UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1997
Commission File No. 0-5200
BONTEX, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0571303
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE BONTEX DRIVE, BUENA VISTA, VIRGINIA 24416-1500
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 540-261-2181
Indicate by checkmark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months(or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES ( X ) NO ()
Indicate the description and number of shares outstanding of each of the
issuer's classes of common stock as of the latest practicable date.
Class Outstanding at February 13, 1998
Common Stock - $.10 par value 1,572,824
Preferred Stock - no par value None
<PAGE>
BONTEX, INC.
FORM 10-Q
SIX MONTHS ENDED DECEMBER 31, 1997
INDEX
PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996, June 30, 1997 . . . . . . . . . . . . . .3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED
EARNINGS Six Months and Three Months Ended December 31, 1997 and
1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1997 and 1996. . . . . . . . . . . . . 5
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. . .6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 9-10
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE><CAPTION>
BONTEX, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Share and Per Share Data)
December 31 June 30,
(unaudited)
ASSETS 1997 1996 1997
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 959 $ 1,621 $ 1,373
Trade accounts receivable, less allowance
for doubtful accounts of $111 ($233 at
December '96, $119 at June '97) 11,019 11,367 13,622
Other receivables 851 713 551
Inventories 7,133 5,760 5,276
Deferred income taxes 321 480 321
Income taxes refundable 7 4 76
Other current assets 925 378 131
------- ------- -------
TOTAL CURRENT ASSETS 21,215 20,323 21,350
------- ------- -------
Property, plant and equipment:
Land 370 297 347
Buildings and building improvements 5,298 4,761 5,332
Machinery, furniture and equipment 16,692 15,825 16,176
Construction in progress 968 1,348 808
------- ------- -------
23,328 22,231 22,663
Less accumulated depreciation and amortization 12,077 11,622 11,631
------- ------- -------
Net property, plant and equipment 11,251 10,609 11,032
Deferred income taxes - 442 -
Other assets, at cost less applicable
amortization 579 405 524
------- ------- -------
TOTAL ASSETS $ 33,045 $ 31,779 $ 32,906
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 8,733 $ 8,736 $ 8,019
Accounts payable 6,911 7,046 7,521
Accrued expenses 2,010 1,875 2,079
Income taxes payable 378 174 139
Deferred income taxes - 170 -
Long-term debt due currently 595 517 578
------- ------- -------
TOTAL CURRENT LIABILITIES 18,627 18,518 18,336
Long-term debt 2,667 2,387 2,761
Deferred income taxes 55 - 108
Other long-term liabilities 255 173 186
------- ------- -------
TOTAL LIABILITIES 21,604 21,078 21,391
------- ------- ------- <PAGE>
Stockholders' equity:
Preferred stock of no par value. Authorized
10,000,000 shares; none issued - - -
Common stock of $.10 par value. Authorized
10,000,000 shares; issued and outstanding
1,572,824 shares 157 157 157
Additional capital 1,551 1,551 1,551
Retained earnings 9,384 8,072 9,344
Foreign currency translation adjustment 349 921 463
------- ------- -------
TOTAL STOCKHOLDERS' EQUITY 11,441 10,701 11,515
------- ------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 33,045 $ 31,779 $ 32,906
======= ======= =======
</TABLE>
See accompanying condensed notes to condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
BONTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME(LOSS)
AND RETAINED EARNINGS
(Dollars in Thousands,Except for Per Share Data)
(Unaudited)
Six Months Ended Three Months Ended
December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Sales $ 21,621 $ 22,718 $ 11,088 $ 11,833
Cost of Sales 15,172 15,741 7,851 8,047
------- ------- ------- -------
Gross Profit 6,449 6,977 3,237 3,786
Selling, General and Administrative Expenses 5,738 5,597 3,088 2,948
------- ------- ------- -------
Operating Income 711 1,380 149 838
------- ------- ------- -------
Other (Income) Expense:
Interest expense 533 641 277 317
Interest income (32) (1) - 2
Foreign currency exchange (gain) loss 106 (38) 51 20
Other, net (29) 15 (30) (1)
------- ------- ------- -------
Total Other Expenses, Net 578 617 298 338
------- ------- ------- -------
Income (Loss) Before Income Taxes 133 763 (149) 500
Income Taxes 93 302 (32) 198
------- ------- ------- -------
Net income (loss) 40 461 (117) 302
Retained earnings, beginning of period 9,344 7,611 9,501 7,770
------- ------- ------- -------
Retained earnings, end of period $ 9,384 $ 8,072 $ 9,384 $ 8,072
======= ======= ======= =======
Net income (loss) per share (Note 5) $ .03 $ .29 $ (.07) $ .19
======= ======= ======= =======
</TABLE>
See accompanying condensed notes to condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
BONTEX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(unaudited)
Six Months Ended
December 31,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Cash received from customers $ 24,001 $ 25,215
Cash paid to suppliers and employees (23,920) (22,254)
Interest received 52 42
Interest paid (579) (721)
Income taxes paid, net of refunds 174 13
------- -------
Net cash provided by (used in) operating activities (272) 2,295
------- -------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (943) (818)
------- -------
Net cash used in investing activities (943) (818)
------- -------
Cash Flows from Financing Activities:
Increase (decrease) in short-term borrowings, net 906 (588)
Long-term debt incurred 192 1,793
Principal payments on long-term debt and capital lease obligations (218) (1,761)
------- -------
Net cash provided by (used in) financing activities 880 (556)
------- -------
Effect of Exchange Rate Changes on Cash (79) (15)
------- -------
Net Increase (Decrease) in Cash and Cash Equivalents (414) 906
Cash and Cash Equivalents at Beginning of Year 1,373 715
------- -------
Cash and Cash Equivalents at End of Year $ 959 $ 1,621
======= =======
<PAGE>
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income $ 40 $ 461
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 648 607
Provision for bad debts 59 84
Deferred income taxes (126) 37
Change in assets and liabilities:
Decrease in trade accounts and other receivables 1,972 2,631
Increase in inventories (1,915) (232)
Increase in other assets (919) (12)
Decrease in accounts payable and accrued expenses (483) (1,257)
Increase (decrease) in income taxes 396 (16)
Increase (decrease) in other liabilities 56 (8)
------- -------
Net cash provided by (used in) operating activities $ (272) $ 2,295
======= =======
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
BONTEX, INC.
