity.
3.2 In addition, for his services as an employee during the Term of
Employment, Executive will:
(a) participate fully in the Company's stock option plan
(and/or any successor plan);
(b) participate fully in all pension, profit sharing and
similar benefit plans of the Company;
(c) participate fully, together with his dependents and
beneficiaries, in all life insurance plans, accident and health plans and other
welfare plans, maintained or sponsored by the Company immediately prior to the
Change of Control, or receive substantially equivalent coverage (or the full
value thereof in cash) from the Company;
(d) participate fully in any additional benefit plans offered
by the Company to executives before or after the Change of Control; and
(e) receive fringe benefits (which shall not include any
benefit referred to elsewhere in this Article 3) substantially equivalent to
those provided to Executive immediately prior to the Change of Control as well
as reimbursement, upon proper accounting, of reasonable expenses
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and disbursements incurred by Executive in the course of his duties, including,
but not limited to, an automobile allowance and a mobile phone allowance.
3.3 Amounts payable under this Article 3 for services rendered by
Executive during his employment constitute reasonable compensation for such
services. If any such amount (or, if by reason of such amount, any other amount
in the nature of compensation payable to Executive) is determined to be subject
to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any successor provision, the Company will pay to
Executive in cash an additional amount necessary to cause the total payments
(including the additional payment required by this paragraph 3.3) and benefits
received by him under this Article 3 (net of all federal and state taxes,
including all taxes payable under section 4999 of the Code) to be equal to the
total payments and benefits Executive would have received under this Article 3
(net of all federal, state and local taxes) if section 4999 of the Code had not
applied. This paragraph 3.3 does not apply to amounts payable under Article 4.
ARTICLE IV. TERMINATION OF EMPLOYMENT
4.1 In the event Executive's employment is terminated by the Company
during the Term of Employment for any reason other than "Cause" (as defined in
paragraph 4.5 below) the Company will pay Executive a lump sum cash payment,
payable within 10 days of his termination equal to one year of the Executive's
annual base salary in effect immediately prior to his termination and an amount
equal to the bonus earned by Executive in the fiscal year prior to the year in
which such termination takes place. In addition, one hundred percent (100%) of
all options to purchase Common Stock of the Company that are unvested at the
time of such termination as determined in this paragraph 4.1 shall immediately
vest and become exercisable.
4.2 In the event of a termination described in paragraph 4.1 above,
Executive together with his dependents and beneficiaries, will continue
following his termination to participate fully in accordance with paragraph
3.2(c), (d) and (e) above in all life insurance plans, accident and health
plans, other welfare plans, any additional benefit plans and any fringe
benefits, maintained or sponsored by the Company immediately prior to the Change
of Control, or receive substantially equivalent coverage (or the full value
thereof in cash) from the Company, until the first anniversary of his
termination.
The period of time between such a termination and the first anniversary
of the Change of Control will be counted as service with the Company for
purposes of any benefit plan of the Company in which Executive is participating
at the time of the termination.
4.3 (a) Upon the occurrence of any breach by the Company of this
Agreement within the meaning of paragraph 4.3(b), below, Executive may give the
Company written notice of his intention to resign effective the 30th day
following the receipt of such notice. If the Company does not provide or
determine a reasonably adequate remedy such breach within 30 days of the date of
such notice, Executive's resignation will become effective on such 30th day. If
Executive resigns in
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accordance with this paragraph during the Term of Employment, his employment
will be deemed to have been terminated by the Company for reasons other than
Cause [(and he will be deemed to have offered to continue to provide services to
the Company),] and he will be entitled to all the payments and rights and
benefits described in paragraphs 4.1 and 4.2, provided that such payments and
rights and benefits will in no event be less than they would have been had such
termination taken place on the date that the Company first breached this
Agreement.
(b) The following events are breaches by the Company of this
Agreement within the meaning of this paragraph 4.3(b):
(i) any material reduction of, or failure to pay,
Executive's salary or bonus as described in paragraph 3.1 above;
(ii) any failure to provide the benefits required by
paragraph 3.2 above or to make any payment that might be due in
accordance with paragraph 3.3 above;
(iii) assignment to Executive of any duties
inconsistent in any respect with his position (including status,
offices and titles), authority, duties or responsibilities as
contemplated by paragraph 2.1 above or any other action by the Company
that results in a material diminution of such position or authority;
(iv) failure after a Change of Control to comply with
and satisfy paragraph 7.1 or 7.2 below;
relocation of the Company's principal executive offices, or any event that
causes Executive to have his principal place of work changed, to any location
outside a 60-mile radius of the Executive's place of work immediately prior to
the Change of Control; and
(vi) without limiting the generality or effect of the
foregoing, any other material breach of this Agreement by the Company
or any successor thereto or transferee of substantially all the assets
thereof.
4.4 If Executive is dismissed by the Company for Cause, he will not be
entitled to payments or benefits provided under paragraphs 4.1 or 4.2 above.
"Cause" shall mean: (I) material and willful dishonesty with respect to the
Company or its subsidiaries; (ii) material and willful misfeasance or
nonfeasance of duty by the Executive intended to injure or having the effect of
injuring in some material fashion the reputation, business or business
relationships of the Company or any of its subsidiaries or any of their
respective officers, directors or employees; (iii) the willful commission by
Executive of theft, embezzlement or other serious and substantial crimes against
the Company or any of its subsidiaries; (iv) the conviction of the Executive of
any felony, any crime involving moral turpitude or any crime that could reflect
in some material fashion unfavorably upon the Company or any of its
subsidiaries; and (v) continued substantial and repeated neglect of his duties
as an Executive (including continued and prolonged absences from the Company's
headquarters or Executive's
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prescribed post), gross negligence or willful misconduct in the performance of
his duties, or substantial breaches of this Agreement or other agreement related
to Executive's employment. For purposes of this definition, no act or omission
shall be considered to have been "willful" unless it was not in good faith and
Executive had knowledge at the time that the act or omission was not in the best
interest of the Company.
4.5 If Executive's employment is alleged to be terminated for Cause or
if Executive's right to resign under paragraph 4.3 is disputed, Executive may
initiate binding arbitration before the American Arbitration Association by
serving a notice to arbitrate upon the Company or, at Executive's election,
institute judicial proceedings, in either case within 90 days of the effective
date of his termination or, if later, his receipt of notice of termination, or
such longer period as may be reasonably necessary for Executive to take such
action if illness or incapacity should impair his taking such action within the
90-day period. Each Party agrees to pay its own costs and expenses relating to
such arbitration or judicial proceeding, and share equally the costs of such
arbitration or judicial proceeding.
