FORM 10Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 1999
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 1-8676
FANSTEEL INC.
(Exact name of registrant as specified in its charter)
Delaware 36-1058780
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Number One Tantalum Place, North Chicago, IL 60064
(Address of principal executive offices) (Zip Code)
(847) 689-4900
(Registrant's telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
(X) Yes ( ) No
8,598,858
(Number of shares of $2.50 par value common stock outstanding
as of April 30, 1999)
PART 1 - FINANCIAL INFORMATION Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS Page 2
FANSTEEL INC.
CONSOLIDATED BALANCE SHEET
March 31, December 31,
1999 1998
ASSETS (Unaudited) *
Current Assets
Cash and cash equivalents (including
securities purchased under agreement
to resell of $1,775,000 in 1998) $ 163,093 $ 2,031,835
Accounts receivable - net 22,686,096 22,148,457
Inventories
Raw material and supplies 4,722,777 5,341,512
Work-in-process 15,690,353 15,177,294
Finished goods 8,818,949 8,686,552
29,232,079 29,205,358
Less reserve to state certain
inventories at LIFO cost 6,763,841 6,763,841
22,468,238 22,441,517
Other assets - current
Deferred income taxes 2,547,293 2,575,684
Other 1,319,856 1,325,492
Total current assets 49,184,576 50,522,985
Net Assets of Discontinued Operations 16,808,407 13,668,396
Property, Plant and Equipment
Land 1,911,631 1,911,631
Buildings 13,046,957 13,046,957
Machinery and equipment 56,409,609 55,552,823
71,368,197 70,511,411
Less accumulated depreciation 50,637,546 50,055,789
20,730,651 20,455,622
Other Assets
Deferred income taxes 1,109,992 1,087,598
Goodwill 2,840,396 2,897,972
Other 83,218 84,799
4,033,606 4,070,369
Total Assets $90,757,240 $88,717,372
* - Derived from audited financial statements
(See Notes to Consolidated Financial Statements)
PART 1 - FINANCIAL INFORMATION Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS Page 3
FANSTEEL INC.
CONSOLIDATED BALANCE SHEET (Contd.)
March 31, December 31,
1999 1998
(Unaudited) *
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $10,271,802 $11,185,587
Accrued liabilities 12,207,126 10,733,582
Accrued income taxes 1,136,596 707,772
Current maturities of long-term debt 301,827 306,578
Total current liabilities 23,917,351 22,933,519
Long-term Debt 2,462,302 2,506,746
Other Liabilities
Environmental remediation 15,646,000 15,646,000
Pension liabilities 140,147 84,017
Total other liabilities 15,786,147 15,730,017
Shareholders' Equity
Preferred stock without par value
Authorized and unissued 1,000,000 shares - -
Common stock, par value $2.50
Authorized 12,000,000 shares
Issued and outstanding 8,598,858 shares 21,497,145 21,497,145
Retained earnings 31,873,454 30,829,632
Other Comprehensive Income
Minimum pension liability (4,778,714) (4,778,714)
Foreign currency translation (445) (973)
Total other comprehensive income (4,779,159) (4,779,687)
48,591,440 47,547,090
Total Liabilities and Shareholders' Equity $90,757,240 $88,717,372
* - Derived from audited financial statements
(See Notes to Consolidated Financial Statements)
PART 1 - FINANCIAL INFORMATION Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS Page 4
FANSTEEL INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the Three Months Ended
March 31, March 31,
1999 1998
Net sales $ 37,045,160 $ 39,789,485
Costs and expenses
Cost of products sold 30,592,763 32,603,487
Selling, general and administrative 4,929,164 4,520,923
35,521,927 37,124,410
Operating income 1,523,233 2,665,075
Other income (expense)
Interest income on investments 14,012 156,318
Interest expense (27,499) (21,025)
Other (36,536) (34,680)
(50,023) 100,613
Income before income taxes 1,473,210 2,765,688
Income tax provision 461,000 1,037,000
Net income $ 1,012,210 $ 1,728,688
Weighted average number of common
shares outstanding 8,598,858 8,598,858
Basic and diluted net income per share
(on average shares outstanding) $ .12 $0.20
Dividends per common share $ - $ -
(See Notes to Consolidated Financial Statements)
PART 1 - FINANCIAL INFORMATION Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS Page 5
FANSTEEL INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31,
1999 1998
Increase (decrease) in
cash and cash equivalents
Cash flows from operating activities:
Net income $ 1,012,210 $ 1,728,688
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 639,333 559,617
Net pension charge (credit) 56,130 (426,288)
Deferred income tax charge 5,997 319,415
Changes in assets and liabilities:
(Increase) in marketable securities - (65,197)
(Increase) in accounts receivable (537,639) (1,469,179)
(Increase) in inventories (26,721) (1,598,961)
Decrease in other assets-current 28,030 94,944
Increase in accounts payable and accruals 591,899 1,184,777
Increase in income taxes payable 428,824 968,073
(Increase) in other assets (20,813) (84,007)
Net cash provided by operating activities 2,177,250 1,211,882
Cash flows from investing activities:
Additions to property, plant and equipment (856,786) (499,630)
Increase in net assets of discontinued
operations-design, engineering and
equipment for processing plant (3,140,011) (1,327,641)
Net cash (used in) investing activities (3,996,797) (1,827,271)
Cash flows from financing activities:
Proceeds from long-term debt - 125,000
Payments of long-term debt (49,195) (56,897)
Net cash provided by financing activities (49,195) 68,103
Net (decrease) in cash and cash equivalents (1,868,742) (547,286)
Cash and cash equivalents at beginning of
period 2,031,835 8,038,229
Cash and cash equivalents at March 31 $ 163,093 $ 7,490,943
(See Notes to Consolidated Financial Statements)
PART 1 - FINANCIAL INFORMATION Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS Page 6
FANSTEEL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Consolidated Financial Statements
The consolidated balance sheet at March 31, 1999, and the consolidated
statements of income for the three months ended March 31, 1999 and 1998, and the
consolidated statements of cash flows for the three months ended March 31, 1999
and 1998, are unaudited, but include all adjustments (consisting only of normal
and recurring accruals) which the Company considers necessary for fair
presentation.
The accompanying consolidated financial statements do not include all
disclosures normally provided in annual financial statements and, therefore,
should be read in conjunction with the year-end financial statements.
The Company's line of credit expires in January, 2000. The credit lines are
currently being used for letters of credit needed for funding assurance related
to environmental issues, insurance policies, and development loans. Total unused
lines of credit were $12.1 million as of March 31, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components;
however, adoption of this Statement has no impact on net income or shareholders'
equity. Statement 130 requires unrealized gains or losses on available-for-sale
securities and foreign currency translation adjustments, which prior to adoption
were reported separately in shareholders' equity, to be included in other
comprehensive income. For the three months ended March 31, 1999 total
comprehensive income was $528 more than net income due to foreign currency
translation gains. For the three months ended March 31, 1998 total comprehensive
income was equal to net income.
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which changes the way the Company reports
information about its operating segments in annual financial statements and also
requires selected segment information in interim reports to shareholders. The
information for 1998 has been restated from the prior years' presentation in
order to conform to the 1999 presentation. The Company's business units have
separate management teams and infrastructures that offer different products and
services.
PART 1 - FINANCIAL INFORMATION Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS Page 7
FANSTEEL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
(UNAUDITED)
Business Segment Information
The Company is engaged in the manufacture of specialty metal products, which
it classifies into three business segments: Industrial Tools, Advanced
Structures and Industrial Metal Components. Net sales and operating income
(loss) for the first quarter ended March 31, 1999 and 1998 for each of the
Company's business segments are summarized below:
1999 1998
NET SALES:
INDUSTRIAL TOOLS
Sales $ 13,660,231 $ 15,353,030
Intersegment sales (187) (4,228)
13,660,044 15,348,802
ADVANCED STRUCTURES
Sales 12,267,141 14,166,994
Intersegment sales - -
12,267,141 14,166,994
INDUSTRIAL METAL COMPONENTS
Sales 11,121,188 10,282,678
Intersegment sales (3,213) (8,989)
11,117,975 10,273,689
TOTAL NET SALES $ 37,045,160 $ 39,789,485
OPERATING INCOME (LOSS):
INDUSTRIAL TOOLS $ 1,170,365 $ 1,144,369
ADVANCED STRUCTURES 331,725 887,565
INDUSTRIAL METAL COMPONENTS 526,599 648,911
CORPORATE (505,456) (15,770)
TOTAL OPERATING INCOME (LOSS) $ 1,523,233 $ 2,665,075
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 8
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations may contain various "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which can be
identified by the use of forward-looking terminology such as "believes",
"expects", "prospects", "estimated", "should", "may" or the negative thereof or
other variations thereon or comparable terminology indicating the Company's
expectations or beliefs concerning future events. The Company cautions that
such statements are qualified by important factors that could cause actual
results to differ materially from those in the forward-looking statements, a
number of which are identified in the discussion which follows. Other factors
could also cause actual results to differ materially from expected results
included in these statements.
The following discussion should be read in conjunction with the consolidated
financial statements of the Company and the related notes to the consolidated
financial statements.
Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998
Net sales for Fansteel in the first quarter of 1999 were $37,045,000 compared
to first quarter 1998 net sales of $39,789,000, a decrease of $2,744,000, or
6.9%.
The Company's operating income for the quarter ended March 31, 1999 of
$1,523,000 decreased $1,142,000 from first quarter 1998 operating income of
$2,665,000 as a result of the lower sales volume and a one-time charge related
to management changes.
The Company incurred other expenses of $50,000 for the first quarter of 1999
compared to other income of $101,000 in the first quarter of 1998. The
$151,000 unfavorable swing resulted from less cash being available for
investment due primarily to expenditures for the processing plant at the former
Muskogee, Oklahoma facility as part of environmental remediation.