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 AND JUNE 30, 1997
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements
have been prepared by Bontex, Inc. and its subsidiaries (the "Company") in
accordance with generally accepted accounting principles for interim
financial reporting information and the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
material adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation of the results of operations, financial
position and cash flows for each period shown, have been included. Operating
results for interim periods are not necessarily indicative of the results for
the full year. The unaudited condensed consolidated financial statements and
condensed notes are presented as permitted by Form 10-Q and do not contain
certain information included in the Company's annual consolidated financial
statements and notes. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended June 30, 1997.
2. The condensed consolidated balance sheets include the following related
to European subsidiaries:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1996 1997
(Dollars in Thousands)
<S> <C> <C> <C>
Current assets $ 14,761 $ 13,999 $ 14,284
Total assets 20,221 19,381 19,801
Current liabilities 14,054 14,742 13,882
Total liabilities 15,841 15,929 15,656
Stockholders' equity 4,380 3,452 4,145
</TABLE>
The condensed consolidated statements of income (loss) include the following
related to European subsidiaries:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
December 31, December 31,
1997 1996 1997 1996
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Net Sales $ 12,872 $ 13,441 $ 6,617 $ 7,089
Net income 354 197 99 112
</TABLE>
<PAGE>
BONTEX, INC.
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 AND JUNE 30, 1997 (Unaudited)
3. The last in, first out (LIFO) method of inventory pricing is used by
the United States company. Inventories of the European subsidiaries are
valued at the lower of cost or market using the first-in, first-out (FIFO)
and weighted average bases. Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1996 1997
(Dollars in Thousands)
<S> <C> <C> <C>
Finished goods $ 3,661 $ 3,662 $ 2,908
Raw Materials 3,166 1,906 2,067
Supplies 627 630 646
------ ------ ------
Inventories at FIFO and
weight-average cost 7,454 6,198 5,621
LIFO reserves (321) (438) (345)
------ ------ ------
$ 7,133 $ 5,760 $ 5,276
====== ====== ======
</TABLE>
4. Material changes in reported financial instruments and market risks
since the most recent fiscal year end report of June 30, 1997 are presented
as follows:
During the first quarter of fiscal year 1998, the Company began on a limited
basis to manage its exposure to pulp price changes with pulp futures. In
accordance with hedge accounting, gains or losses will be recorded as a
component of the underlying inventory purchase, since these contracts
effectively meet the risk reduction and correlation criteria. Gains or
losses on hedges that are terminated prior to the execution of the inventory
purchase are recorded in inventory until the inventory is sold. The
following table provides certain information regarding the Company's pulp
inventory and futures contracts that are sensitive to changes in pulp prices.
For inventory, the table presents the carrying amount and fair value at
December 31, 1997. For futures contracts, all of which mature within the
next year, the table presents the notional amounts and fair value at December
31, 1997.
Balance Sheet Commodity Pulp Position and Related Derivatives Held for Other
Than Trading (dollars in thousands) at December 31, 1997:
<TABLE>
<CAPTION>
Carrying Amount Fair Value
<S> <C> <C>
Pulp Inventory $ 2,244 $ 2,244
Futures Contacts (Long) $ 2,261 $ 1,846
</TABLE>
<PAGE>
BONTEX, INC.
CONDENSED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996 AND JUNE 30, 1997 (Unaudited)
Market risk is defined as the risk of loss arising from adverse changes in
market rates and prices. The disclosures provide certain forward looking
information concerning potential exposures to market risk. By its nature,
such forward looking information is an estimate of what could occur in the
future and is dependent on model characteristics and assumptions. As a
result, actual gains or losses will differ from those reported. The above
value at risk (VAR) disclosure does not fully reflect the potential net
market risk exposure because other market risk exposures may exist in other
transactions and other financial instruments.
5. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
SFAS No. 128 establishes new standards for computing and presenting earnings
per share ("EPA") and requires restatement of prior years' EPA data
previously presented. Adoption of SFAS No. 128 by the Company at December
31, 1997 did not have any effect on current or prior years' EPS data
presented due to the minimal impact of the potential dilution that could occur
if outstanding stock options were exercised. Basic net income per share
calculations are based on common shares outstanding of 1,572,824 shares for
all periods. Diluted net income per share calculations are based on weighted-
average common shares outstanding of 1,588,784 shares for all periods in fiscal
year 1998. For purposes of diluted net income per share in fiscal year 1997,
there were no common stock options outstanding in the periods presented.
Stock options that could potentially dilute basic EPS in the future that were
not included in the computations of diluted EPS because to do so would have
been antidilutive for the periods presented totaled 40,000.
6. Stock option activity during the six months ended December 31, 1997 is
as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
<S> <C> <C>
Balance at June 30, 1997 80,000 $ 4.50
Granted 40,000 5.63
------- ------
Balance at December 31, 1997 120,000 $ 4.88
======= ======
</TABLE>
At December 31, 1997, there were no additional shares available for grant
under the Company's Stock Option Plan.
<PAGE>
BONTEX, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FOR THE SIX MONTHS AND QUARTER ENDED DECEMBER 31, 1997
(Unaudited)
Except for historical data set forth herein, the following discussion
contains certain forward-looking information. The Company's actual results
may differ significantly from the projected results. Factors that could
cause or contribute to such differences include, but are not limited to,
level of sales to key customers, actions by competitors, fluctuations in
the price of primary raw materials and foreign currency exchange rates.
RESULTS OF OPERATIONS
The results of operations for the first six months of fiscal 1998 reflect
continued profitability, but significantly lower than last year. During the
first six months of fiscal 1998, the Company generated a consolidated
operating profit of $711,000 and net income of only $40,000 or $.03 per
share, as compared to the prior year first six months operating profit of
$1,380,000, and net income of $461,000 or $.29 per share.
Consolidated net sales for the first six months decreased $1.1 million or 4.8
percent to $21.6 million, as compared to the corresponding period last year.
If exchange rates had not changed, net sales would have increased by $2.2
million or 9.6 percent. The overall decrease in net sales, excluding the
effects of translation adjustments, was due to the decline in sales in
certain Asian markets, as well as North and South American markets.