4.6 Termination of employment due to the death or total and permanent
disability of Executive will not be considered a termination for purposes of
this Article 4.
4.7 If Executive dies following a termination of employment that
entitled him to benefits under this Article 4 but prior to receipt of all such
benefits:
(a) his beneficiary (as designated to the Company in writing)
or, if none, his estate, will be entitled to receive all unpaid amounts due
hereunder; and
(b) his beneficiary or estate will be entitled to exercise
options in accordance with paragraph 4.3 above and the terms of the options.
ARTICLE V. NO OBLIGATION TO MITIGATE
5.1 There shall be no requirement on the Executive's part to seek other
employment or otherwise mitigate in order to be entitled to the full amount of
any payments or benefits hereunder.
5.2 In the event Executive obtains other employment, Executive shall
continue to be entitled to receive 25% of the full amount of any payments or
benefits hereunder regardless of his subsequent level of compensation. In
addition, Executive shall receive the difference between (i) the full amount of
any payments or benefits due under this Agreement less (ii) the full amount of
any payment or benefits from any other employment; provided, however, that {in
no event shall} [IF] Executve receives payments or benefits in an amount greater
than provided for in this Agreement, Executive shall be obligated to reimburse
to the Company such amount pursuant to a schedule agreed to by the Company and
Executive or, if a schedule cannot be agreed to, a reasonable schedule under the
circumstances.
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ARTICLE VI. LIMITATION
6.1 Notwithstanding any other provision of this Agreement, and except
as provided in paragraph 6.2 below, the payments or benefits to which Executive
will be entitled under Article 4 of this Agreement will be reduced to the extent
necessary so that Executive will not be liable for the federal excise tax levied
on certain "excess parachute payments" under section 4999 of the Code.
6.2 The limitation of paragraph 6.1 will not apply if:
(a) the difference between
(i) the present value of all payments to which
Executive is entitled under Article 4 of this Agreement determined
without regard to paragraph 6.1, less
(ii) the present value of all federal, state, and
other income and excise taxes for which Executive is liable as a result
of such payments;
exceeds
(b) the difference between
(i) the present value of all payments to which
Executive is entitled under Article 4 of this Agreement calculated as
if the limitation of paragraph 6.1 applies, less
(ii) the present value of all federal, state, and
other income and excise taxes for which Executive is liable as a result
of such reduced payments.
Present values will be determined using the interest rate specified in section
280G of the Code and will be the present values as of the date on which
Executive's employment terminates (unless it is necessary to use a different
date in order to avoid adverse consequences under section 280G).
To illustrate, an "excess parachute payment" is the difference between the
executive's average salary for the past five years and the parachute payment;
provided, however, that the parachute payment must be at least equal to three
times the executive's annual base salary before it is considered an "excess
parachute payment." For example, if an executive had an average base salary for
the past five years of $100,000.00 and receives a parachute payment of
$299,000.00, no excise tax is due. If the parachute payment is $301,000.00,
excise tax is due on the entire $201,000.00 difference.
6.3 (a) Whether payments to the Executive are to be reduced pursuant to
paragraph 6.1, and the extent to which they are to be so reduced, will be
determined by the Executive.
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(b) If a reduction is made pursuant to paragraph 6.1,
Executive will have the right to determine the payments and benefits that will
be reduced.
ARTICLE VII. EXPENSES
If Executive determines in good faith that the Company has failed to
comply with any of its obligations under this Agreement, or if the Company or
any other person takes any action to declare this Agreement void or
unenforceable, or institutes any legal action or arbitration proceeding designed
to deny Executive, or to recover from him, the benefits intended to be provided
hereunder, or in the event of actions instituted as contemplated by paragraph
4.5 above, the Company irrevocably authorizes Executive from time to time to
retain counsel of his choice, at the expense of the Executive as hereafter
provided, to represent Executive in connection with any and all actions and
proceedings, whether by or against the Company or any director, officer,
stockholder or other person affiliated with the Company, which may adversely
affect Executive's rights under this Agreement. Notwithstanding any existing or
prior attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive's entering into an attorney-client
relationship with such counsel and agrees that a confidential relationship shall
exist between Executive and such counsel.
ARTICLE VIII. MERGER OR ACQUISITION
8.1 If the Company is at any time before or after a Change of Control
merged with or consolidated into or with any other corporation or other entity
(whether or not the Company is the surviving entity), or if substantially all of
the assets of the Company are transferred to another corporation or other
entity, the corporation or other entity resulting from such merger or
consolidation, or the acquirer of such assets, shall (by agreement in form and
substance satisfactory to Executive) expressly assume the obligations of the
Company under this Agreement. In any event, however, the provisions of this
Agreement shall be binding upon and inure to the benefit of the corporation or
other entity resulting from such merger or consolidation or the acquirer of such
assets, and this Article 7 will apply in the event of any subsequent merger or
consolidation or transfer of assets.
8.2 In the event of any merger, consolidation or sale of assets
described above, nothing contained in this Agreement will detract from or
otherwise limit Executive's right to or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group insurance,
hospitalization or other incentive or benefit plan or arrangement that may be or
become applicable to executives of the corporation resulting from such merger or
consolidation or the corporation acquiring such assets of the Company.
8.3 In the event of any merger, consolidation or sale of assets
described above, references to the Company in this Agreement shall, unless the
context suggests otherwise, be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
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ARTICLE IX. WITHHOLDING
All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries or estate will be subject to the withholding of
such amounts relating to tax and/or other payroll deductions as may be required
by law.
ARTICLE X. AMENDMENT
No amendment, change or modification of this Agreement may be made
except in writing, signed by both parties.
ARTICLE XI. GENERAL
11.1 The provisions of this Agreement shall be binding upon and shall
inure to the benefit of Executive, his executors, administrators, legal
representatives and assigns, and the Company and its successors.
11.2 The validity, interpretation and effect of this Agreement shall be
governed by the laws of Colorado.
11.3 No right or interest to or in any payments shall be assignable by
Executive, provided, however, that this provision shall not preclude him from
designating one or more beneficiaries to receive any amount that may be payable
after his death and shall not preclude the legal representative of his estate
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount, or if no beneficiary has
been so designated, the legal representative of the Executive's estate.