Net income for the first quarter of 1999 was $1,012,000, or $.12 per share,
compared to net income of $1,729,000, or $.20 per share, in the first quarter of
1998. First quarter 1999 earnings were lower by $.04 per share due to the
one-time charge related to management changes. Without this one-time charge, net
income as a percentage of net sales for the first quarter of 1999 was 3.5.%
compared to 4.3% for the first quarter of 1998. The effective tax rate was lower
in the first quarter of 1999 due to the reduction in the valuation allowance for
deferred taxes related to environmental reserves which had a favorable impact on
net income of $.01 per share.
First quarter 1999 net sales for the Industrial Tools business segment were
$13,660,000 compared to $15,349,000 for the same period of 1998, a decrease of
$1,689,000, or 11.0%. This decline was due primarily to weaker demand for
tungsten carbide cutting tools as customers adjusted inventories during the
current quarter after a build-up in 1998. In the wear parts product line, sales
of drilling compacts and nozzles suffered from the reduction in oil drilling
rigs due to the lower price of crude oil during 1998. First quarter 1999
construction tool sales increased over the same period of the prior year,
particularly sales of newly designed road planing tools. Coal mining tool sales
also improved over the first quarter of 1998 due to better distribution and
improved marketing efforts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 9
Industrial Tools business segment operating income for the first quarter of
1999 was $1,170,000 compared to $1,144,000 for the same period of 1998. Despite
the lower sales volume, operating income increased as a percentage of net sales
to 8.6% from 7.5% in the first quarter of 1998 due to lower overhead and
material costs.
Net sales for the Advanced Structures business segment for the quarter ended
March 31, 1999 were $12,267,000, a decrease of $1,900,000, or 13.4%, from first
quarter 1998 net sales of $14,167,000. Sales in all product lines within this
business segment have declined due to delayed order releases as the major
aircraft manufacturers revised their 1999 production schedules beginning in the
fourth quarter of 1998. In addition, both the forging and the sand casting
operations experienced production inefficiencies in the first quarter of 1999
that resulted in delayed shipments.
Advanced Structures business segment operating income for the first quarter
of 1999 was $332,000 compared to $888,000 for the same period of 1998. In
addition to the lower sales volume in the first quarter of 1999, operating
income was negatively impacted by inefficiencies in product flow relating to
various factors which are being or have been addressed. These production
inefficiencies at the forging and sand casting facilities resulted in higher
manufacturing and scrap costs. At the forging facility an upgraded steam
delivery system, which is expected to be in full operation by the end of the
second quarter of 1999, will minimize these inefficiencies by increasing steam
capacity.
Industrial Metal Components business segment net sales for the quarter ended
March 31, 1999 were $11,118,000, an increase of $844,000, or 8.2%, from first
quarter 1998 net sales of $10,274,000. Investment castings revenues provided
nearly all of this improvement, benefiting from the increased capacity from the
Fansteel de Mexico production start-up at the beginning of this year. Based on
the continued strength of the lawn and garden industry, wire formed product
sales remained even with their record first quarter, 1998 sales level. Sales of
powdered metal components declined as key customers continued to tightly control
their inventory levels.
Industrial Metal Components business segment operating income for the first
quarter of 1999 was $527,000 compared to $649,000 for the same period of 1998.
The incremental income on higher volume was off-set by increased start-up costs
at the Mexico facility. As a percentage of net sales, operating income was 4.7%
for the first quarter of 1999 compared to 6.3% in the same period last year.
Operating income as a percentage of sales was positively impacted by lower labor
costs, but negatively impacted by higher material and overhead costs.
Order backlog at March 31, 1999 was $54,331,000 compared to $59,973,000 at
March 31, 1998, a decrease of $5,642,000 or 9.4%. Most of the decrease came from
the aircraft market within the Advanced Structures business segment, as major
manufacturers have delayed order releases. The Industrial Tools business segment
backlog also experienced a decline related to slowdowns in the metalworking and
oil industries. The Industrial Metal Components backlog improved over the prior
year first quarter with increased orders for powdered metal components used in
the lawn and garden industry and for investment castings used in the automotive
and marine markets.
Inflation factors did not, and generally do not, significantly affect the
overall operations of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 10
Outlook
Sales and order rates in a number of key markets including automotive,
metalworking, and the commercial aircraft market experienced decreases in the
last half of 1998 compared to the first half of 1998. The first quarter of 1999
remained at the second half of 1998 level. Growth in 1999 compared to the second
half of 1998 will depend on opportunities from improvements in the Company's
production processes, new product development, and investment in capital
equipment. The Company is seeking increased share of current markets, as well as
new markets, through investment in current operating units, such as the 1998
Fansteel de Mexico start-up which began full production in the first quarter of
1999. Cost control programs remain active in all operating plans throughout the
Company.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $163,000 at March 31, 1999, a decrease
of $1,869,000 from December 31, 1998. Investments in plant and equipment at
operating locations totaled $857,000, in accordance with management's program to
expand the operations of the Company. Engineering, equipment and start-up costs
of $3,140,000 were incurred for the processing plant being built for reclamation
and decommissioning purposes in Muskogee, Oklahoma.
In the fourth quarter of 1995, the Company announced the suspension of the
quarterly shareholder dividend for the purpose of conserving cash for capital
reinvestment, possible future acquisitions, and due to potential changes in
funding requirements for decommissioning at the Company's discontinued operation
in Muskogee, Oklahoma.
Cash, cash equivalents and marketable securities on hand have been sufficient
to date to meet the demands of increased working capital investments,
expenditures for machinery and equipment, environmental costs and other normal
operating requirements. However, in anticipation of Company programs to expand
current operations, possible future acquisitions, and reclamation and
decommissioning costs for the Muskogee, Oklahoma plant, the Company increased
its line of credit in the first quarter of 1997 by adding a $17 million
revolving credit agreement, which expires in January, 2000, to its existing
lines of credit. The credit lines are currently being used for letters of credit
needed for funding assurance related to environmental issues, insurance policies
and development loans. Total unused lines of credit, including the revolving
credit agreement, were $12.1 million as of March 31, 1999. The Company expects
to further use a portion of this unused credit during 1999 to fund the start-up
of the reclamation processing plant in Muskogee.
Funding assistance by states and municipalities is investigated when any
significant expenditures are proposed. All of the Company's debt is related to
development loans obtained from various states.
Environmental Remediation and Discontinued Operations
The Company discontinued its Metal Products business segment in 1989.
Environmental reclamation and decommissioning is required for the segment's
primary plant that processed certain ores which are subject to regulations of
several government agencies. The residues from these processed ores were stored
on-site. Remaining assets were written down to estimated realizable value, and
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 11
provisions were made for the estimated costs for decommissioning. The Company,
in association with outside consultants, has developed a decommissioning plan
for the site involved, and has submitted that plan and a related decommissioning
funding plan to the Nuclear Regulatory Commission ("NRC") as required by law.
Prior to decommissioning, the Company will construct and operate for
approximately ten years a commercial plant to complete the processing of
residues currently contained in storage ponds at the site, which will materially
reduce the amount of radioactive materials to be disposed of during
decommissioning. In conjunction with construction of the processing plant, the
Company will modify the wastewater treatment plant at the site and install a
drainage system. Decommissioning would include construction of an engineered
on-site cell for containment of contaminated soils; consolidation and
stabilization of the contaminated soils in the containment cell; and the
performance of required plant surveys and characterizations after residue
processing ceases to determine whether additional contaminated soils exist which
may require remediation.
The Company has received an amendment to its current NRC license and a
revision to its current wastewater discharge permit to allow for the
construction and operation of the processing plant. Construction is nearly
completed on the processing plant which will extract commercially valuable
materials such as tantalum, columbium, scandium and other rare earth and rare
metal elements from the feedstock residues. The construction phase is in the
final stages and processing of residues will begin in May.
At March 31, 1999 the Company had recorded liabilities of $9.5 million for
discontinued operations including the estimated net costs of reclaiming and
decommissioning the site during and after the approximate ten years of
processing the residues described above. An additional provision for
discontinued operations of $7.1 million was recorded in 1997 to increase the
established liabilities for the estimated cost of additional studies which may
be required by regulatory agencies, higher start-up costs, and potentially
greater disposal costs after completion of the residue processing period, as
well as for cost estimates related to probable future environmental remediation
at a second site which had been part of the Metal Products business segment. The
second site is regulated under the Resource Conservation and Recovery Act and,
as a result of alleged migration of contaminants from this second site, the
Company also has been identified as a potentially responsible party under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) at
a neighboring third-party site.
The estimated net costs of reclaiming and decommissioning the first site
during the residue processing period include estimated annual revenues of
approximately $8 million per year over the ten year processing period and
estimated annual operating costs, including depreciation, of approximately the
same amount, related to residue processing. The estimated value of materials to
be extracted is based on analysis of samples taken from the residues and a
valuation of such materials using current market prices discounted to reflect
possible price decreases, including those which could result from the increased
quantities of certain of these materials made available for sale. However, there
can be no assurance as to the level of demand for the extracted materials or the
actual prices which may be obtained for them, which could vary over time. The
estimated costs of residue processing were developed by Company personnel and
independent consultants using third-party evaluations based on the pilot testing
performed. Unforeseen production complications could cause processing costs to
increase from current estimates.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 12
In October 1995 the NRC advised the Company that a decommissioning funding
plan cost estimate based upon on-site disposal of most of the radioactive wastes
at the site was appropriate to consider. The NRC cautioned the Company, however,
that on-site disposal may require preparation of an Environmental Impact
Statement and that, in addition to the required NRC approval, local and
other federal agencies may have to be satisfied that the Company's disposal plan
is sound. Such approval process can be expected to extend over a number of
years. Management believes that a decommissioning plan including on-site
containment will ultimately be acceptable to the appropriate regulatory
authorities, based on current NRC regulations or provisions of the Nuclear Waste
Policy Act of 1982. However, there is no assurance that a plan providing for
on-site containment will ultimately be approved. Implementation of a
decommissioning plan for the Company's site which includes off-site disposal may
not be financially feasible.