The second quarter of fiscal 1998 was not a positive quarter as compared to
the prior year. During the second quarter, consolidated net sales decreased
$745,000 or 6.2 percent to $11 million; operating profits decreased $689,000
or 82 percent to $149,000; and net income fluctuated to a loss of $117,000 or
$(.07) per share from net income of $302,000 or $.19 per share last year.
Seasonality exists in that the first half of each fiscal year is typically
lower in volume than the second half, which is largely due to customer's
purchasing cycles, scheduled vacations, shutdowns and holidays.
Gross profit as a percentage of net sales (i.e., Gross Margin) for the first
six months of fiscal 1998 decreased compared to the same period last year
from 30.7 to 30.0 percent. This drop in operating margins is mainly due to
higher pulp costs and a drop in sales.
Selling General & Administrative (SG&A) expenses as a percent of net sales
increased from 24.6 percent to 26.5 percent, as compared to the corresponding
prior year. The increase in SG&A percentage is mainly due to management
increasing certain marketing expenses.
FINANCIAL CONDITION
Management believes that the consolidated financial condition of the Company
remains positive. Consolidated equity decreased slightly from June 30, 1997
and totaled $11.4 million at the end of December 1997. This decline in equity
was primarily due to foreign currency translation adjustments. From June 30 to
December 31, 1997, working capital decreased to $2.6 million from $3.0 million,
because of a decrease in trade account receivables, negative operating results
and foreign currency exchange fluctuations. The fluctuations in foreign
currency exchange rates resulted in a translation decrease of $3.6 million in
total assets as compared to the prior year.
<PAGE>
The cash balance mainly reflects the Company's financing and hedging position
at European Operations.
Trade accounts receivables decreased from June 30 to December 31, 1997 by
$2.6 million to $11.0 million, mainly because of the collection of higher
sales from the fourth quarter of fiscal 1997 and foreign currency translation
adjustments.
Inventories at December 31, 1997 increased $2.6 million to $7.1 million, as
compared to June 30, 1997, mainly due to the forward purchasing of certain
raw materials to defer anticipated price increases.
The $219,000 increase in property, plant and equipment from June 30 to
December 31, 1997 is largely due to additions relating to air treatment and
other process equipment projects at the Company's manufacturing facilities.
The increase in other current assets relates to the deposits held by brokers
for pulp futures. These deposits did not exist last year because the Company
did not utilize pulp futures for hedging purposes.
FINANCIAL INSTRUMENTS
The Company utilizes derivatives and other financial instruments in the
normal course of business. By their nature, all such instruments involve
risk, and the Company's maximum potential loss may exceed amounts recorded in
the balance sheet.
The Company is exposed to a variety of market risks, including the effects of
changes in foreign currency exchange rates, interest rates and commodity
prices. In the past, the Company has primarily used such derivative
financial instruments for the purpose of hedging only currency and interest
rates exposures. For further information concerning the aforementioned
financial instruments, refer to the consolidated financial instruments and
notes thereto included in the Company's Annual Report on Form 10-K for the
year ended June 30, 1997.
As part of the Company's Risk Management Program, the Company has explored
various alternatives to manage its exposure to highly volatile pulp prices,
the primary raw material for the Company's cellulose products. Historically,
the Company primary and only available method of hedging its exposure to pulp
price changes was through forward purchasing. During the previous several
months, the Company has investigated the new futures market for pulp. In
connection with purchasing pulp for future manufacturing requirements, the
Company has entered into a number of pulp futures, as management deemed
appropriate, to reduce the effects of price fluctuations.
These financial exposures are monitored and managed by the Company as an
integral part of its overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce the potentially
adverse effect on the Company's results.
<PAGE>
FINANCIAL SITUATION IN ASIA
The financial situation in Asia relates to the recent Asian currency and
economic crisis. During the previous several months, the currencies of a
number of key Asian countries, including Korea, Indonesia and Thailand, have
devalued, resulting in an economic slowdown. Asia is the largest market for
Bontex type products, as over 68 percent of the world's footwear is
manufactured in Asia. Over the previous three years, approximately a third
of the Company's consolidated sales have been derived from customers in Asia.
Accordingly, the situation in Asia will have significant impact on the
Company's operations; however, management cannot at the time of this filing
confidently determine the ultimate impact.
In assessing the overall impact of the situation in Asia, management believes
sales and profits will decrease in the near term, because of, among other
things, falling demand for footwear products sold in Asia. Management cannot
at this time quantify the adverse impact of the situation in Asia on the
Company's sales and profitability. Management's assessment is based on a
number of relevant sources, including information from key customers, current
sales trends, and other industry sources.
<PAGE>
PART II. OTHER INFORMATION
BONTEX, INC.
FORM 10-Q
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on October
14, 1997. The matter voted upon at the Meeting was the election of
James C. Kostelni, William B. D'Surney, Larry E. Morris and Robert
J.Weeks as Class A directors, to serve until the 2000 Annual
Meeting;
All nominees for director named above were elected.
Election of Officers
<TABLE>
<CAPTION>
AUTHORITY
FOR WITHHELD
--------- ---------
<S> <C> <C>
James C. Kostelni 1,436,222 9,984
William B. D'Surney 1,430,581 15,625
Larry E. Morris 1,432,922 13,284
Robert J. Weeks 1,432,922 13,284
</TABLE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits:
4 Form of amended stock certificate for Bontex, Inc. common
stock
10(i) Reverse Split Dollar Insurance Agreement dated October 31,
1997, by and between Bontex, Inc. and James C. Kostelni and
Nationsbank
10(ii) Executive Compensation Agreement dated November 21, 1997,
between Bontex, Inc. and Charles W. J. Kostelni
10(iii) Executive Compensation Agreement dated November 21, 1997,
between Bontex, Inc. and Jeffrey C. Kostelni
27 Financial Data Schedule.
(b.) Report on Form 8-K:
None.
<PAGE>
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.
BONTEX, INC.