11.4 No right, benefit or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.
11.5 This Agreement does not supersede any other employment or
severance agreements Executive has with the Company, including, but not limited
to, the employment agreement attached hereto as Exhibit A (the "EMPLOYMENT
AGREEMENT"), any proprietary information agreement, or non-competition
agreement. Any payment made to Executive under the Employment Agreement shall be
deducted from amounts due and payable to Executive under this Agreement;
provided, however, that Executive shall not be liable for any amounts, either
under Article V herein or otherwise, in the event the amount paid under the
Employment Agreement exceeds the amount due under this Agreement.
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11.6 This Agreement embodies the complete agreement and understanding
among the parties and supersedes and preempts any prior understanding,
agreements or representations by or among th parties, written or oral, which may
have related to the subject matter hereof in any way, except as discussed in
paragraph 11.6 above.
11.7 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision.
IN WITNESS WHEREOF, the Company and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
DYNAMIC MATERIALS CORPORATION,
a Delaware corporation
ATTEST:
___________________________ By:______________________________________
Name:____________________________________
Its:_____________________________________
EXECUTIVE
ATTEST:
__________________________ _________________________________________
Joseph P. Allwein
CHANGE OF CONTROL AGREEMENT
This CHANGE OF CONTROL AGREEMENT (this "AGREEMENT"), is made this 26th
day of March, 1999, between Richard A. Santa ("EXECUTIVE") and Dynamic Materials
Corporation, a Delaware corporation (the "COMPANY").
RECITALS
WHEREAS, the Company wishes to assure itself of continuity of
management in the event of any actual or threatened change in the control of the
Company;
WHEREAS, the Company believes it is important that Executive be able to
assess and advise the Company whether supporting a change in control would be in
the best interests of the Company and its shareholders without being influenced
by the uncertain effect of such a change upon Executive's role within the
Company;
WHEREAS, Executive has been employed by the Company and the Company
wishes to demonstrate to Executive the Company's concern for his welfare.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE I. OPERATION OF AGREEMENT
1.1 This Agreement will be binding immediately upon its execution by
the parties hereto, but will operate as an employment contract only during the
"Term of Employment" as described below.
1.2 The "Term of Employment" is the period beginning on the date of a
"CHANGE OF CONTROL" and ending on the earliest of:
(a) Executive's 65th birthday,
(b) Executive's death,
(c) the date on which the Agreement terminates in accordance
with paragraph 1.4 below, and
(d) the date on which all rights and obligations of the
parties hereto have been satisfied in accordance with the terms of this
Agreement.
Neither the expiration of the Term of Employment nor the termination of this
Agreement will relieve the Company of the obligation to provide Executive, in
accordance with the terms hereof, the payments, benefits and coverage to which
he has become entitled under this Agreement.
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1.3 "CHANGE OF CONTROL" means a change of control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934,
as amended (the "Act"), whether or not the Company is then subject to such
reporting requirement; provided, however, that without limitation, such a Change
of Control shall be deemed to have occurred if:
(a) the Company has achieved net operating income for the four
quarter period immediately prior to the occurrence of any of the events
described in paragraph 1.3(b) below,
and
(b) the occurrence of any of the following events:
(i) any person or group (as such terms are used in
connection with Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company in an amount sufficient to be deemed an
Acquiring Person as defined in the Company's Rights Agreement dated as of
January 8, 1999;
(ii) the Company is a party to a merger or
consolidation whereby 50% or more of the assets or outstanding shares of Common
and Preferred Stock of the Company are transferred to an acquiror, other than a
merger solely to effect reincorporation or a merger of the Company as to which
stockholder approval is not required pursuant to Section 251(f) or 253 of the
Delaware General Corporation Law;
(iii) sale, lease, exchange or other transfer of 50%
or more of assets or other reorganization, or a proxy contest, as a consequence
of which members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or
(iv) during any period of 12 consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
Notwithstanding the foregoing provisions of this paragraph 1.3, a
"Change of Control" will not be deemed to have occurred solely because of the
acquisition of securities of the Company (or any reporting requirement under the
Act relating thereto) by an employee benefit plan maintained by the Company for
its employees.
1.4 This Agreement shall terminate as of the first anniversary of the
Change of Control.
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ARTICLE II. EMPLOYMENT
2.1 The Company agrees to employ Executive throughout the Term of
Employment as Vice President of Finance and Chief Financial Officer of the
Company without materially reducing Executive's authority, status or salary
below the level he possessed immediately prior to the Change of Control. The
Company agrees that Executive's situs of employment will be within a 60 miles
radius of such Executive's situs of employment immediately before the Change of
Control.
2.2 For purposes of this Agreement, employment by a subsidiary of the
Company will be deemed to be employment by the Company, and the Company may
cause its obligations hereunder to be discharged through such a subsidiary,
provided that the Company will remain liable for the discharge of all such
obligations and that the rights, benefits, authority, status and salary of the
Executive are in no way diminished thereby. A subsidiary is any corporation of
which more than 50% of the voting stock is owned by the Company or another
subsidiary of the Company.
ARTICLE III. COMPENSATION
3.1 The Company will pay as compensation to Executive for his services
as an employee during the Term of Employment base annual salary and bonus, with
similar performance goals, at a rate equal to or greater than the rate of base
salary and bonus in effect for Executive immediately prior to the Change of
Control as determined and approved by the Board of Directors in its customary
capacity.
3.2 In addition, for his services as an employee during the Term of
Employment, Executive will:
(a) participate fully in the Company's stock option plan
(and/or any successor plan);
(b) participate fully in all pension, profit sharing and
similar benefit plans of the Company;
(c) participate fully, together with his dependents and
beneficiaries, in all life insurance plans, accident and health plans and other
welfare plans, maintained or sponsored by the Company immediately prior to the
Change of Control, or receive substantially equivalent coverage (or the full
value thereof in cash) from the Company;
(d) participate fully in any additional benefit plans offered
by the Company to executives before or after the Change of Control; and
(e) receive fringe benefits (which shall not include any
benefit referred to elsewhere in this Article 3) substantially equivalent to
those provided to Executive immediately prior to the Change of Control as well
as reimbursement, upon proper accounting, of reasonable expenses
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and disbursements incurred by Executive in the course of his duties, including,
but not limited to, an automobile allowance and a mobile phone allowance.