The NRC decommissioning regulations require licensees to estimate the cost
for decommissioning and to assure in advance that adequate funds will be
available to cover those costs. NRC regulations identify a number of acceptable
methods for assuring funds for decommissioning, including surety instruments
such as letters of credit, cash deposits and combinations thereof. The NRC
October 1995 letter requested that the Company submit a decommissioning funding
plan contemplating on-site containment and stated that the cost of residue
processing should be included in the Company's cost estimate. In March 1996, the
Company submitted a revised decommissioning plan and related decommissioning
funding plan. The level of assurance for decommissioning is currently $4,456,000
provided through letters of credit. The amount does not include assurance for
costs of construction or operation of the residue processing facility. This
level of assurance, however, may be changed upon further review by the NRC. The
Company's available cash and/or borrowing capacity will be reduced by the amount
of funding assurance as required at any particular time. As the decommissioning
plan is implemented, deposited funds or the amount of any surety instruments may
be reduced, provided the Company can demonstrate the sufficiency of the
remaining funds or surety to assure the completion of decommissioning.
In addition to the two sites included in the discontinued operations, the
Company has a total of seven sites at other Company facilities where
environmental remediation is ongoing or will be undertaken. Certain of these
sites were identified as a result of environmental studies conducted by the
Company during 1997 at all of its owned sites, including testing of soil and
groundwater at selected sites as indicated by the environmental studies.
The Company has also been notified that it is a potentially responsible party
at six sites owned by third parties. The Company's participation at four sites
is de minimis, and at the other two sites the Company is either being defended
by its insurance carriers or has meritorious defenses to liability.
At March 31, 1999 the Company had recorded liabilities of $8.3 million for
estimated environmental investigatory and remediation costs based upon an
evaluation of currently available facts with respect to each individual site,
including the results of environmental studies and testing conducted in 1997,
and considering existing technology, presently enacted laws and regulations, and
prior experience in remediation of contaminated sites. An additional provision
of $6,900,000 was recorded in 1997 for the estimated potential exposure for such
costs. Actual costs to be incurred in future periods at identified sites may
vary from the estimates, given the inherent uncertainties in evaluating
environmental exposures. Future information and developments will require the
Company to continually reassess the expected impact of these
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 13
environmental matters. The Company does not expect that any sums it may have to
pay in connection with these environmental liabilities would have a materially
adverse effect on its consolidated financial position.
Year 2000 Readiness Disclosure
Many existing information technology ("IT") products and systems and non-IT
products and systems containing embedded processor technology were originally
programmed to represent any date by using six digits (e.g., 12/31/99), as
opposed to eight digits (e.g., 12/31/1999). Accordingly, such products and
systems may experience miscalculations, malfunctions, or disruptions when
attempting to process information containing dates that fall after December 31,
1999 or other dates, such as September 9, 1999 (9/9/99), a date traditionally
used by computer programmers as a default. These potential problems are
collectively referred to as the "Year 2000" problem. The following comments
summarize the Company's overall approach and status with respect to Year 2000
issues.
The Company has been engaged in an ongoing, comprehensive project to assess
and remediate the impact on its computer systems and programs of the Year 2000
problem. The assessment process began in late 1996 with the inventory of all
potentially affected hardware and software, along with a determination as to
whether or not they may be impacted by the Year 2000. This assessment has been
completed. All affected hardware has been replaced. All software developed
in-house has been reviewed and necessary modifications or replacements are in
process with final testing to be completed by the middle of 1999. The Company
has identified software supplied by outside vendors which is not Year 2000
compliant. With respect to the critical applications, the Company has acquired
the most recent releases or purchased replacement software which is Year 2000
compliant. Implementation and testing of new releases and new software is
scheduled to be completed by the third quarter of 1999. Non-critical
applications are being reviewed on an on-going basis with revision or
replacement being made as needed.
The Company began an assessment in 1998 of non-IT products and systems which
may contain embedded processor technology which will not recognize the year 2000
properly. This assessment is targeted for completion by the end of the second
quarter of 1999. No significant issues have been identified with non-IT products
and systems.
The total Year 2000 costs are estimated at approximately $1.2 million, which
includes new hardware, new software and upgrades to existing computer equipment,
as well as training for these new systems. Three or four year operating leases
have been obtained for a majority of the new IT products and systems, most of
which would have been done through normal operations of the information systems.
Approximately 20% of the total expenditures were made in 1997 with an additional
25% made in 1998, and 10% made in the first quarter of 1999. A portion of the
remaining 45% will be expensed in 1999 with the remainder being expensed in
future years.
The Company initiated communications using questionnaires with key suppliers
and customers in 1998 to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 problems. Key suppliers were determined based upon the amount of
business and the importance to the Company of the material or services provided.
The initial contacts were with financial institutions which provide
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Form 10-Q
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page 14
banking and employee benefit services. All of those financial institutions have
responded by identifying their plans to become Year 2000 compliant and now
provide periodic reports on their progress. All key suppliers and customers
have also been contacted using questionnaires. This process will be ongoing
throughout 1999 by reviewing responses, obtaining updates, requesting additional
follow-up information, and identifying new key suppliers and customers. To date,
no negative responses have been received, but there is no guarantee that systems
of other companies on which the Company's systems rely will be converted timely
and would not have a material adverse effect on the Company's systems.
The Year 2000 project is estimated to be completed in 1999 prior to any
anticipated impact on the Company's IT and non-IT products and systems. The
Company believes that with modifications to existing software and conversions to
new software, the Year 2000 issue will not pose significant operational problems
for its systems. However, if such modifications and conversions are not made or
are not completed in a timely manner, the Year 2000 issue could have a material
impact on the operations of the Company.
At this time, the Company is unable to determine its most reasonably likely
worst case scenarios as a result of the Year 2000 issue. The Company continues
to analyze possible scenarios as part of the Year 2000 project. Currently, the
Company is evaluating key components of its operations and will develop its
contingency plans as more information becomes available. The Company believes it
will have contingency plans by the fourth quarter of 1999.
The costs of the project and the date on which the Company believes it will
complete the Year 2000 project are based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources and other factors. However, there
can be no guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant codes, and the level of compliance by key suppliers and
customers.
Form 10-Q
Page 15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
a) The Annual Meeting of Shareholders was held on April 19, 1999.
c) The nominations for Directors of the Company were brought
before shareholders of the Company at the Annual Meeting of
Shareholders. The votes cast for and votes withheld for each
of the following nominees are as follows:
Votes Votes
Nominee For Withheld
E. P. Evans 8,094,904 102,905
R. S. Evans 8,094,820 102,989
T. M. Evans, Jr. 8,094,998 102,811
P. J. Kalis 8,096,793 101,016
J. S. Petrik 8,102,815 94,994
G. L. Tessitore 8,102,941 94,868
An Amendment of the Long-Term Incentive Compensation plan, designed to
assist in attracting and retaining highly competent employees and to
act as an incentive in motivating selected officers and other key
employees of the Company and its Subsidiaries to achieve long-term
corporate objectives, was placed before shareholders for approval at
the Annual Meeting of Shareholders. The Amendment of the Long-Term
Incentive Compensation plan was approved, with 6,443,447 votes cast for
the plan, 1,492,277 votes cast against the plan, and 262,152
abstentions.
The appointment of Ernst & Young LLP as auditors of the Company for the
year ending December 31, 1999 was placed before shareholders for
ratification at the Annual Meeting of Shareholders. The appointment of
Ernst & Young LLP as auditors of the Company was ratified with
8,188,155 votes cast for, 6,016 votes cast against, and 3,701
abstentions.
Form 10-Q
Page 16
PART II - OTHER INFORMATION
Contd.
Item 6. Exhibits and Reports on Form 8-K
a) The following items required by Item 601 of Regulation S-K are
submitted as follows:
Exhibit 10a - Change in Control Agreement between the Company and Gary
L. Tessitore dated as of April 19, 1999 (filed herewith).
Exhibit 10b - Change in Control Agreement among the Company and the
individuals listed on the signature page thereto dated as of April
19, 1999 (filed herewith).
Exhibit 10c - Employment Offer Letter between the Company and
Gary L. Tessitore dated as of January 26, 1999 (filed herewith).
Exhibit 10d - Fansteel Inc. 1998 Long-term Incentive Plan, as amended
effective January 26, 1999 (incorporated by reference to Exhibit A of
the Company's definitive proxy statement dated as of April 19, 1999).
b) No reports on Form 8-K were filed during the quarter ended
March 31, 1999.
Form 10-Q
Page 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Fansteel Inc.
(Registrant)
Date - 05/14/99 /s/ Gary L. Tessitore
Gary L. Tessitore
Chairman, President and Chief Executive Officer
Date - 05/14/99 /s/ R. Michael McEntee
R. Michael McEntee
Vice President and Chief Financial Officer
INDEX OF EXHIBITS
Exhibit No.
10a Change in Control Agreement between the Company and Gary L.
Tessitore dated as of April 19, 1999 (filed herewith).
10b Change in Control Agreement among the Company and the individuals
listed on the signature page thereto dated as of April 19, 1999
(filed herewith).
10c Employment Offer Letter between the Company and Gary L. Tessitore
dated as of January 26, 1999 (filed herewith).