(Registrant)
2-13-98 /s/James C. Kostelni
- ------------ ---------------------------
(Date) James C. Kostelni
Chairman of the Board and
President
2-13-98 /s/Charles W. J. Kostelni
- ------------ ---------------------------
(Date) Charles W. J. Kostelni
Corporate Controller and
Secretary
<PAGE>
EXHIBIT INDEX
4 Form of amended stock certificate for Bontex, Inc. common stock
10(i) Reverse Split Dollar Insurance Agreement dated October 31, 1997, by
and between Bontex, Inc. and James C. Kostelni and Nationsbank
10(ii) Executive Compensation Agreement dated November 21, 1997, between
Bontex, Inc. and Charles W. J. Kostelni
10(iii) Executive Compensation Agreement dated November 21, 1997, between
Bontex, Inc. and Jeffrey C. Kostelni
27 Financial Data Schedule
<PAGE>
[BONTEX COMMON STOCK CERTIFICATE]
NUMBER [BONTEX SYMBOL] BONTEX, (registered trademark)SHARES
INC.
B
---------- --------
INCORPORATED UNDER THE LAWS COMMON STOCK SEE REVERSE FOR
OF THE COMMONWEALTH OF VIRGINIA CERTAIN DEFINITIONS
CUSIP 09852W 10 9
THIS IS TO CERTIFY THAT
is the owner of
shares, fully paid and non-assessable, of the COMMON STOCK of
the par value of Ten Cents (10 cents) each of
BONTEX, INC.
transferable on the books of the Corporation by the holder in person or by
duly authorized attorney upon surrender of this Certificate properly endorsed.
This Certificate is not valid until countersigned by the Transfer Agent
and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed.
Dated:
s/Charles W. J. Kostelni [Bontex's Corporate s/James C. Kostelni
Secretary Seal appears here] President and Chief
Executive Officer
COUNTERSIGNED:
REGISTRAR AND TRANSFER COMPANY
Transfer Agent and Registrar
By
AUTHORIZED SIGNATURE
<PAGE>
Bontex, Inc.'s authorized capital stock includes preferred stock which, when
issued, shall have certain preferences or special rights in the payment of
dividends, in voting, upon liquidation, or otherwise. The Corporation will,
upon request, furnish to any stockholder, without charge, information as to
the number of such shares of each class or series of such preferred stock
authorized and outstanding and a copy of the portions of the Articles of
Incorporation or resolutions containing the designations, preferences,
limitations and relative rights of all shares and any class or series thereof.
Any such request is to be addressed to the principal office of the Corporation
or to the Transfer Agent named on the face of this certificate.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN AOT - Custodian
------------ --------------
(Cust) (Minor)
under Uniform Gifts to Minors Act
----------------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and
-------------------------
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------
- -------------------------------
- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ---------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------
NOTICE:
---------------------------------------------------------------------
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
---------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
Until the Separation Time (as defined in the Rights Agreement referred to
below), this certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement, dated as of September 30,
1997 (as such may be amended from time to time, the "Rights Agreement"),
between Bontex, Inc. (the "Company") and Wachovia Bank, N.A., as Rights Agent,
the terms of which are hereby incorporated by reference and a copy of which is
on file at the principal executive offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights may be
redeemed, may be exchanged for shares of Common Stock or other securities or
assets of the Company, may expire, may become void (if they are "Beneficially
Owned" by an "Acquiring Person" or an Affiliate or Associate thereof, as such
terms are defined in the Rights Agreement, or by any transferee of any of the
foregoing) or may be evidenced by separate certificates and may no longer be
evidenced by this certificate. The Company will mail or arrange for the
mailing of a copy of the Rights Agreement to the holder of this certificate
without charge within five days after receipt of a written request therefor.
<PAGE>
REVERSE SPLIT DOLLAR INSURANCE AGREEMENT
This Agreement made and entered into as of this 31st day of October,
1997, by and between BONTEX, INC. (hereinafter sometimes referred to as the
"Corporation") and JAMES C. KOSTELNI (hereinafter sometimes referred to as
the "Employee" or "Insured") and NATIONSBANK, Trustee under Irrevocable Trust
Agreement dated June 6, 1994 as "Policy Owner."
WITNESSETH:
-----------
WHEREAS, the Employee is a valued employee of the Corporation who the
Corporation desires to assist in paying for certain life insurance the
Employee desires to acquire to help assure continuity of good and harmonious
management of the Corporation;
WHEREAS, the Corporation has determined that this assistance can best
be provided under a "reverse split dollar" arrangement;
WHEREAS, for federal and Virginia estate tax purposes, the Employee is
the Grantor of a certain irrevocable insurance trust agreement dated June 6,
1994, and NationsBank, as Trustee of such trust, will own the policy or
policies acquired pursuant to this reverse split dollar arrangement;
WHEREAS, the Policy Owner has applied for, and is the owner and
beneficiary of, Life of Virginia Policy No. 2724346, Life of Virginia Policy
No. 2619397, and Equitable Life Assurance Society Policy No. 47237767
(collectively the "Policy") upon the life of James C. Kostelni in the total
face amount of $4,000,000.00;
WHEREAS, the Policy Owner and the Corporation have entered into an
endorsement agreement granting the Corporation certain rights in the
insurance benefits, dated October 31, 1997 (the "Endorsement"); and
WHEREAS, it is agreed that this Reverse Split Dollar Agreement is to be
effective as of the date on which the policy is issued to the Policy Owner;
NOW, THEREFORE, for value received and in consideration of the mutual
covenants contained herein, the parties agree as follows:
Article I
GENERAL PROVISIONS
Section 1.1 Benefit
The Corporation shall assist with providing a death benefit to the
beneficiaries of the Employee set forth in Section 5.1, infra, and with the
specific terms and conditions set forth in Article II below.
Section 1.2 Policy
The Employee and Policy Owner shall arrange for a policy (or policies)
of whole life insurance on Employee's life in the amounts set forth in
Article II, infra.
Section 1.3 Custody of the Policy
The Policy Owner shall retain custody of the policy and shall remain
sole owner and beneficiary of the policy with all its ownership rights and
privileges subject to an endorsement of the policy proceeds to the
Corporation.<PAGE>
Section 1.4 Company Action
The Corporation shall not take any action with respect to the policy
which would impair the interest of the Policy Owner or its assigns in excess
of the total interest of the Corporation.
Section 1.5 Surrender of Corporation Rights
The Corporation shall not surrender or assign its rights under the
policy to anyone other than the Policy Owner or its assigns.
Section 1.6 Payment of Premiums
The Corporation shall pay the full amount of any premium due to the
life insurance company set forth in Article II, infra. Payment shall be made
within the grace period, if any, allowed by the policies for the payment of
the premiums.