3.3 Amounts payable under this Article 3 for services rendered by
Executive during his employment constitute reasonable compensation for such
services. If any such amount (or, if by reason of such amount, any other amount
in the nature of compensation payable to Executive) is determined to be subject
to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any successor provision, the Company will pay to
Executive in cash an additional amount necessary to cause the total payments
(including the additional payment required by this paragraph 3.3) and benefits
received by him under this Article 3 (net of all federal and state taxes,
including all taxes payable under section 4999 of the Code) to be equal to the
total payments and benefits Executive would have received under this Article 3
(net of all federal, state and local taxes) if section 4999 of the Code had not
applied. This paragraph 3.3 does not apply to amounts payable under Article 4.
ARTICLE IV. TERMINATION OF EMPLOYMENT
4.1 In the event Executive's employment is terminated by the Company
during the Term of Employment for any reason other than "Cause" (as defined in
paragraph 4.5 below) the Company will pay Executive a lump sum cash payment,
payable within 10 days of his termination equal to one year of the Executive's
annual base salary in effect immediately prior to his termination and an amount
equal to the bonus earned by Executive in the fiscal year prior to the year in
which such termination takes place. In addition, one hundred percent (100%) of
all options to purchase Common Stock of the Company that are unvested at the
time of such termination as determined in this paragraph 4.1 shall immediately
vest and become exercisable.
4.2 In the event of a termination described in paragraph 4.1 above,
Executive together with his dependents and beneficiaries, will continue
following his termination to participate fully in accordance with paragraph
3.2(c), (d) and (e) above in all life insurance plans, accident and health
plans, other welfare plans, any additional benefit plans and any fringe
benefits, maintained or sponsored by the Company immediately prior to the Change
of Control, or receive substantially equivalent coverage (or the full value
thereof in cash) from the Company, until the first anniversary of his
termination.
The period of time between such a termination and the first anniversary
of the Change of Control will be counted as service with the Company for
purposes of any benefit plan of the Company in which Executive is participating
at the time of the termination.
4.3 (a) Upon the occurrence of any breach by the Company of this
Agreement within the meaning of paragraph 4.3(b), below, Executive may give the
Company written notice of his intention to resign effective the 30th day
following the receipt of such notice. If the Company does not provide or
determine a reasonably adequate remedy such breach within 30 days of the date of
such notice, Executive's resignation will become effective on such 30th day. If
Executive resigns in
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accordance with this paragraph during the Term of Employment, his employment
will be deemed to have been terminated by the Company for reasons other than
Cause [(and he will be deemed to have offered to continue to provide services to
the Company),] and he will be entitled to all the payments and rights and
benefits described in paragraphs 4.1 and 4.2, provided that such payments and
rights and benefits will in no event be less than they would have been had such
termination taken place on the date that the Company first breached this
Agreement.
(b) The following events are breaches by the Company of this
Agreement within the meaning of this paragraph 4.3(b):
(i) any material reduction of, or failure to pay,
Executive's salary or bonus as described in paragraph 3.1 above;
(ii) any failure to provide the benefits required by
paragraph 3.2 above or to make any payment that might be due in
accordance with paragraph 3.3 above;
(iii) assignment to Executive of any duties
inconsistent in any respect with his position (including status,
offices and titles), authority, duties or responsibilities as
contemplated by paragraph 2.1 above or any other action by the Company
that results in a material diminution of such position or authority;
(iv) failure after a Change of Control to comply with
and satisfy paragraph 7.1 or 7.2 below;
relocation of the Company's principal executive offices, or any event that
causes Executive to have his principal place of work changed, to any location
outside a 60-mile radius of the Executive's place of work immediately prior to
the Change of Control; and
(vi) without limiting the generality or effect of the
foregoing, any other material breach of this Agreement by the Company
or any successor thereto or transferee of substantially all the assets
thereof.
4.4 If Executive is dismissed by the Company for Cause, he will not be
entitled to payments or benefits provided under paragraphs 4.1 or 4.2 above.
"Cause" shall mean: (I) material and willful dishonesty with respect to the
Company or its subsidiaries; (ii) material and willful misfeasance or
nonfeasance of duty by the Executive intended to injure or having the effect of
injuring in some material fashion the reputation, business or business
relationships of the Company or any of its subsidiaries or any of their
respective officers, directors or employees; (iii) the willful commission by
Executive of theft, embezzlement or other serious and substantial crimes against
the Company or any of its subsidiaries; (iv) the conviction of the Executive of
any felony, any crime involving moral turpitude or any crime that could reflect
in some material fashion unfavorably upon the Company or any of its
subsidiaries; and (v) continued substantial and repeated neglect of his duties
as an Executive (including continued and prolonged absences from the Company's
headquarters or Executive's
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prescribed post), gross negligence or willful misconduct in the performance of
his duties, or substantial breaches of this Agreement or other agreement related
to Executive's employment. For purposes of this definition, no act or omission
shall be considered to have been "willful" unless it was not in good faith and
Executive had knowledge at the time that the act or omission was not in the best
interest of the Company.
4.5 If Executive's employment is alleged to be terminated for Cause or
if Executive's right to resign under paragraph 4.3 is disputed, Executive may
initiate binding arbitration before the American Arbitration Association by
serving a notice to arbitrate upon the Company or, at Executive's election,
institute judicial proceedings, in either case within 90 days of the effective
date of his termination or, if later, his receipt of notice of termination, or
such longer period as may be reasonably necessary for Executive to take such
action if illness or incapacity should impair his taking such action within the
90-day period. Each Party agrees to pay its own costs and expenses relating to
such arbitration or judicial proceeding, and share equally the costs of such
arbitration or judicial proceeding.
4.6 Termination of employment due to the death or total and permanent
disability of Executive will not be considered a termination for purposes of
this Article 4.
4.7 If Executive dies following a termination of employment that
entitled him to benefits under this Article 4 but prior to receipt of all such
benefits:
(a) his beneficiary (as designated to the Company in writing)
or, if none, his estate, will be entitled to receive all unpaid amounts due
hereunder; and
(b) his beneficiary or estate will be entitled to exercise
options in accordance with paragraph 4.3 above and the terms of the options.
ARTICLE V. NO OBLIGATION TO MITIGATE
5.1 There shall be no requirement on the Executive's part to seek other
employment or otherwise mitigate in order to be entitled to the full amount of
any payments or benefits hereunder.
5.2 In the event Executive obtains other employment, Executive shall
continue to be entitled to receive 25% of the full amount of any payments or
benefits hereunder regardless of his subsequent level of compensation. In
addition, Executive shall receive the difference between (i) the full amount of
any payments or benefits due under this Agreement less (ii) the full amount of
any payment or benefits from any other employment; provided, however, that {in
no event shall} [IF] Executve receives payments or benefits in an amount greater
than provided for in this Agreement, Executive shall be obligated to reimburse
to the Company such amount pursuant to a schedule agreed to by the Company and
Executive or, if a schedule cannot be agreed to, a reasonable schedule under the
circumstances.