10d Fansteel Inc. 1998 Long-term Incentive Plan, as amended effective
January 26, 1999 (incorporated by reference to Exhibit A of
the Company's definitive proxy statement dated as of April 19,
1999).
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999
THIS AGREEMENT (this "Agreement") is made and entered into as of this
19th day of April, 1999 (the "Effective Date"), by and among Fansteel, Inc., a
Delaware corporation (hereinafter referred to as the "Company"), and Gary L.
Tessitore (the "Executive").
W I T N E S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
approved the Company entering into this agreement providing for certain
severance protection for the Executive following a Significant Ownership Event
(as hereinafter defined);
WHEREAS, the Board believes that, should the possibility of a
Significant Ownership Event arise, it is imperative that the Company be able to
receive and rely upon the Executive's advice, if requested, as to the best
interests of the Company and its shareholders without concern that he or she
might be distracted by the personal uncertainties and risks created by the
possibility of a Significant Ownership Event; and
WHEREAS, in addition to the Executive's regular duties, he or she may
be called upon to assist in the assessment of a possible Significant Ownership
Event, advise management and the Board as to whether such Significant Ownership
Event would be in the best interests of the Company and its shareholders, and to
take such other actions as the Board determines to be appropriate.
NOW THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his or her advice and
counsel notwithstanding the possibility, threat, or occurrence of a Significant
Ownership Event, and to induce the Executive to remain in the employ of the
Company, and for other good and valuable consideration, the Company and the
Executive, intending to be legally bound, agree as follows:
Article 1. Definitions
Whenever used in this Agreement, the following terms shall have the
meanings set forth below when the initial letter of the word is capitalized:
(a) "Base Salary" shall mean the salary of record paid by the
Company to the Executive as annual salary, excluding amounts
received under incentive or other bonus plans, whether or not
deferred.
(b) "Beneficiary" shall mean the persons or entities designated or
deemed designated by the Executive pursuant to Section 7.2
herein.
(c) "Cause" shall mean the occurrence of any one or more of the
following:
(i) willful misconduct by the Executive in the performance of
his duties (other than due to disability);
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
(ii) dishonesty or breach of trust by the Executive which is
demonstrably injurious to the Company or its subsidiaries;
or
(iii) conviction or plea of nolo contendere to a felony or a
misdemeanor involving moral turpitude.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Effective Date of Termination" shall mean the date on which the
Executive's employment terminates in a circumstance in which
Section 2.1 provides for Severance Benefits (as defined in
Section 2.1).
(f) "Good Reason" shall mean, without the Executive's express
written consent, the occurrence of any one or more of the
following:
(i) A material diminution of the Executive's authorities,
duties, responsibilities, and status (including offices,
titles, and reporting requirements) as an employee of the
Company from those in effect as of one hundred eighty (180)
days prior to the Significant Ownership Event, other than
an insubstantial and inadvertent act that is remedied by
the Company promptly after receipt of notice thereof given
by the Executive, and other than any such alteration which
is consented to by the Executive in writing;
(ii) The Company's requiring the Executive to be based at a
location in excess of thirty-five (35) miles from the
location of the Executive's principal job location or
office immediately prior to the Significant Ownership
Event, except for required travel on the Company's business
to an extent substantially consistent with the Executive's
present business obligations;
(iii) A reduction in the Executive's base salary or any material
reduction by the Company of the Executive's other
compensation or benefits from that in effect immediately
before the Significant Ownership Event occurred;
(iv) The failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and
agree to perform the Company's obligations under this
Agreement, as contemplated in Article 5 herein; and
(v) Any purported termination by the Company of the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 2.4
herein, and for purposes of this Agreement no such
purported termination shall be effective.
The Executive's right to terminate employment for Good Reason
shall not be affected by the Executive's (A) incapacity due to
physical or mental illness or (B) continued employment following
the occurrence of any event constituting Good Reason herein.
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
(g) A "Significant Ownership Event" shall mean, and shall be deemed
to have occurred upon the occurrence of, any one of the
following events:
(i) The acquisition in one or more transactions, other than
from the Company, by any individual, entity or "group"
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) of 30% or more of the
combined voting power of all outstanding voting securities
of the Company entitled to vote generally in the election
of directors ("Company Voting Securities"); provided,
however, that the following shall not constitute a
Significant Ownership Event: any acquisition by (1) the
Company and/or one or more of its subsidiaries and/or any
employee benefit plan (or related trust) sponsored or
maintained by the Company and/or one or more of its
subsidiaries, or (2) any entity with respect to which,
following such acquisition, more than 70% of the combined
voting power of the then outstanding voting securities of
such entity entitled to vote generally in the election of
directors or persons holding a similar office for such
entity (hereinafter, a "director") is then beneficially
owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial
owners of the Company Voting Securities immediately prior
to such acquisition in substantially the same proportion as
their ownership, immediately prior to such acquisition, of
the Company Voting Securities; or
(ii) Individuals who are members of the Board as of the date of
this Agreement (the "Incumbent Directors") cease for any
reason to constitute at least a majority of the members of
the Board; provided, however, that any individual becoming
a director subsequent to the date of this Agreement whose
appointment to the Board or nomination for election by the
Company was approved by a vote of at least a majority of
the Incumbent Directors then in office (unless such
appointment or election was at the request of an unrelated
third party who has taken steps reasonably calculated to
result in a Significant Ownership Event and who has
indicated publicly an intent to seek control of the
Company) shall be treated from the date of his appointment
or election as an Incumbent Director; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger, consolidation or similar
transaction (a "Transaction"), unless, following such
Transaction, all or substantially all of the individuals
and entities who were the beneficial owners of the Company
Voting Securities immediately prior to such Transaction
following such Transaction beneficially own, directly or
indirectly, more than 70% of the combined voting power of
the then outstanding voting securities of the entity
surviving the Transaction entitled to vote generally in the
election of directors of such entity in substantially the
same proportion as their ownership, immediately prior to
such Transaction, of the Company Voting Securities; or
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
(iv) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii)
a sale or other disposition of all or substantially all of
the assets of the Company other than to an entity with
respect to which, following such sale or disposition, more
than 70% of the combined voting power of the then
outstanding voting securities of such entity entitled to
vote generally in the election of directors is beneficially
owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial
owners of the Company Voting Securities immediately prior
to such sale or disposition in substantially the same
proportion as their ownership of Company Voting Securities
immediately prior to such sale or disposition.
Notwithstanding the foregoing, a Significant Ownership Event
shall not be deemed to have occurred solely as a result of:
(x) the distribution of shares of Common Stock of the Company
from the Estate of T. M. Evans (the "Estate") to
beneficiaries of the Estate (the "Beneficiaries); or
(y) any transfers, with or without consideration, among the
Beneficiaries or to one or more members of the family of
any Beneficiary (which shall be deemed to include a
Beneficiary's brothers and sisters (whether of the whole or
half blood), spouse, ancestors and lineal descendants) or a
trust, partnership or other estate planning vehicle for the
benefit of one or more Beneficiaries and/or members of the
family of a Beneficiary and/or future lineal descendants of
a Beneficiary or such a family member; or the formation of
a group among any of the foregoing (all of the foregoing
being referred to herein collectively as "Beneficiary
Interests"); or
(z) any acquisition as provided in subsection (g)(i) above or
transaction as provided in subsections (g) (iii) or (iv)
above, following which the Estate and the Beneficiary
Interests (other than any Beneficiary Interests who are
participants in a group with a person who is not a
Beneficiary Interest) retain beneficial ownership of
securities representing at least 25% of the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors of, as
applicable, the Company, the entity surviving a Transaction
or the entity to which such sale or disposition was made,
unless in connection with or as a result of such event
individuals who are affiliates or associates (as such terms
are defined in Rule 12b-2 under the Exchange Act) of a
person who is not a Beneficiary Interest or a group
including a person who is not a Beneficiary Interest are
elected or appointed as members of the Board and constitute
at least one-third of the number of directors then in
office.
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
Article 2. Severance Benefits
2.1. Right to Severance Benefits. The Executive shall be entitled to
receive from the Company the severance benefits described in Section 2.2
("Severance Benefits") if a Significant Ownership Event shall occur and within
two years after the Significant Ownership Event either of the following shall
occur:
(i) an involuntary termination of the Executive's employment
with the Company without Cause; or
(ii) a voluntary termination of the Executive's employment with
the Company for Good Reason.
2.2. Severance Benefits. In the event that the Executive becomes
entitled to receive Severance Benefits, as provided in Section 2.1, the Company
shall provide the Executive with total Severance Benefits as follows (subject to
Sections 2.5 and 2.6):
(a) The Executive shall receive a single lump sum payment within
thirty (30) days of the Effective Date of Termination in an
amount equal to 2.99 times the sum of (i) the highest rate of
the Executive's monthly Base Salary in effect during the twelve
(12) month period prior to the Significant Ownership Event at
any time up to and including the Effective Date of Termination
and (ii) the Executive's average annual bonus accrued (without
regard to the timing of payment of such accrual) over the most
recent three (3) full bonus plan years ending prior to the
Effective Date of Termination.
(b) The Executive shall receive an amount, paid within thirty (30)
days of the Effective Date of Termination, equal to the
Executive's unpaid Base Salary, accrued but unused vacation pay
and earned but unpaid bonuses and all other cash entitlements
through the Effective Date of Termination plus an amount equal
to the aggregate amount of matching contributions that would be
credited to the Executive under the Fansteel Savings and Profit
Sharing Plan for the three years following the Effective Date of
Termination if (i) the Executive were to continue to participate
and make the maximum permissible contribution thereunder and
(ii) the applicable rate of matching contributions during such
period were to equal the average rate of match under the plan
for the three years immediately prior to the Effective Date of
Termination.