Section 1.7 Excess Dividend Upon Premium Waiver
If a premium is waived under the terms of the total disability waiver
benefit provision, the excess dividend, if any, payable on the due date of
such premium shall be paid to the Policy Owner or its assigns.
Section 1.8 Surrender Value
If at the time the policy is surrendered prior to the death of the
insured (pursuant to Section 1.9 herein, infra), the surrender value of the
policy shall be paid to the Corporation.
Section 1.9 Surrender of the Policy
The Policy Owner or its assigns shall have the sole right to surrender
or cancel the policy and receive the surrender value thereof. In the event
of such surrender or cancellation, the Policy Owner or its assigns shall
receive the surrender value of the policy on behalf of the Corporation. It
is the purpose of this provision to specifically provide that the sole and
exclusive right to surrender or cancel the policy is vested in the Policy
Owner or its assigns.
Section 1.10 Option Upon Termination of Rights
In the event of termination of the rights of the Policy Owner or its
assigns under this Agreement, the Policy Owner or its assigns shall have the
option of purchasing from the Corporation all interests of the Corporation in
the policy on payment to the Corporation of a price equal to the then cash
surrender value of the policy.
(a) This option shall extend for sixty days after such termination.
(b) If the Policy Owner or its assigns exercise such option to
purchase, the Corporation shall execute all necessary documents required by
the insurer to effect an absolute assignment of the policy by the
Corporation.
(c) If the Policy Owner or its assigns shall fail to exercise the
said option, the Policy Owner or its assigns shall execute any and all
instruments that may be required to vest complete ownership of said policy in
the Corporation.
Section 1.11 Rights upon Death of Insured
Upon the death of the insured during the term of this Agreement, the
Policy Owner, without delay, shall take whatever action is necessary and
required of it to collect the proceeds of the policy(ies). Upon collection
of the policy proceeds, the Policy Owner shall distribute the policy proceeds
to the Corporation according to any optional mode of settlement election
filed with the insurer.
<PAGE>
Section 1.12 Filing of Endorsement
The Policy Owner or its assigns will complete and file with the insurer
within a reasonable period an endorsement to the Corporation of its portion
of the policy(ies) to which this Agreement relates. The endorsement shall
give the Policy Owner or its assigns the right to obtain one or more loans or
advances on the policy to the extent of its interest.
Section 1.13 Assignment
The Policy Owner or its assigns shall have the right to make an
absolute assignment of its entire interest at any time to any person or
persons or entity. Upon delivery of a signed copy of such assignment to the
Corporation, all of the rights, obligations and duties of the Policy Owner or
its assigns hereunder shall pass to and be binding upon such assign
(including the right to make further assignments) and the Policy Owner shall
thereafter have no further interest whatsoever under this Agreement.
Section 1.14 Waiting Period
The Employee and Policy Owner shall not be eligible for a benefit under
this Agreement until the insurance contemplated by this Agreement is actually
obtained.
Section 1.15 Responsibility for Implementing Plan
It shall be the Employee's responsibility to make sure that the
insurance contemplated by this Agreement is applied for. The Employee shall
do this by working with the Policy Owner in filling out the application for
such insurance.
Article II
SPECIFIC BENEFITS
The Corporation shall provide the following benefit on the life of the
Employee:
(A) The Corporation shall assist the insured and the Policy Owner in
the purchase of a policy with a face value of $4,000,000.00.
(B) The Corporation shall at each premium due date pay toward such
policy an amount equal to the annual increasing "P.S.58" cost of such policy,
provided, however, such rates shall not exceed those charged for an insured
age 64.
(C) Dividends, if any, shall be used to purchase fully paid additions.
Article III
ERISA PROVISIONS
Section 3.1 Funding
The benefits provided herein shall be funded by the Corporation out of
its general assets and by purchasing individual policies on the life of the
insured.
Section 3.2 Fiscal Year
The "Fiscal Year" of the employee benefit plan created by this
Agreement shall be the same fiscal year adopted by the Corporation for
accounting purposes.
Section 3.3 Agreement
"Agreement" shall mean this Agreement, as most recently amended.
<PAGE>
Section 3.4 Cost of Agreement
The entire cost of this Agreement shall be borne by the Corporation and
no contributions shall be required of the Employee or Policy Owner, except as
specifically provided herein.
Section 3.5 Named Fiduciary
For the purposes of the Employee Retirement Income Security Act of 1974
("ERISA"), the Corporation will be the "named fiduciary" and plan
administrator of the Reverse Split Dollar Life Insurance Plan (the "Plan")
for which this Agreement is hereby designated the written plan instrument.
The Corporation's board of directors may authorize a person or a group of
persons to fulfill the responsibilities of the Corporation as plan
administrator. The named fiduciary or the plan administrator may employ
others to render advice with regard to its responsibilities under this Plan.
The named fiduciary may also allocate fiduciary responsibilities to others
and may exercise any other powers necessary for the discharge for its duties
to the extent not in conflict with the Employee Retirement Income Security
Act of 1974.
Section 3.6 Claims Procedure
(a) Any insured, beneficiary or other individual (hereinafter
"Claimant") entitled to benefits under the Plan or under the Policy will file
a claim request with the plan administrator with respect to benefits under
the Plan and with the Equitable Life Assurance Society and Life of Virginia
Insurance Company, with respect to benefits under the policy. The plan
administrator will, upon written request of Claimant, make available copies
of any claim forms or instructions provided by the Equitable Life Assurance
Society and Life of Virginia Insurance Company or advise the Claimant where
such forms or instructions may be obtained.
(b) If such claim for benefits is wholly or partially denied, the
Corporation shall, within a reasonable period of time, but no later than
ninety days after receipt of the claim, notify the Claimant of the denial of
the claim. Such notice of denial (1) shall be in writing, (2) shall be
written in a manner calculated to be understood by the Claimant, and (3)
shall contain (A) the specific reason or reasons for denial of the claim, (B)
a specific reference to the pertinent plan provisions upon which the denial
is based, (C) a description of any additional material or information
necessary for the Claimant to perfect the claim, along with an explanation
why such material or information is necessary, and (D) an explanation of the
Plan's claim review procedure.