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ARTICLE VI. LIMITATION
6.1 Notwithstanding any other provision of this Agreement, and except
as provided in paragraph 6.2 below, the payments or benefits to which Executive
will be entitled under Article 4 of this Agreement will be reduced to the extent
necessary so that Executive will not be liable for the federal excise tax levied
on certain "excess parachute payments" under section 4999 of the Code.
6.2 The limitation of paragraph 6.1 will not apply if:
(a) the difference between
(i) the present value of all payments to which
Executive is entitled under Article 4 of this Agreement determined
without regard to paragraph 6.1, less
(ii) the present value of all federal, state, and
other income and excise taxes for which Executive is liable as a result
of such payments;
exceeds
(b) the difference between
(i) the present value of all payments to which
Executive is entitled under Article 4 of this Agreement calculated as
if the limitation of paragraph 6.1 applies, less
(ii) the present value of all federal, state, and
other income and excise taxes for which Executive is liable as a result
of such reduced payments.
Present values will be determined using the interest rate specified in section
280G of the Code and will be the present values as of the date on which
Executive's employment terminates (unless it is necessary to use a different
date in order to avoid adverse consequences under section 280G).
To illustrate, an "excess parachute payment" is the difference between the
executive's average salary for the past five years and the parachute payment;
provided, however, that the parachute payment must be at least equal to three
times the executive's annual base salary before it is considered an "excess
parachute payment." For example, if an executive had an average base salary for
the past five years of $100,000.00 and receives a parachute payment of
$299,000.00, no excise tax is due. If the parachute payment is $301,000.00,
excise tax is due on the entire $201,000.00 difference.
6.3 (a) Whether payments to the Executive are to be reduced pursuant to
paragraph 6.1, and the extent to which they are to be so reduced, will be
determined by the Executive.
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(b) If a reduction is made pursuant to paragraph 6.1,
Executive will have the right to determine the payments and benefits that will
be reduced.
ARTICLE VII. EXPENSES
If Executive determines in good faith that the Company has failed to
comply with any of its obligations under this Agreement, or if the Company or
any other person takes any action to declare this Agreement void or
unenforceable, or institutes any legal action or arbitration proceeding designed
to deny Executive, or to recover from him, the benefits intended to be provided
hereunder, or in the event of actions instituted as contemplated by paragraph
4.5 above, the Company irrevocably authorizes Executive from time to time to
retain counsel of his choice, at the expense of the Executive as hereafter
provided, to represent Executive in connection with any and all actions and
proceedings, whether by or against the Company or any director, officer,
stockholder or other person affiliated with the Company, which may adversely
affect Executive's rights under this Agreement. Notwithstanding any existing or
prior attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive's entering into an attorney-client
relationship with such counsel and agrees that a confidential relationship shall
exist between Executive and such counsel.
ARTICLE VIII. MERGER OR ACQUISITION
8.1 If the Company is at any time before or after a Change of Control
merged with or consolidated into or with any other corporation or other entity
(whether or not the Company is the surviving entity), or if substantially all of
the assets of the Company are transferred to another corporation or other
entity, the corporation or other entity resulting from such merger or
consolidation, or the acquirer of such assets, shall (by agreement in form and
substance satisfactory to Executive) expressly assume the obligations of the
Company under this Agreement. In any event, however, the provisions of this
Agreement shall be binding upon and inure to the benefit of the corporation or
other entity resulting from such merger or consolidation or the acquirer of such
assets, and this Article 7 will apply in the event of any subsequent merger or
consolidation or transfer of assets.
8.2 In the event of any merger, consolidation or sale of assets
described above, nothing contained in this Agreement will detract from or
otherwise limit Executive's right to or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group insurance,
hospitalization or other incentive or benefit plan or arrangement that may be or
become applicable to executives of the corporation resulting from such merger or
consolidation or the corporation acquiring such assets of the Company.
8.3 In the event of any merger, consolidation or sale of assets
described above, references to the Company in this Agreement shall, unless the
context suggests otherwise, be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
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ARTICLE IX. WITHHOLDING
All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries or estate will be subject to the withholding of
such amounts relating to tax and/or other payroll deductions as may be required
by law.
ARTICLE X. AMENDMENT
No amendment, change or modification of this Agreement may be made
except in writing, signed by both parties.
ARTICLE XI. GENERAL
11.1 The provisions of this Agreement shall be binding upon and shall
inure to the benefit of Executive, his executors, administrators, legal
representatives and assigns, and the Company and its successors.
11.2 The validity, interpretation and effect of this Agreement shall be
governed by the laws of Colorado.
11.3 No right or interest to or in any payments shall be assignable by
Executive, provided, however, that this provision shall not preclude him from
designating one or more beneficiaries to receive any amount that may be payable
after his death and shall not preclude the legal representative of his estate
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount, or if no beneficiary has
been so designated, the legal representative of the Executive's estate.
11.4 No right, benefit or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.
11.5 This Agreement does not supersede any other employment or
severance agreements Executive has with the Company, including, but not limited
to, the employment agreement attached hereto as Exhibit A (the "EMPLOYMENT
AGREEMENT"), any proprietary information agreement, or non-competition
agreement. Any payment made to Executive under the Employment Agreement shall be
deducted from amounts due and payable to Executive under this Agreement;
provided, however, that Executive shall not be liable for any amounts, either
under Article V herein or otherwise, in the event the amount paid under the
Employment Agreement exceeds the amount due under this Agreement.
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11.6 This Agreement embodies the complete agreement and understanding
among the parties and supersedes and preempts any prior understanding,
agreements or representations by or among th parties, written or oral, which may
have related to the subject matter hereof in any way, except as discussed in
paragraph 11.6 above.
11.7 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision.
IN WITNESS WHEREOF, the Company and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
DYNAMIC MATERIALS CORPORATION,
a Delaware corporation
ATTEST:
___________________________ By:______________________________________
Name:____________________________________
Its:_____________________________________
EXECUTIVE
ATTEST:
__________________________ _________________________________________
Richard A. Santa
CHANGE OF CONTROL AGREEMENT
This CHANGE OF CONTROL AGREEMENT (this "AGREEMENT"), is made this 26th
day of March, 1999, between Mark W. Jarman ("EXECUTIVE") and Dynamic Materials
Corporation, a Delaware corporation (the "COMPANY").