(c) All welfare benefits, including medical, dental, vision, life
and disability benefits pursuant to plans under which the
Executive and/or the Executive's family is eligible to receive
benefits and/or coverage shall be continued for a period of
eighteen (18) months after the Effective Date of Termination.
Such benefits shall be provided to the Executive at no less than
the same coverage level as in effect as of the date of the
Significant Ownership Event. The Company shall pay the full
cost of such continued benefits, except that the Executive shall
bear any portion of such cost as was required to be borne by key
executives of the Company generally at the date of the
Significant Ownership Event. Notwithstanding the foregoing,
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
the benefits described in this Section 2.2(c) may be
discontinued prior to the end of the period provided in this
Section to the extent, but only to the extent, that the
Executive receives substantially similar benefits from a
subsequent employer.
2.3. Termination for Any Other Reason. If the Executive's employment
with the Company is terminated under any circumstances other than those set
forth in Section 2.1, including without limitation by reason of retirement,
death, disability, discharge for Cause or resignation without Good Reason, or
any termination for any reason that occurs prior to a Significant Ownership
Event or after two years following a Significant Ownership Event, the Executive
shall have no right to receive the Severance Benefits under this Agreement or to
receive any payments in respect of this Agreement. In such event Executive's
benefits, if any, in respect of such termination shall be determined in
accordance with the Company's retirement, survivor's benefits, insurance, and
other applicable plans, programs, policies, and practices then in effect.
Anything in this Agreement to the contrary notwithstanding, if the Executive's
employment with the Company is terminated prior to the date onwhich a
Significant Ownership Event occurs either (i) by the Company other than for
Cause or (ii) by the Executive for Good Reason, and it is reasonably
demonstrated that termination of employment (a) was at the request of an
unrelated third party who has taken steps reasonably calculated to effect a
Significant Ownership Event, or (b) otherwise arose in connection with or in
anticipation of a Significant Ownership Event, then for all purposes of this
Agreement the termination shall be deemed to have occurred upon a Significant
Ownership Event and the Executive will be entitled to Severance Benefits as
provided in Section 2.2 herein.
2.4. Notice of Termination. Any termination by the Company for Cause
or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon, and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
2.5. Withholding of Taxes. The Company shall withhold from any
amounts payable under this Agreement all Federal, state, local, or other taxes
as legally shall be required to be withheld.
2.6. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any economic benefit or
payment or distribution by the Company to or for the benefit of
the Employee, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up-Payment")
in an amount such that after payment by the Executive of all
taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payments.
(b) Subject to the provisions of Section 2.6(c), all determinations
required to be made under this Section 2.6, including whether a
Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by the Company's regular outside
independent public accounting firm (the "Accounting Firm") which
shall provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the
Effective Date of Termination, if applicable, or such earlier
time as is requested by the Company . The initial Gross-Up
Payment, if any, as determined pursuant to this Section 2.6(b),
shall be paid to the Executive within 5 days of the receipt of
the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with an opinion that he has
substantial authority not to report any Excise Tax on his
federal income tax return. Any determination by the Accounting
Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of
the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments
which will not have been made by the Company should have been
made ("Underpayment"), consistent with the calculations required
to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 2.6(c) and the Executive thereafter
is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten business days after the later of either (i) the date
the Executive has actual knowledge of such claim, or (ii) ten
days after the Internal Revenue Service issues to the Executive
either a written report proposing imposition of the Excise Tax
or a statutory notice of deficiency with respect thereto, and
shall apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the
thirty-day period following the date on which he gives such
notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If
the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim,
the Executive shall: (i) give the Company any information
reasonably requested by the Company relating to such claim, (ii)
take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by
the Company, (iii) cooperate with the Company in good faith in
order effectively to contest such claim, (iv) permit the Company
to participate in any
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
proceedings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect
thereto, imposed as a result of such representation and payment
of costs and expenses. Without limitation of the foregoing
provisions of this Section 2.6(c), the Company shall control all
proceedings taken in connection with such contest and, at its
sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option,
either direct the Executive to request or accede to a request
for an extension of the statute of limitations with respect only
to the tax claimed, or pay the tax claimed and sue for a refund
or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company
shall determine; provided, however, that if the Company directs
the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax, including interest or penalties with
respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and
further provided that any extension of the statute of
limitations requested or acceded to by the Executive at the
Company's request and relating to payment of taxes for the
taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 2.6(c), the Executive becomes
entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the
requirements of Section 2.6(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company
pursuant to Section 2.6(c), a determination is made that the
Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to
the expiration of thirty days after such determination, then
such advance shall be forgiven and shall not be required to be
repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be
paid.
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
(e) In the event that any state or municipality or subdivision
thereof shall subject any Payment to any special tax which shall
be in addition to the generally applicable income tax imposed by
such state, municipality, or subdivision with respect to receipt
of such Payment, the foregoing provisions of this Section 2.6
shall apply, mutatis mutandis, with respect to such special tax.
Article 3. The Company's Payment Obligation
3.1. Payment Obligations Absolute. Except as otherwise provided in
the last sentence of Section 2.2(c) and the next sentence in this Section 3.1,
the Company's obligation to make the payments and the arrangements provided for
herein shall be absolute and unconditional, and shall not be affected by any
circumstances, including, without limitation, any offset, counterclaim,
recoupment, defense, or other right which the Company may have against the
Executive or any other party. In the event the Executive becomes entitled to
receive Severance Benefits hereunder, such Severance Benefits shall be in lieu
of any other severance pay or benefits that would otherwise be due to the
Executive under any other severance pay plan or arrangement of the Company and
its affiliates (other than vesting acceleration provisions with respect to
stock options and other equity interests awarded under the Company's Long-Term
Incentive Plan). All amounts payable by the Company hereunder shall be paid
without notice or demand. Each and every payment made hereunder by the Company
shall be final, and the Company shall not seek to recover all or any part of
such payment from the Executive or from whomsoever may be entitled thereto for
any reasons whatsoever. Notwithstanding any other provisions of this Agreement
to the contrary, the Company shall have no obligation to make any payment to the
Executive hereunder to the extent, but only to the extent, that such payment is
prohibited by the terms of any final order of a Federal or state court or
regulatory agency of competent jurisdiction; provided, however, that such an
order shall not affect, impair, or invalidate any provision of this Agreement
not expressly subject to such order.
3.2. Contractual Rights to Benefits. This Agreement establishes and
vests in the Executive a contractual right to the benefits to which he is
entitled hereunder. Nothing herein contained shall require or be deemed to
require, or prohibit or be deemed to prohibit, the Company to segregate,
earmark, or otherwise set aside any funds or other assets, in trust or
otherwise, to provide for any payments to be made or required hereunder. The
Executive shall not be obligated to seek other employment in mitigation of the
amounts payable or arrangements made under any provision of this Agreement, and
the obtaining of any such other employment shall in no event effect any
reduction of the Company's obligations to make the payments and arrangements
required to be made under this Agreement, except to the extent provided in the
last sentence of Section 2.2(c).
Article 4. Enforcement and Legal Remedies
4.1 Resolution of Differences Over Breaches of Agreement. In the
event of any controversy, dispute, or claim arising out of, or relating to this
Agreement, or the breach hereof, or arising out of any other matter relating to
the Executive's employment with the Company or the termination of such
employment, the Company and the Executive agree that such underlying
controversy, dispute, or claim shall be settled by arbitration conducted in
Chicago, Illinois in accordance with this Section 4.1 and the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). The matter
shall be heard and decided, and award rendered, by a panel of three (3)EXHIBIT
10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
arbitrators (the "Arbitration Panel"). The Company and the Executive shall each
select one arbitrator from the AAA National Panel of Commercial
Arbitrators (the "Commercial Panel") and AAA shall elect a third arbitrator from
the Commercial Panel. The award rendered by the Arbitration Panel shall be
final and binding between the parties hereto and their heirs, executors,
administrators, successors and assigns, and judgment on the award may be entered
by any court having jurisdiction thereof.
4.2 Cost of Enforcement. In the event that it shall be necessary or
desirable for the Executive to retain legal counsel in connection with the
enforcement of any or all of his rights to Severance Benefits under Section 2.2
of this Agreement, and provided that the Executive substantially prevails in the
enforcement of such rights, the Company shall pay (or the Executive shall be
entitled to recover from the Company, as the case may be) the Executive's
reasonable attorneys' fees, costs and expenses in connection with the
enforcement of his rights.
Article 5. Binding Effect; Successors
The rights of the parties hereunder shall inure to the benefit of
their respective successors, assigns, nominees, or other legal representatives.
The Company shall require any successor (whether direct or indirect, by
purchase, merger, reorganization, consolidation, acquisition of property or
stock, liquidation, or otherwise) to all or a significant portion of the assets
of the Company, as the case may be, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. Regardless of
whether such agreement is executed, this Agreement shall be binding upon any
successor in accordance with the operation of law and such successor shall be
deemed the "Company" for purposes of this Agreement.
Article 6. Term of Agreement
The term of this Agreement shall commence on the Effective Date and
shall continue in effect for three (3) full years. However, in the event a
Significant Ownership Event occurs during the term, this Agreement will remain
in effect for the longer of: (i) twenty-four (24) months beyond the month in
which such Significant Ownership Event occurs; or (ii) until all obligations of
the Company hereunder have been fulfilled, and until all benefits required
hereunder have been paid to the Executive or other party entitled thereto. The
term of this Agreement may be extended by written agreement of the parties.
Article 7. Miscellaneous
7.1. Amendment to Stock Options. The Executive hereby agrees that
the existing Stock Option Agreement between the Company and the Executive is
hereby amended so that the vesting and exercisability of stock options
thereunder shall not be accelerated upon a "Change in Control" as defined in
such Stock Option Agreement but shall be accelerated upon a Significant
Ownership Event as defined in this Agreement.