(c) Within one hundred twenty days of the receipt by the Claimant of
the written notice of denial of the claim, or such later time as shall be
deemed reasonable taking into account the nature of the benefit subject to
the claim and any other attendant circumstances, or if the claim has not been
granted within a reasonable period of time, the Claimant may file a written
request with the Corporation that it conduct a full and fair review of the
denial of the Claimant's request for benefits, including conducting a
hearing, if deemed necessary by the reviewing party. In connection with the
Claimant's appeal of the denial of his benefit, the Claimant may review
pertinent documents and may submit issues and comments in writing.
(d) The Corporation shall deliver to the Claimant a written decision
on the claim promptly, but not later than sixty days, after the receipt of
the Claimant's request for review, except that if there are special
circumstances (such as the need to hold a hearing), which require an
extension of time for processing, the aforesaid sixty-day period shall be
extended to one hundred twenty days. Written notice of such extension will
be provided to the Claimant prior to commencement of the extension. Such
decision shall (1) be written in a manner calculated to be understood by the
Claimant, (2) include specific reasons for the decision, and (3) contain
specific references to the pertinent plan provisions upon which the decision
is based.<PAGE>
Article IV
TERMINATION OF BENEFITS AND PLAN
Section 4.1 Term of Agreement
This Agreement shall be effective for a term of one (1) year from the
effective date of this Agreement. The Employee, with the consent of the
Corporation, may renew this Agreement annually for up to nine additional one
(1) year terms. Notice of the Employee's election for renewal shall be given
in writing by the Employee to the Corporation, with a copy to the Policy
Owner, such writing to be delivered by hand or by registered or certified
mail to the Secretary of the Corporation at least sixty (60) days but no more
than ninety (90) days before the end of the then current term of the
Agreement. The Corporation then shall accept or reject the Employee's
renewal election within thirty (30) days of its receipt of such election
notice by writing delivered by hand or by registered or certified mail to the
Employee, with a copy to the Policy Owner.
Upon the earlier of (1) the end of the last allowable renewal term of
this Agreement, (2) the Employee's failure to elect to renew this Agreement,
and (3) the Corporation's rejection of the Employee's election to renew this
Agreement, this Agreement shall terminate and the Policy Owner then may
exercise its option under Section 1.10 of this Agreement.
Section 4.2 Termination of Benefits for Cause
This Agreement or any provision thereof may be terminated upon the
happening of any one of the following events:
(a) The Corporation's failure to pay to the Policy Owner its share of
the premiums required hereunder in a timely manner.
(b) Bankruptcy, insolvency or winding-up of the Corporation;
(c) Employee's discharge for cause.
Upon discharge for cause, the Employee and his family and beneficiary
(the Policy Owner) shall be entitled to no benefit whatsoever under this
Agreement, and all obligations to the Corporation owed by the Employee, his
family and beneficiary under this Agreement shall immediately be due to the
Corporation.
"Discharge for cause" shall mean termination of employment for proven
embezzlement, intoxication or illegal drug use which materially interferes
with job performance, absenteeism greater than twice normal Corporation
policy, wrongful disclosure of Corporation confidential information, gross
insubordination or conviction of a felony adversely affecting the ability of
the Employee to carry on his normal duties or which creates a reasonable
doubt as to the Employee's morality as it relates to the Corporation.
Article V
MISCELLANEOUS
Section 5.1 Designated Beneficiaries
Whenever a post-death benefit is to be paid pursuant to this Agreement,
the following shall be the beneficiary(ies) of such benefit:
(a) If the Policy Owner has properly filled out a beneficiary
designation, then the latest of such beneficiary(ies) to be designated in the
order of their designation.
(b) If the Policy Owner has not filled out a beneficiary designation,
or if having filled one out the same is revoked, then to those person(s) or
trust(s) who would have taken if such benefit were included in the general
assets of the James C. Kostelni Irrevocable Trust dated June 6, 1994.<PAGE>
Section 5.2 Insurer Relations
No insurer which may issue any policy for the purpose of this Agreement
shall be deemed a party to this agreement, nor shall any insurer be required
to take or permit any act contrary to the provisions of said policy, nor
contrary to any regulations of any such insurer, nor shall any such insurer
be responsible for the validity of this Agreement. The validity of this
Agreement shall be measured solely by the terms and conditions of this
Agreement.
Section 5.3 Agreement Binding
This plan shall bind the Corporation or its successors and assigns, and
the Employee or his assigns, the Policy Owner and its assigns and any policy
beneficiary.
Section 5.4 Governing Law
This Agreement and the rights of the parties hereunder shall be
governed by and construed in accordance with the laws of the Commonwealth of
Virginia.
Section 5.5 Rules of Construction
Wherever in this instrument words are used in the masculine or neuter
gender, they shall be read and construed as in the masculine, feminine or
neuter gender whenever they would so apply, and vice versa. Wherever words
appear in the singular or plural, they shall be read and construed as in the
plural or singular, respectively, wherever they would so apply.
Section 5.6 Amendment
This Agreement may be altered, amended or modified, including the
addition of any extra policy provisions by written instrument signed by the
parties hereto.
Section 5.7 Precedence Over Endorsement
As between the Policy Owner and the Corporation, this Agreement will
take precedence over any provisions of the Endorsement. The Corporation
agrees not to exercise any right possessed by it under the Endorsement which
conflicts with this Agreement.
Section 5.8 Merger
This Agreement sets forth the entire Agreement of the parties hereto,
and any and all prior agreements, to the extent inconsistent herewith, are
hereby superseded.
Section 5.9 No Contract of Employment
Nothing herein shall be deemed to create any express or implied
contract of employment between the Corporation and the Employee.
Section 5.10 Execution of Documents
The Employee and Policy Owner by acceptance of potential benefits under
this Agreement, agree to execute any documents which may be necessary or
proper in the carrying out of the purpose and intent of this Agreement.
<PAGE>
In witness whereof the parties have executed this Agreement the date
above written.
BONTEX, INC.
By: s/David A. Dugan
------------------------------
Its: s/Asst. Corp. Secretary
-----------------------------
Attest: s/Linda Austin Floyd
----------------------------
Its: s/Administrative Asst.