RECITALS
WHEREAS, the Company wishes to assure itself of continuity of
management in the event of any actual or threatened change in the control of the
Company;
WHEREAS, the Company believes it is important that Executive be able to
assess and advise the Company whether supporting a change in control would be in
the best interests of the Company and its shareholders without being influenced
by the uncertain effect of such a change upon Executive's role within the
Company;
WHEREAS, Executive has been employed by the Company and the Company
wishes to demonstrate to Executive the Company's concern for his welfare.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
ARTICLE I. OPERATION OF AGREEMENT
1.1 This Agreement will be binding immediately upon its execution by
the parties hereto, but will operate as an employment contract only during the
"Term of Employment" as described below.
1.2 The "Term of Employment" is the period beginning on the date of a
"CHANGE OF CONTROL" and ending on the earliest of:
(a) Executive's 65th birthday,
(b) Executive's death,
(c) the date on which the Agreement terminates in accordance
with paragraph 1.4 below, and
(d) the date on which all rights and obligations of the
parties hereto have been satisfied in accordance with the terms of this
Agreement.
Neither the expiration of the Term of Employment nor the termination of this
Agreement will relieve the Company of the obligation to provide Executive, in
accordance with the terms hereof, the payments, benefits and coverage to which
he has become entitled under this Agreement.
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1.3 "CHANGE OF CONTROL" means a change of control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Securities Exchange Act of 1934,
as amended (the "Act"), whether or not the Company is then subject to such
reporting requirement; provided, however, that without limitation, such a Change
of Control shall be deemed to have occurred if:
(a) the Company has achieved net operating income for the four
quarter period immediately prior to the occurrence of any of the events
described in paragraph 1.3(b) below,
and
(b) the occurrence of any of the following events:
(i) any person or group (as such terms are used in
connection with Sections 13(d) and 14(d) of the Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company in an amount sufficient to be deemed an
Acquiring Person as defined in the Company's Rights Agreement dated as of
January 8, 1999;
(ii) the Company is a party to a merger or
consolidation whereby 50% or more of the assets or outstanding shares of Common
and Preferred Stock of the Company are transferred to an acquiror, other than a
merger solely to effect reincorporation or a merger of the Company as to which
stockholder approval is not required pursuant to Section 251(f) or 253 of the
Delaware General Corporation Law;
(iii) sale, lease, exchange or other transfer of 50%
or more of assets or other reorganization, or a proxy contest, as a consequence
of which members of the Board of Directors in office immediately prior to such
transaction or event constitute less than a majority of the Board of Directors
thereafter; or
(iv) during any period of 12 consecutive months,
individuals who at the beginning of such period constituted the Board of
Directors (including for this purpose any new director whose election or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of such period) cease for any reason to constitute at least a
majority of the Board of Directors.
Notwithstanding the foregoing provisions of this paragraph 1.3, a
"Change of Control" will not be deemed to have occurred solely because of the
acquisition of securities of the Company (or any reporting requirement under the
Act relating thereto) by an employee benefit plan maintained by the Company for
its employees.
1.4 This Agreement shall terminate as of the first anniversary of the
Change of Control.
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ARTICLE II. EMPLOYMENT
2.1 The Company agrees to employ Executive throughout the Term of
Employment as Vice President of Corporate Development of the Company without
materially reducing Executive's authority, status or salary below the level he
possessed immediately prior to the Change of Control. The Company agrees that
Executive's situs of employment will be within a 60 miles radius of such
Executive's situs of employment immediately before the Change of Control.
2.2 For purposes of this Agreement, employment by a subsidiary of the
Company will be deemed to be employment by the Company, and the Company may
cause its obligations hereunder to be discharged through such a subsidiary,
provided that the Company will remain liable for the discharge of all such
obligations and that the rights, benefits, authority, status and salary of the
Executive are in no way diminished thereby. A subsidiary is any corporation of
which more than 50% of the voting stock is owned by the Company or another
subsidiary of the Company.
ARTICLE III. COMPENSATION
3.1 The Company will pay as compensation to Executive for his services
as an employee during the Term of Employment base annual salary and bonus, with
similar performance goals, at a rate equal to or greater than the rate of base
salary and bonus in effect for Executive immediately prior to the Change of
Control as determined and approved by the Board of Directors in its customary
capacity.
3.2 In addition, for his services as an employee during the Term of
Employment, Executive will:
(a) participate fully in the Company's stock option plan
(and/or any successor plan);
(b) participate fully in all pension, profit sharing and
similar benefit plans of the Company;
(c) participate fully, together with his dependents and
beneficiaries, in all life insurance plans, accident and health plans and other
welfare plans, maintained or sponsored by the Company immediately prior to the
Change of Control, or receive substantially equivalent coverage (or the full
value thereof in cash) from the Company;
(d) participate fully in any additional benefit plans offered
by the Company to executives before or after the Change of Control; and
(e) receive fringe benefits (which shall not include any
benefit referred to elsewhere in this Article 3) substantially equivalent to
those provided to Executive immediately prior to the Change of Control as well
as reimbursement, upon proper accounting, of reasonable expenses
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and disbursements incurred by Executive in the course of his duties, including,
but not limited to, an automobile allowance and a mobile phone allowance.
3.3 Amounts payable under this Article 3 for services rendered by
Executive during his employment constitute reasonable compensation for such
services. If any such amount (or, if by reason of such amount, any other amount
in the nature of compensation payable to Executive) is determined to be subject
to the excise tax imposed by section 4999 of the Internal Revenue Code of 1986,
as amended (the "Code"), or any successor provision, the Company will pay to
Executive in cash an additional amount necessary to cause the total payments
(including the additional payment required by this paragraph 3.3) and benefits
received by him under this Article 3 (net of all federal and state taxes,
including all taxes payable under section 4999 of the Code) to be equal to the
total payments and benefits Executive would have received under this Article 3
(net of all federal, state and local taxes) if section 4999 of the Code had not
applied. This paragraph 3.3 does not apply to amounts payable under Article 4.
ARTICLE IV. TERMINATION OF EMPLOYMENT
4.1 In the event Executive's employment is terminated by the Company
during the Term of Employment for any reason other than "Cause" (as defined in
paragraph 4.5 below) the Company will pay Executive a lump sum cash payment,
payable within 10 days of his termination equal to one year of the Executive's
annual base salary in effect immediately prior to his termination and an amount
equal to the bonus earned by Executive in the fiscal year prior to the year in
which such termination takes place. In addition, one hundred percent (100%) of
all options to purchase Common Stock of the Company that are unvested at the
time of such termination as determined in this paragraph 4.1 shall immediately
vest and become exercisable.