7.2. Employment Status. Neither this Agreement nor any provision
hereof shall be deemed to create or center upon the Executive any right to be
retained in the employ of the Company or any subsidiary or other affiliate
thereof.
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
7.3. Beneficiaries. The Executive may designate one or more persons
or entities as the primary and/or contingent Beneficiaries of any Severance
Benefits owing to the Executive under this Agreement. Such designation must
be in the form of a signed writing acceptable to the Board. The Executive may
make or change such designation at any time.
7.4. Entire Agreement. This Agreement contains the entire
understanding of the Company and the Executive with respect to the subject
matter hereof. The payments provided for under this Agreement in the event of
the Executive's termination of employment shall be in lieu of any severance
benefits payable under any severance plan, program, or policy of the Company to
which he might otherwise be entitled.
7.5. Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular, and the singular shall include the plural.
7.6. Notices. All notices, requests, demands, and other
communications hereunder must be in writing and shall be deemed to have been
duly given if delivered by hand or mailed within the continental United States
by first-class certified mail, return receipt requested, postage prepaid, to the
other party, addressed as follows:
(a) if to the Company:
Fansteel, Inc.
One Tantalum Place
North Chicago, IL 60064
Attn: Chairman of the Board
(b) if to Executive, to him or her at the address set forth at the
end of this Agreement. Addresses may be changed by written notice sent to the
other party at the last recorded address of that party.
7.7. Execution in Counterparts. This Agreement may be executed by
the parties hereto in counterparts, each of which shall be deemed to be
original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
7.8. Severability. In the event any provision of this Agreement
shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of this Agreement, and this Agreement shall
be construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.
7.9. Modification. No provision of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing and signed by the Executive and on behalf of the Company.
7.10. Applicable Law. To the extent not preempted by the laws of the
United States, the laws of the State of Delaware, other than the conflict of law
provisions thereof, shall be the controlling law in all matters relating to this
Agreement.
EXHIBIT 10a - CHANGE IN CONTROL AGREEMENT BETWEEN THE COMPANY AND
GARY L. TESSITORE DATED AS OF APRIL 19, 1999 Contd.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
FANSTEEL, INC.
By: /s/ Michael J. Mocniak
Title: Vice President, General Counsel
and Secretary
EXECUTIVE
/s/ Gary L. Tessitore
Name: Gary L. Tessitore
EXHIBIT 10b - CHANGE IN CONTROL AGREEMENT AMONG THE COMPANY AND THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE THERETO DATED AS OF APRIL 19, 1999
THIS AGREEMENT (this "Agreement") is made and entered into as of this
19th day of April, 1999 (the "Effective Date"), by and among Fansteel, Inc., a
Delaware corporation (hereinafter referred to as the "Company"), and (individual
identified on the signature page) (the "Executive").
W I T N E S E T H:
WHEREAS, the Board of Directors of the Company (the "Board") has
approved the Company entering into this agreement providing for certain
severance protection for the Executive following a Significant Ownership Event
(as hereinafter defined);
WHEREAS, the Board believes that, should the possibility of a
Significant Ownership Event arise, it is imperative that the Company be able to
receive and rely upon the Executive's advice, if requested, as to the best
interests of the Company and its shareholders without concern that he or she
might be distracted by the personal uncertainties and risks created by the
possibility of a Significant Ownership Event; and
WHEREAS, in addition to the Executive's regular duties, he or she may
be called upon to assist in the assessment of a possible Significant Ownership
Event, advise management and the Board as to whether such Significant Ownership
Event would be in the best interests of the Company and its shareholders, and to
take such other actions as the Board determines to be appropriate.
NOW THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his or her advice and
counsel notwithstanding the possibility, threat, or occurrence of a Significant
Ownership Event, and to induce the Executive to remain in the employ of the
Company, and for other good and valuable consideration, the Company and the
Executive, intending to be legally bound, agree as follows:
Article 1. Definitions
Whenever used in this Agreement, the following terms shall have the
meanings set forth below when the initial letter of the word is capitalized:
(a) "Base Salary" shall mean the salary of record paid by the
Company to the Executive as annual salary, excluding amounts
received under incentive or other bonus plans, whether or not
deferred.
(b) "Beneficiary" shall mean the persons or entities designated or
deemed designated by the Executive pursuant to Section 7.2
herein.
(c) "Cause" shall mean the occurrence of any one or more of the
following:
(i) willful misconduct by the Executive in the performance of
his duties (other than due to disability);
EXHIBIT 10b - CHANGE IN CONTROL AGREEMENT AMONG THE COMPANY AND THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE THERETO DATED AS OF APRIL 19, 1999 Contd.
(ii) dishonesty or breach of trust by the Executive which is
demonstrably injurious to the Company or its subsidiaries;
or
(iii) conviction or plea of nolo contendere to a felony or a
misdemeanor involving moral turpitude.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Effective Date of Termination" shall mean the date on which the
Executive's employment terminates in a circumstance in which
Section 2.1 provides for Severance Benefits (as defined in
Section 2.1).
(f) "Good Reason" shall mean, without the Executive's express
written consent, the occurrence of any one or more of the
following:
(i) A material diminution of the Executive's authorities,
duties, responsibilities, and status (including offices,
titles, and reporting requirements) as an employee of the
Company from those in effect as of one hundred eighty (180)
days prior to the Significant Ownership Event, other than
an insubstantial and inadvertent act that is remedied by
the Company promptly after receipt of notice thereof given
by the Executive, and other than any such alteration which
is consented to by the Executive in writing;
(ii) The Company's requiring the Executive to be based at a
location in excess of thirty-five (35) miles from the
location of the Executive's principal job location or
office immediately prior to the Significant Ownership
Event, except for required travel on the Company's business
to an extent substantially consistent with the Executive's
present business obligations;
(iii) A reduction in the Executive's base salary or any material
reduction by the Company of the Executive's other
compensation or benefits from that in effect immediately
before the Significant Ownership Event occurred;
(iv) The failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume and
agree to perform the Company's obligations under this
Agreement, as contemplated in Article 5 herein; and
(v) Any purported termination by the Company of the Executive's
employment that is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 2.4
herein, and for purposes of this Agreement no such
purported termination shall be effective.
The Executive's right to terminate employment for Good Reason
shall not be affected by the Executive's (A) incapacity due to
physical or mental illness or (B) continued employment following
the occurrence of any event constituting Good Reason herein.
EXHIBIT 10b - CHANGE IN CONTROL AGREEMENT AMONG THE COMPANY AND THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE THERETO DATED AS OF APRIL 19, 1999 Contd.
(g) A "Significant Ownership Event" shall mean, and shall be deemed
to have occurred upon the occurrence of, any one of the
following events:
(i) The acquisition in one or more transactions, other than
from the Company, by any individual, entity or "group"
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) of 30% or more of the
combined voting power of all outstanding voting securities
of the Company entitled to vote generally in the election
of directors ("Company Voting Securities"); provided,
however, that the following shall not constitute a
Significant Ownership Event: any acquisition by (1) the
Company and/or one or more of its subsidiaries and/or any
employee benefit plan (or related trust) sponsored or
maintained by the Company and/or one or more of its
subsidiaries, or (2) any entity with respect to which,
following such acquisition, more than 70% of the combined
voting power of the then outstanding voting securities of
such entity entitled to vote generally in the election of
directors or persons holding a similar office for such
entity (hereinafter, a "director") is then beneficially
owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial
owners of the Company Voting Securities immediately prior
to such acquisition in substantially the same proportion as
their ownership, immediately prior to such acquisition, of
the Company Voting Securities; or
(ii) Individuals who are members of the Board as of the date of
this Agreement (the "Incumbent Directors") cease for any
reason to constitute at least a majority of the members of
the Board; provided, however, that any individual becoming
a director subsequent to the date of this Agreement whose
appointment to the Board or nomination for election by the
Company was approved by a vote of at least a majority of
the Incumbent Directors then in office (unless such
appointment or election was at the request of an unrelated
third party who has taken steps reasonably calculated to
result in a Significant Ownership Event and who has
indicated publicly an intent to seek control of the
Company) shall be treated from the date of his appointment
or election as an Incumbent Director; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger, consolidation or similar
transaction (a "Transaction"), unless, following such
Transaction, all or substantially all of the individuals
and entities who were the beneficial owners of the Company
Voting Securities immediately prior to such Transaction
following such Transaction beneficially own, directly or
indirectly, more than 70% of the combined voting power of
the then outstanding voting securities of the entity
surviving the Transaction entitled to vote generally in the
election of directors of such entity in substantially
EXHIBIT 10b - CHANGE IN CONTROL AGREEMENT AMONG THE COMPANY AND THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE THERETO DATED AS OF APRIL 19, 1999 Contd.
the same proportion as their ownership, immediately prior
to such Transaction, of the Company Voting Securities; or
(iv) Approval by the shareholders of the Company of (i) a
complete liquidation or dissolution of the Company or (ii)
a sale or other disposition of all or substantially all of
the assets of the Company other than to an entity with
respect to which, following such sale or disposition, more
than 70% of the combined voting power of the then
outstanding voting securities of such entity entitled to
vote generally in the election of directors is beneficially
owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial
owners of the Company Voting Securities immediately prior
to such sale or disposition in substantially the same
proportion as their ownership of Company Voting Securities
immediately prior to such sale or disposition.