-------------------------
s/James C. Kostelni
-----------------------------------
JAMES C. KOSTELNI, Employee
NATIONSBANK, TRUSTEE UNDER
JAMES C. KOSTELNI IRREVOCABLE
TRUST DATED JUNE 6, 1994
By: s/[Illegible]
------------------------------
Its: s/Assistant Vice President
-----------------------------
<PAGE>
ENDORSEMENT
Life of Virginia Policy No. 2724346
Life of Virginia Policy No. 2619397
Equitable Life Policy No. 47237767 Date: October 31, 1997
Life Insured: James C. Kostelni
Section 1.1 Ownership
(a) NATIONSBANK, Trustee under Irrevocable Trust dated June 6, 1994
(hereinafter sometimes called "Policy Owner") hereby transfers all ownership
rights in and to the above-captioned life insurance policies (hereinafter
called "Policy") to BONTEX, INC. (hereinafter sometimes called "sub-owner")
or its assigns with only the following exceptions:
(1) The Policy Owner shall not take any action with respect to
the policy which would impair the interests of the policy sub-owner or its
assigns in excess of the total interest of the Policy Owner.
(2) The Policy Owner shall not surrender or assign its rights
under the policy to anyone other than the policy sub-owner or its assigns.
(3) If at the time the policy is surrendered prior to the death
of the insured (pursuant to (4) herein, infra), the interest of the policy
sub-owner or its assigns shall be the cash surrender value of the policy.
(4) The Policy Owner shall have the sole right to surrender the
value of the policy on behalf of the policy sub-owner or its assigns. It is
agreed that the insurer may be directed to draw a check payable to the policy
sub-owner or its assigns. It is the purpose of this provision to
specifically provide that the sole and exclusive right to surrender or cancel
the policy is vested in the Policy Owner.
(5) The Policy Owner may borrow against the policy to the
extent of the cash surrender value, but not in excess of the amount of
premiums paid by the Policy Owner. For the purposes of this assignment,
premiums paid pursuant to the automatic premium loan provision of the subject
policy and premiums waived by the insurer because of the insured's disability
shall not be considered to be paid by the Policy Owner. Also, any premium
refunded because of the insured's disability shall be refunded to the Policy
Owner, and, thereafter, such refunded premium shall not be considered as
having been paid by the Policy Owner.
Section 1.2 Rights upon Death of Insured
Upon the death of the insured during the term of the Reverse Split
Dollar Agreement, the policy proceeds shall be distributed as follows:
(a) Policy Owner shall first be repaid the total premium paid by it.
(b) All of the rest of the said proceeds shall be payable to the
beneficiaries of the policy according to any optional mode of settlement
election filed with insurer, the policy sub-owner or its assigns.
Section 1.3 Insurer
The insurer may, in determining the amount of the above-mentioned
payment safely accept, rely and act upon such evidence by affidavit or other
document which in its judgment is sufficient evidence. The submission to the
insurer of a receipt for such payment signed by the said sub-owner or
transferee shall be a discharge therefor to the insurer and final and
conclusive evidence that such payment has been duly paid to and received by
the party lawfully and rightfully entitled to the same, and that all claims
and demands whatever against the insurer in respect thereto have been fully
satisfied.
<PAGE>
Owner: NATIONSBANK, TRUSTEE UNDER
JAMES C. KOSTELNI
IRREVOCABLE TRUST DATED
JUNE 6, 1994
By: s/[Illegible]
------------------------------
Its: s/Assistant Vice President
------------------------------
Sub-owner: BONTEX, INC.
By: s/Charles Kostelni
------------------------------
Its: s/Corporate Controller
-----------------------------
<PAGE>
EXECUTIVE COMPENSATION AGREEMENT
THIS AGREEMENT is dated November 21, 1997, between Bontex, Inc., a
Virginia corporation (the "Company"), and Charles W. J. Kostelni (the
"Employee").
1. Employment. The Company employs Charles W. J. Kostelni as
Corporate Comptroller and Secretary of the Company, and the Employee accepts
employment upon the terms and conditions of this Agreement.
2. Definitions. As used in this Agreement, the following
capitalized terms have the indicated meanings unless the context clearly
requires otherwise:
(a) "Applicable Federal Rate" has the meaning ascribed to that
term in Section 1274(d)(1) of the Internal Revenue Code of 1986, as amended.
(b) "Cause" means (i) the Employee's conviction of a felony
during the term of this Agreement; (ii) the Employee's material breach of
this Agreement which remains uncured sixty (60) days after notice by the
Company to the Employee of such material breach; or (iii) the Employee's
dishonesty directly related to the performance of his duties hereunder.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Cause under this Agreement based upon either clause (ii) or
(iii) above, unless and until there shall have been delivered to him a copy
of a resolution, duly adopted by the affirmative vote of not less than a
majority (more than 50%) of the Board of Directors of the Company at a
meeting called and held for the purpose (after reasonable notice to the
Employee and an opportunity for him, together with his counsel, to be heard
before the Board of Directors of the Company), finding that, in the good
faith opinion of the Board, the Employee was guilty of conduct set forth
above in either clause (ii) or (iii) and specifying the particulars thereof
in detail.
(c) "Change in Control" means a change in control occurring
after the date of this Agreement of a nature that would be required to be
reported (assuming such event has not been "previously reported") in response
to Item 1(a) of the Current Report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act"); provided that, notwithstanding the
foregoing and without limitation, such a change in control shall be deemed to
have occurred at such time after the date of this Agreement as (i) any Person
(as hereinafter defined) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 or Rule 13d-5 under the Exchange Act as in effect on January 1,
1997), directly or indirectly, of 20% or more of the combined voting power of
the Company's voting securities; (ii) the members of the Company's Board of
Directors on the date of this Agreement (the "Incumbent Board") cease for any
reason to constitute at least the majority of the Board, provided that any
person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote
of at least 75% of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without objection to such
nomination) shall be, for purposes of this clause (ii) considered as though
such person were a member of the Incumbent Board; (iii) all or substantially
all of the assets of the Company are sold, transferred or conveyed by any
means, including, but not limited to, direct purchase or merger, if the
transferee is not controlled by the Company, control meaning the ownership of
more than 75% of the combined voting power of such entity's voting
securities; or (iv) the Company is merged or consolidated with another
corporation or entity and as a result of such merger or consolidation less
than 75% of the outstanding voting securities of the surviving or resulting
<PAGE>
corporation or entity shall be owned in the aggregate by the former
shareholders of the Company. Notwithstanding anything in the foregoing to
the contrary, no change in control shall be deemed to have occurred for
purposes of this Agreement by virtue of any transaction after the date hereof
(i) which results in the Employee (his heirs, assigns or successors in
interest) or a group of Persons which includes the Employee (his heirs,
assigns or successors in interest), acquiring, directly or indirectly, 20% or
more of the combined voting power of the Company's voting securities; or
(ii) which results in the Company, any subsidiary of the Company or any
profit-sharing plan, employee stock ownership plan or employee benefit plan
of the Company or any of its subsidiaries (or any trustee of or fiduciary
with respect to any such plan acting in such capacity) acquiring, directly or
indirectly, 20% or more of the combined voting power of the Company's voting
securities; or (iii) which results in the heirs, successors or assigns of
Hugo N. Surmonte acquiring, directly or indirectly, 20% or more of the
combined voting power of the Company's voting securities.