4.2 In the event of a termination described in paragraph 4.1 above,
Executive together with his dependents and beneficiaries, will continue
following his termination to participate fully in accordance with paragraph
3.2(c), (d) and (e) above in all life insurance plans, accident and health
plans, other welfare plans, any additional benefit plans and any fringe
benefits, maintained or sponsored by the Company immediately prior to the Change
of Control, or receive substantially equivalent coverage (or the full value
thereof in cash) from the Company, until the first anniversary of his
termination.
The period of time between such a termination and the first anniversary
of the Change of Control will be counted as service with the Company for
purposes of any benefit plan of the Company in which Executive is participating
at the time of the termination.
4.3 (a) Upon the occurrence of any breach by the Company of this
Agreement within the meaning of paragraph 4.3(b), below, Executive may give the
Company written notice of his intention to resign effective the 30th day
following the receipt of such notice. If the Company does not provide or
determine a reasonably adequate remedy such breach within 30 days of the date of
such notice, Executive's resignation will become effective on such 30th day. If
Executive resigns in
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accordance with this paragraph during the Term of Employment, his employment
will be deemed to have been terminated by the Company for reasons other than
Cause [(and he will be deemed to have offered to continue to provide services to
the Company),] and he will be entitled to all the payments and rights and
benefits described in paragraphs 4.1 and 4.2, provided that such payments and
rights and benefits will in no event be less than they would have been had such
termination taken place on the date that the Company first breached this
Agreement.
(b) The following events are breaches by the Company of this
Agreement within the meaning of this paragraph 4.3(b):
(i) any material reduction of, or failure to pay,
Executive's salary or bonus as described in paragraph 3.1 above;
(ii) any failure to provide the benefits required by
paragraph 3.2 above or to make any payment that might be due in
accordance with paragraph 3.3 above;
(iii) assignment to Executive of any duties
inconsistent in any respect with his position (including status,
offices and titles), authority, duties or responsibilities as
contemplated by paragraph 2.1 above or any other action by the Company
that results in a material diminution of such position or authority;
(iv) failure after a Change of Control to comply with
and satisfy paragraph 7.1 or 7.2 below;
relocation of the Company's principal executive offices, or any event that
causes Executive to have his principal place of work changed, to any location
outside a 60-mile radius of the Executive's place of work immediately prior to
the Change of Control; and
(vi) without limiting the generality or effect of the
foregoing, any other material breach of this Agreement by the Company
or any successor thereto or transferee of substantially all the assets
thereof.
4.4 If Executive is dismissed by the Company for Cause, he will not be
entitled to payments or benefits provided under paragraphs 4.1 or 4.2 above.
"Cause" shall mean: (I) material and willful dishonesty with respect to the
Company or its subsidiaries; (ii) material and willful misfeasance or
nonfeasance of duty by the Executive intended to injure or having the effect of
injuring in some material fashion the reputation, business or business
relationships of the Company or any of its subsidiaries or any of their
respective officers, directors or employees; (iii) the willful commission by
Executive of theft, embezzlement or other serious and substantial crimes against
the Company or any of its subsidiaries; (iv) the conviction of the Executive of
any felony, any crime involving moral turpitude or any crime that could reflect
in some material fashion unfavorably upon the Company or any of its
subsidiaries; and (v) continued substantial and repeated neglect of his duties
as an Executive (including continued and prolonged absences from the Company's
headquarters or Executive's
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prescribed post), gross negligence or willful misconduct in the performance of
his duties, or substantial breaches of this Agreement or other agreement related
to Executive's employment. For purposes of this definition, no act or omission
shall be considered to have been "willful" unless it was not in good faith and
Executive had knowledge at the time that the act or omission was not in the best
interest of the Company.
4.5 If Executive's employment is alleged to be terminated for Cause or
if Executive's right to resign under paragraph 4.3 is disputed, Executive may
initiate binding arbitration before the American Arbitration Association by
serving a notice to arbitrate upon the Company or, at Executive's election,
institute judicial proceedings, in either case within 90 days of the effective
date of his termination or, if later, his receipt of notice of termination, or
such longer period as may be reasonably necessary for Executive to take such
action if illness or incapacity should impair his taking such action within the
90-day period. Each Party agrees to pay its own costs and expenses relating to
such arbitration or judicial proceeding, and share equally the costs of such
arbitration or judicial proceeding.
4.6 Termination of employment due to the death or total and permanent
disability of Executive will not be considered a termination for purposes of
this Article 4.
4.7 If Executive dies following a termination of employment that
entitled him to benefits under this Article 4 but prior to receipt of all such
benefits:
(a) his beneficiary (as designated to the Company in writing)
or, if none, his estate, will be entitled to receive all unpaid amounts due
hereunder; and
(b) his beneficiary or estate will be entitled to exercise
options in accordance with paragraph 4.3 above and the terms of the options.
ARTICLE V. NO OBLIGATION TO MITIGATE
5.1 There shall be no requirement on the Executive's part to seek other
employment or otherwise mitigate in order to be entitled to the full amount of
any payments or benefits hereunder.
5.2 In the event Executive obtains other employment, Executive shall
continue to be entitled to receive 25% of the full amount of any payments or
benefits hereunder regardless of his subsequent level of compensation. In
addition, Executive shall receive the difference between (i) the full amount of
any payments or benefits due under this Agreement less (ii) the full amount of
any payment or benefits from any other employment; provided, however, that {in
no event shall} [IF] Executve receives payments or benefits in an amount greater
than provided for in this Agreement, Executive shall be obligated to reimburse
to the Company such amount pursuant to a schedule agreed to by the Company and
Executive or, if a schedule cannot be agreed to, a reasonable schedule under the
circumstances.
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ARTICLE VI. LIMITATION
6.1 Notwithstanding any other provision of this Agreement, and except
as provided in paragraph 6.2 below, the payments or benefits to which Executive
will be entitled under Article 4 of this Agreement will be reduced to the extent
necessary so that Executive will not be liable for the federal excise tax levied
on certain "excess parachute payments" under section 4999 of the Code.