Notwithstanding the foregoing, a Significant Ownership Event
shall not be deemed to have occurred solely as a result of:
(x) the distribution of shares of Common Stock of the Company
from the Estate of T. M. Evans (the "Estate") to
beneficiaries of the Estate (the "Beneficiaries); or
(y) any transfers, with or without consideration, among the
Beneficiaries or to one or more members of the family of
any Beneficiary (which shall be deemed to include a
Beneficiary's brothers and sisters (whether of the whole or
half blood), spouse, ancestors and lineal descendants) or a
trust, partnership or other estate planning vehicle for the
benefit of one or more Beneficiaries and/or members of the
family of a Beneficiary and/or future lineal descendants of
a Beneficiary or such a family member; or the formation of
a group among any of the foregoing (all of the foregoing
being referred to herein collectively as "Beneficiary
Interests"); or
(z) any acquisition as provided in subsection (g)(i) above or
transaction as provided in subsections (g) (iii) or (iv)
above, following which the Estate and the Beneficiary
Interests (other than any Beneficiary Interests who are
participants in a group with a person who is not a
Beneficiary Interest) retain beneficial ownership of
securities representing at least 25% of the combined voting
power of the then outstanding voting securities entitled to
vote generally in the election of directors of, as
applicable, the Company, the entity surviving a Transaction
or the entity to which such sale or disposition was made,
unless in connection with or as a result of such event
individuals who are affiliates or associates (as such terms
are defined in Rule 12b-2 under the Exchange Act) of a
person who is not a Beneficiary Interest or a group
including a person who is not a Beneficiary Interest are
elected or appointed as members of the Board and constitute
at least one-third of the number of directors then in
office.
EXHIBIT 10b - CHANGE IN CONTROL AGREEMENT AMONG THE COMPANY AND THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE THERETO DATED AS OF APRIL 19, 1999 Contd.
Article 2. Severance Benefits
2.1. Right to Severance Benefits. The Executive shall be entitled to
receive from the Company the severance benefits described in Section 2.2
("Severance Benefits") if a Significant Ownership Event shall occur and within
two years after the Significant Ownership Event either of the following shall
occur:
(i) an involuntary termination of the Executive's employment
with the Company without Cause; or
(ii) a voluntary termination of the Executive's employment with
the Company for Good Reason.
2.2. Severance Benefits. In the event that the Executive becomes
entitled to receive Severance Benefits, as provided in Section 2.1, the Company
shall provide the Executive with total Severance Benefits as follows (subject to
Sections 2.5 and 2.6):
(a) The Executive shall receive a single lump sum payment
within thirty (30) days of the Effective Date of
Termination in an amount equal to 2.99 times the sum of (i)
the highest rate of the Executive's monthly Base Salary in
effect during the twelve (12) month period prior to the
Significant Ownership Event at any time up to and including
the Effective Date of Termination and (ii) the Executive's
average annual bonus accrued (without regard to the timing
of payment of such accrual) over the most recent three (3)
full bonus plan years ending prior to the Effective Date of
Termination.
(b) The Executive shall receive an amount, paid within thirty
(30) days of the Effective Date of Termination, equal to
the Executive's unpaid Base Salary, accrued but unused
vacation pay and earned but unpaid bonuses and all other
cash entitlements through the Effective Date of Termination
plus an amount equal to the aggregate amount of matching
contributions that would be credited to the Executive under
the Fansteel Savings and Profit Sharing Plan for the three
years following the Effective Date of Termination if (i)
the Executive were to continue to participate and make the
maximum permissible contribution thereunder and (ii) the
applicable rate of matching contributions during such
period were to equal the average rate of match under the
plan for the three years immediately prior to the Effective
Date of Termination.
(c) All welfare benefits, including medical, dental, vision,
life and disability benefits pursuant to plans under which
the Executive and/or the Executive's family is eligible to
receive benefits and/or coverage shall be continued for a
period of eighteen (18) months after the Effective Date of
Termination. Such benefits shall be provided to the
Executive at no less than the same coverage level as in
effect as of the date of the Significant Ownership Event.
The Company shall pay the full cost of such continued
benefits, except that the Executive shall bear any portion
of such cost as was required to be borne by key executives
EXHIBIT 10b - CHANGE IN CONTROL AGREEMENT AMONG THE COMPANY AND THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE THERETO DATED AS OF APRIL 19, 1999 Contd.
of the Company generally at the date of the Significant
Ownership Event. Notwithstanding the foregoing, the
benefits described in this Section 2.2(c) may be
discontinued prior to the end of the period provided in
this Section to the extent, but only to the extent, that
the Executive receives substantially similar benefits from
a subsequent employer.
2.3. Termination for Any Other Reason. If the Executive's employment
with the Company is terminated under any circumstances other than those set
forth in Section 2.1, including without limitation by reason of retirement,
death, disability, discharge for Cause or resignation without Good Reason, or
any termination for any reason that occurs prior to a Significant Ownership
Event or after two years following a Significant Ownership Event, the Executive
shall have no right to receive the Severance Benefits under this Agreement or to
receive any payments in respect of this Agreement. In such event Executive's
benefits, if any, in respect of such termination shall be determined in
accordance with the Company's retirement, survivor's benefits, insurance, and
other applicable plans, programs, policies, and practices then in effect.
Anything in this Agreement to the contrary notwithstanding, if the Executive's
employment with the Company is terminated prior to the date on which a
Significant Ownership Event occurs either (i) by the Company other than for
Cause or (ii) by the Executive for Good Reason, and it is reasonably
demonstrated that termination of employment (a) was at the request of an
unrelated third party who has taken steps reasonably calculated to effect a
Significant Ownership Event, or (b) otherwise arose in connection with or in
anticipation of a Significant Ownership Event, then for all purposes of this
Agreement the termination shall be deemed to have occurred upon a Significant
Ownership Event and the Executive will be entitled to Severance Benefits as
provided in Section 2.2 herein.
2.4. Notice of Termination. Any termination by the Company for Cause
or by the Executive for Good Reason shall be communicated by Notice of
Termination to the other party. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which shall indicate the specific
termination provision in this Agreement relied upon, and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
2.5. Withholding of Taxes. The Company shall withhold from any
amounts payable under this Agreement all Federal, state, local, or other taxes
as legally shall be required to be withheld.
2.6. Certain Limitations on Payments by the Company. Notwithstanding
the foregoing or any other provision of this Agreement to the contrary, if tax
counsel selected by the Company and reasonably acceptable to the Executive
determines that any portion of any payment under this Agreement would constitute
an "excess parachute payment" under Section 280G of the Internal Revenue Code,
then the payments to be made to the Executive under this Agreement shall be
reduced (but not below zero) such that the value of the aggregate payments that
the Executive is entitled to receive under this Agreement and any other
agreement or plan or program of the Company shall be one dollar ($1) less than
the maximum amount of payments which the Executive may receive without becoming
subject to the tax imposed by Section 4999 of the Internal Revenue Code.
EXHIBIT 10b - CHANGE IN CONTROL AGREEMENT AMONG THE COMPANY AND THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE THERETO DATED AS OF APRIL 19, 1999 Contd.
Article 3. The Company's Payment Obligation
3.1. Payment Obligations Absolute. Except as otherwise provided in
the last sentence of Section 2.2(c) and the next sentence in this Section 3.1,
the Company's obligation to make the payments and the arrangements provided for
herein shall be absolute and unconditional, and shall not be affected by any
circumstances, including, without limitation, any offset, counterclaim,
recoupment, defense, or other right which the Company may have against the
Executive or any other party. In the event the Executive becomes entitled to
receive Severance Benefits hereunder, such Severance Benefits shall be in lieu
of any other severance pay or benefits that would otherwise be due to the
Executive under any other severance pay plan or arrangement of the Company and
its affiliates (other than vesting acceleration provisions with respect to stock
options and other equity interests awarded under the Company's Long-Term
Incentive Plan). All amounts payable by the Company hereunder shall be paid
without notice or demand. Each and every payment made hereunder by the Company
shall be final, and the Company shall not seek to recover all or any part of
such payment from the Executive or from whomsoever may be entitled thereto for
any reasons whatsoever. Notwithstanding any other provisions of this Agreement
to the contrary, the Company shall have no obligation to make any payment to the
Executive hereunder to the extent, but only to the extent, that such payment is
prohibited by the terms of any final order of a Federal or state court or
regulatory agency of competent jurisdiction; provided, however, that such an
order shall not affect, impair, or invalidate any provision of this Agreement
not expressly subject to such order.
3.2. Contractual Rights to Benefits. This Agreement establishes and
vests in the Executive a contractual right to the benefits to which he is
entitled hereunder. Nothing herein contained shall require or be deemed to
require, or prohibit or be deemed to prohibit, the Company to segregate,
earmark, or otherwise set aside any funds or other assets, in trust or
otherwise, to provide for any payments to be made or required hereunder. The
Executive shall not be obligated to seek other employment in mitigation of the
amounts payable or arrangements made under any provision of this Agreement, and
the obtaining of any such other employment shall in no event effect any
reduction of the Company's obligations to make the payments and arrangements
required to be made under this Agreement, except to the extent provided in the
last sentence of Section 2.2(c).
Article 4. Enforcement and Legal Remedies
4.1 Resolution of Differences Over Breaches of Agreement. In the
event of any controversy, dispute, or claim arising out of, or relating to this
Agreement, or the breach hereof, or arising out of any other matter relating to
the Executive's employment with the Company or the termination of such
employment, the Company and the Executive agree that such underlying
controversy, dispute, or claim shall be settled by arbitration conducted in
Chicago, Illinois in accordance with this Section 4.1 and the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). The matter
shall be heard and decided, and award rendered, by a panel of three (3)
arbitrators (the "Arbitration Panel"). The Company and the Executive shall each
select one arbitrator from the AAA National Panel of Commercial Arbitrators (the
"Commercial Panel") and AAA shall elect a third arbitrator from the Commercial
Panel. The award rendered by the Arbitration Panel shall be final and binding
between the parties hereto and their heirs, executors, administrators,
successors and assigns, and judgment on the award may be entered by any court
having jurisdiction thereof.
EXHIBIT 10b - CHANGE IN CONTROL AGREEMENT AMONG THE COMPANY AND THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE THERETO DATED AS OF APRIL 19, 1999 Contd.
4.2 Cost of Enforcement. In the event that it shall be necessary or
desirable for the Executive to retain legal counsel in connection with the
enforcement of any or all of his rights to Severance Benefits under Section 2.2
of this Agreement, and provided that the Executive substantially prevails in the
enforcement of such rights, the Company shall pay (or the Executive shall be
entitled to recover from the Company, as the case may be) the Executive's
reasonable attorneys' fees, costs and expenses in connection with the
enforcement of his rights.
Article 5. Binding Effect; Successors
The rights of the parties hereunder shall inure to the benefit of
their respective successors, assigns, nominees, or other legal representatives.
The Company shall require any successor (whether direct or indirect, by
purchase, merger, reorganization, consolidation, acquisition of property or
stock, liquidation, or otherwise) to all or a significant portion of the assets
of the Company, as the case may be, by agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. Regardless of
whether such agreement is executed, this Agreement shall be binding upon any
successor in accordance with the operation of law and such successor shall be
deemed the "Company" for purposes of this Agreement.
Article 6. Term of Agreement
The term of this Agreement shall commence on the Effective Date and
shall continue in effect for three (3) full years. However, in the event a
Significant Ownership Event occurs during the term, this Agreement will remain
in effect for the longer of: (i) twenty-four (24) months beyond the month in
which such Significant Ownership Event occurs; or (ii) until all obligations of
the Company hereunder have been fulfilled, and until all benefits required
hereunder have been paid to the Executive or other party entitled thereto. The
term of this Agreement may be extended by written agreement of the parties.
Article 7. Miscellaneous
7.1. Amendment to Stock Options. The Executive hereby agrees that
the existing Stock Option Agreement between the Company and the Executive is
hereby amended so that the vesting and exercisability of stock options
thereunder shall not be accelerated upon a "Change in Control" as defined in
such Stock Option Agreement but shall be accelerated upon a Significant
Ownership Event as defined in this Agreement.
7.2. Employment Status. Neither this Agreement nor any provision
hereof shall be deemed to create or center upon the Executive any right to be
retained in the employ of the Company or any subsidiary or other affiliate
thereof.
7.3. Beneficiaries. The Executive may designate one or more persons
or entities as the primary and/or contingent Beneficiaries of any Severance
Benefits owing to the Executive under this Agreement. Such designation must be
in the form of a signed writing acceptable to the Board. The Executive may make
or change such designation at any time.
7.4. Entire Agreement. This Agreement contains the entire
understanding of the Company and the Executive with respect to the subject
EXHIBIT 10b - CHANGE IN CONTROL AGREEMENT AMONG THE COMPANY AND THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE THERETO DATED AS OF APRIL 19, 1999 Contd.
matter hereof. The payments provided for under this Agreement in the event of
the Executive's termination of employment shall be in lieu of any severance
benefits payable under any severance plan, program, or policy of the Company to
which he might otherwise be entitled.
7.5. Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular, and the singular shall include the plural.
7.6. Notices. All notices, requests, demands, and other
communications hereunder must be in writing and shall be deemed to have been
duly given if delivered by hand or mailed within the continental United States
by first-class certified mail, return receipt requested, postage prepaid, to the
other party, addressed as follows:
(a) if to the Company:
Fansteel, Inc.
One Tantalum Place
North Chicago, IL 60064
Attn: Chairman of the Board
(b) if to Executive, to him or her at the address set forth at the
end of this Agreement. Addresses may be changed by written notice sent to the
other party at the last recorded address of that party.
7.7. Execution in Counterparts. This Agreement may be executed by
the parties hereto in counterparts, each of which shall be deemed to be
original, but all such counterparts shall constitute one and the same
instrument, and all signatures need not appear on any one counterpart.
7.8. Severability. In the event any provision of this Agreement
shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of this Agreement, and this Agreement shall
be construed and enforced as if the illegal or invalid provision had not been
included. Further, the captions of this Agreement are not part of the provisions
hereof and shall have no force and effect.
7.9. Modification. No provision of this Agreement may be modified,
waived, or discharged unless such modification, waiver, or discharge is agreed
to in writing and signed by the Executive and on behalf of the Company.
7.10. Applicable Law. To the extent not preempted by the laws of the
United States, the laws of the State of Delaware, other than the conflict of law
provisions thereof, shall be the controlling law in all matters relating to this
Agreement.
EXHIBIT 10b - CHANGE IN CONTROL AGREEMENT AMONG THE COMPANY AND THE INDIVIDUALS
LISTED ON THE SIGNATURE PAGE THERETO DATED AS OF APRIL 19, 1999 Contd.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
FANSTEEL, INC.
By: /s/ Gary L. Tessitore
Title: Chairman, President and
Chief Executive Officer
EXECUTIVE
/s/ R. Michael McEntee
Name: R. Michael McEntee
/s/ Michael J. Mocniak
Name: Michael J. Mocniak
/s/ Jack W. Stawski
Name: Jack W. Stawski
EXHIBIT 10c - EMPLOYMENT OFFER LETTER BETWEEN THE COMPANY AND GARY L. TESSITORE
DATED AS OF JANUARY 26, 1999
January 26, 1999
Mr. Gary L. Tessitore
775 Longboat Club Road #808
Longboat Key, FL 34228
RE: EMPLOYMENT OFFER LETTER
Dear Mr. Tessitore:
I am pleased to extend this offer of employment with Fansteel, Inc. to you on
the terms and conditions described below.
You will serve as Chairman and Chief Executive Officer for Fansteel on a
full-time basis and will be reporting to the Board of Directors of the Company.
Your employment with the Company will commence on or about January 26, 1999. On
or promptly after your first day of employment, Fansteel will pay you a signing
bonus of $100,000 in cash, subject to applicable tax withholdings.
Your initial base salary will be $350,000 per year, subject to annual review and
possible adjustment based upon Fansteel's financial condition as well as your
individual performance. In addition, you will participate in Fansteel's
executive bonus plan (EVA plan) for 1999 and subsequent fiscal years at an
appropriate level, as determined by the Board of Directors, and you will be
eligible to participate in Fansteel employee benefit plans and programs on a
basis no less favorable than is made available to other senior executives of
Fansteel but subject to the terms and conditions of such plans and programs.
As of your initial employment date with Fansteel, you will be granted 100,000
shares of restricted stock to vest within three years, one third per year, and a
non-qualified stock option to purchase 300,000 shares of Fansteel Common Stock,
subject to the approval by Fansteel's shareholders of an amendment to the 1998
Long-Term Incentive Plan (the "Incentive Plan") to increase the number of shares
of Common Stock available for grant thereunder. The exercise price per share of
such option will be equal to the fair market value (as defined in the Incentive
Plan) per share of Common Stock on the date of grant of such option. The option
will vest and become exercisable in four equal installments on the first,
second, third and fourth anniversaries of the date of grant. All of the terms
and conditions of this option will be governed by the Incentive Plan and set
forth in a written stock option agreement containing such terms and conditions,
consistent with this letter and the Incentive Plan, as Fansteel determines in
its discretion.
If your employment is involuntarily terminated by Fansteel without cause, you
will be entitled to severance pay of 18 months of salary continuation. For this
purpose, "cause" shall mean the occurrence of any one or more of the following:
(I) willful misconduct by the Executive in the performance of his duties (other
than due to disability); (ii) dishonesty or breach of trust by the Executive
which is demonstrably injurious to the Company or its subsidiaries; or (iii)
conviction or plea of nolo contendere to a felony or a misdemeanor involving
moral turpitude.
If during your employment term Fansteel enters into change in control severance
agreements with its senior executive officers, you will be entitled to enter
into such an agreement with Fansteel, and your agreement will provide for an
appropriate gross-up for any "golden parachute" excise taxes.
EXHIBIT 10c - EMPLOYMENT OFFER LETTER BETWEEN THE COMPANY AND GARY L. TESSITORE
DATED AS OF JANUARY 26, 1999
I hope that this offer is acceptable to you. If you agree with the terms and
conditions set forth above, please execute and return one copy of this letter.
You may wish also to execute the second copy of this letter and keep it for your
files. I look forward to your response.
Sincerely,
FANSTEEL, INC.
By: /s/ R. S. Evans
Title: Chairman, Compensation &
Nominating Committee; Director
Accepted and agreed to:
/s/ Gary L. Tessitore
January 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF FANSTEEL INC. AS OF MARCH 31, 1999 AND THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-Q FILING FOR
THE PERIOD ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 163,093
<SECURITIES> 0
<RECEIVABLES> 22,940,261
<ALLOWANCES> 254,165
<INVENTORY> 22,468,238
<CURRENT-ASSETS> 49,184,576
<PP&E> 71,368,197
<DEPRECIATION> 50,637,546
<TOTAL-ASSETS> 90,757,240
<CURRENT-LIABILITIES> 23,917,351
<BONDS> 2,462,302
0
0
<COMMON> 21,497,145
<OTHER-SE> 27,094,295
<TOTAL-LIABILITY-AND-EQUITY> 90,757,240
<SALES> 37,045,160
<TOTAL-REVENUES> 37,045,160
<CGS> 30,592,763
<TOTAL-COSTS> 35,521,927
<OTHER-EXPENSES> 50,023
<LOSS-PROVISION> (320)
<INTEREST-EXPENSE> 27,499
<INCOME-PRETAX> 1,473,210
<INCOME-TAX> 461,000
<INCOME-CONTINUING> 1,012,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,012,210
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