6.2 The limitation of paragraph 6.1 will not apply if:
(a) the difference between
(i) the present value of all payments to which
Executive is entitled under Article 4 of this Agreement determined
without regard to paragraph 6.1, less
(ii) the present value of all federal, state, and
other income and excise taxes for which Executive is liable as a result
of such payments;
exceeds
(b) the difference between
(i) the present value of all payments to which
Executive is entitled under Article 4 of this Agreement calculated as
if the limitation of paragraph 6.1 applies, less
(ii) the present value of all federal, state, and
other income and excise taxes for which Executive is liable as a result
of such reduced payments.
Present values will be determined using the interest rate specified in section
280G of the Code and will be the present values as of the date on which
Executive's employment terminates (unless it is necessary to use a different
date in order to avoid adverse consequences under section 280G).
To illustrate, an "excess parachute payment" is the difference between the
executive's average salary for the past five years and the parachute payment;
provided, however, that the parachute payment must be at least equal to three
times the executive's annual base salary before it is considered an "excess
parachute payment." For example, if an executive had an average base salary for
the past five years of $100,000.00 and receives a parachute payment of
$299,000.00, no excise tax is due. If the parachute payment is $301,000.00,
excise tax is due on the entire $201,000.00 difference.
6.3 (a) Whether payments to the Executive are to be reduced pursuant to
paragraph 6.1, and the extent to which they are to be so reduced, will be
determined by the Executive.
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(b) If a reduction is made pursuant to paragraph 6.1,
Executive will have the right to determine the payments and benefits that will
be reduced.
ARTICLE VII. EXPENSES
If Executive determines in good faith that the Company has failed to
comply with any of its obligations under this Agreement, or if the Company or
any other person takes any action to declare this Agreement void or
unenforceable, or institutes any legal action or arbitration proceeding designed
to deny Executive, or to recover from him, the benefits intended to be provided
hereunder, or in the event of actions instituted as contemplated by paragraph
4.5 above, the Company irrevocably authorizes Executive from time to time to
retain counsel of his choice, at the expense of the Executive as hereafter
provided, to represent Executive in connection with any and all actions and
proceedings, whether by or against the Company or any director, officer,
stockholder or other person affiliated with the Company, which may adversely
affect Executive's rights under this Agreement. Notwithstanding any existing or
prior attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Executive's entering into an attorney-client
relationship with such counsel and agrees that a confidential relationship shall
exist between Executive and such counsel.
ARTICLE VIII. MERGER OR ACQUISITION
8.1 If the Company is at any time before or after a Change of Control
merged with or consolidated into or with any other corporation or other entity
(whether or not the Company is the surviving entity), or if substantially all of
the assets of the Company are transferred to another corporation or other
entity, the corporation or other entity resulting from such merger or
consolidation, or the acquirer of such assets, shall (by agreement in form and
substance satisfactory to Executive) expressly assume the obligations of the
Company under this Agreement. In any event, however, the provisions of this
Agreement shall be binding upon and inure to the benefit of the corporation or
other entity resulting from such merger or consolidation or the acquirer of such
assets, and this Article 7 will apply in the event of any subsequent merger or
consolidation or transfer of assets.
8.2 In the event of any merger, consolidation or sale of assets
described above, nothing contained in this Agreement will detract from or
otherwise limit Executive's right to or privilege of participation in any stock
option or purchase plan or any bonus, profit sharing, pension, group insurance,
hospitalization or other incentive or benefit plan or arrangement that may be or
become applicable to executives of the corporation resulting from such merger or
consolidation or the corporation acquiring such assets of the Company.
8.3 In the event of any merger, consolidation or sale of assets
described above, references to the Company in this Agreement shall, unless the
context suggests otherwise, be deemed to include the entity resulting from such
merger or consolidation or the acquirer of such assets of the Company.
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ARTICLE IX. WITHHOLDING
All payments required to be made by the Company hereunder to Executive
or his dependents, beneficiaries or estate will be subject to the withholding of
such amounts relating to tax and/or other payroll deductions as may be required
by law.
ARTICLE X. AMENDMENT
No amendment, change or modification of this Agreement may be made
except in writing, signed by both parties.
ARTICLE XI. GENERAL
11.1 The provisions of this Agreement shall be binding upon and shall
inure to the benefit of Executive, his executors, administrators, legal
representatives and assigns, and the Company and its successors.
11.2 The validity, interpretation and effect of this Agreement shall be
governed by the laws of Colorado.
11.3 No right or interest to or in any payments shall be assignable by
Executive, provided, however, that this provision shall not preclude him from
designating one or more beneficiaries to receive any amount that may be payable
after his death and shall not preclude the legal representative of his estate
from assigning any right hereunder to the person or persons entitled thereto
under his will or, in the case of intestacy, to the person or persons entitled
thereto under the laws of intestacy applicable to his estate. The term
"beneficiaries" as used in this Agreement shall mean a beneficiary or
beneficiaries so designated to receive any such amount, or if no beneficiary has
been so designated, the legal representative of the Executive's estate.
11.4 No right, benefit or interest hereunder, shall be subject to
anticipation, alienation, sale, assignment, encumbrance, charge, pledge,
hypothecation, or set-off in respect of any claim, debt or obligation, or to
execution, attachment, levy or similar process, or assignment by operation of
law. Any attempt, voluntary or involuntary, to effect any action specified in
the immediately preceding sentence shall, to the full extent permitted by law,
be null, void and of no effect.
11.5 This Agreement does not supersede any other employment or
severance agreements Executive has with the Company, including, but not limited
to, the employment agreement attached hereto as Exhibit A (the "EMPLOYMENT
AGREEMENT"), any proprietary information agreement, or non-competition
agreement. Any payment made to Executive under the Employment Agreement shall be
deducted from amounts due and payable to Executive under this Agreement;
provided, however, that Executive shall not be liable for any amounts, either
under Article V herein or otherwise, in the event the amount paid under the
Employment Agreement exceeds the amount due under this Agreement.
-9-
<PAGE>
11.6 This Agreement embodies the complete agreement and understanding
among the parties and supersedes and preempts any prior understanding,
agreements or representations by or among th parties, written or oral, which may
have related to the subject matter hereof in any way, except as discussed in
paragraph 11.6 above.
11.7 The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision.
IN WITNESS WHEREOF, the Company and Executive have each caused this
Agreement to be duly executed and delivered as of the date set forth above.
DYNAMIC MATERIALS CORPORATION,
a Delaware corporation
ATTEST:
___________________________ By:______________________________________
Name:____________________________________
Its:_____________________________________
EXECUTIVE
ATTEST:
__________________________ _________________________________________
Mark W. Jarman
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