(d) "Date of Termination" means (i) if the Employee's
employment is to be terminated for Disability (as defined in paragraph 9
below), thirty (30) days after Notice of Termination is given (provided that
in the case of Disability, the Employee shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period), (ii) if the Employee's employment is to be terminated for Cause, the
date specified in the Notice of Termination, (iii) the date of the Employee's
death, or (iv) if the Employee's employment is to be terminated by the
Company for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than ninety (90) days
after the date on which such Notice of Termination is given, unless an
earlier date has been expressly agreed to by the Employee in writing either
in advance of, or after, receiving such Notice of Termination.
(e) "Company" includes any corporation or other entity which is
the surviving or continuing entity in respect of any merger, consolidation or
form of business combination in which the Company ceases to exist.
(f) "Notice of Termination" means a written notice that
indicates the specific termination provision of this Agreement relied upon
and sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the
provision so indicated.
(g) "Person" has the meaning ascribed to that term in Sections
3(d)(9) and 13(d)(3) of the Exchange Act.
(h) "Retirement" and means the Employee's voluntary termination
of employment after the attainment of age sixty-five (65) or the attainment
of age fifty-five (55) having worked full time for the Company for a period
of ten (10) consecutive employment years.
(i) "Successor" means any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time)
the Company's business directly by merger or consolidation, or indirectly by
purchase of the Company's voting securities, all or substantially all of its
assets or otherwise.
3. Term. (a) The term of this Agreement shall begin on the date
hereof and shall terminate on November 30, 2000.
(b) Notwithstanding anything in this Agreement to the contrary,
this Agreement shall continue in effect for at least a period of thirty-six
(36) months beyond the date of a Change in Control of the Company, if one
shall have occurred during any term of this Agreement.
4. Compensation. For all services rendered by the Employee, the
Company shall pay the Employee a base salary of One Hundred Fifteen Thousand
Dollars ($115,000) a year for the first year of this Agreement, payable in
twenty-four (24) equal installments on the 15th and last day of each month.
Salary payments shall be subject to withholding and other applicable taxes.
<PAGE>
The base salary herein set forth shall be annually adjusted by the
Compensation Committee of the Board of Directors of the Company, and the
Employee shall receive during the term of this Agreement such bonuses as are
approved by the Board of Directors of the Company and all fringe benefits
offered to Company employees, including medical, dental, hospital, life and
long-term disability insurance coverage. The Company shall not alter or
reduce the compensation or benefits being provided to the Employee as of the
date of this Agreement without prior written consent of the Employee.
5. Services. The Employee shall exert his best efforts and devote
substantially all of his time and attention to the affairs of the Company.
Unless the Employee agrees otherwise, in writing, the Employee shall be the
Corporate Comptroller and Secretary of the Company (the "Positions") and
shall have such responsibilities, duties and authority as are generally
associated with such Positions as may from time to time be assigned to the
Employee by the Board of Directors of the Company.
6. Working Facilities. The Employee shall have a private office at
the Company's plant to which he is assigned, and shall have stenographic and
secretarial help and such other facilities and services as are suitable to
his position and appropriate for the performance of his duties. The office
and other facilities and services to be provided to the Employee shall be of
no less quality than those available to the Employee as of the date of this
Agreement.
7. Reimbursement of Expenses. The Company will reimburse the
Employee for all reasonable and necessary expenses incurred by him in
carrying out his duties under this Agreement, including, without limitation,
travel and lodging expenses. The Employee shall be provided credit and
travel cards comparable to those being used as of the date of this Agreement,
and the Employee shall present to the Company from time to time an itemized
account of such expenses in such form as may be required by the Board of
Directors of the Company.
8. Vacations. The Employee shall be entitled each year to a
vacation of three (3) weeks, and all Company holidays, during which time the
Employee's compensation shall be paid in full.
9. Disability. If the Employee is unable to perform his services by
reason of illness, incapacity or accident for a period of more than six (6)
consecutive months ("Disability"), the Company may terminate the Employee's
employment upon thirty (30) days written notice to the Employee.
10. Payment Upon Termination.
Subject to the provisions of Paragraph 11 below, the following shall
apply in the case of termination of employment:
(a) Termination for Cause. If the Employee's employment is
terminated by the Company for Cause, the Company shall pay the Employee his
full salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given and all other unpaid amounts, if any, to which
the Employee is entitled as of the Date of Termination under any plan or
arrangement of the Company at the time such payments are due.
(b) Termination due to Death. If the Employee dies during the
term of this Agreement, the Company shall pay to the estate of the Employee
the compensation which would otherwise be payable to the Employee up to the
end of the month in which his death occurs. In addition, his estate shall be
paid, as additional compensation hereunder, within forty-five (45) days after
his date of death, an amount equal to six (6) months compensation or the
balance due under this Agreement, whichever is less. The Company shall also
pay, within sixty (60) days after the death of the Employee, $5,000 to the
widow of the Employee, or if he is not then survived by his widow, to the
Employee's surviving children in equal shares, or if there are no such
surviving children, to the estate of the Employee.
<PAGE>
(c) Termination Due to Disability. If the Employee's
employment hereunder is terminated under paragraphs 9 because of the
Employee's Disability, the Employee shall be paid, as additional compensation
hereunder, within forty-five (45) days after the Date of Termination, an
amount equal to six (6) months compensation or the balance due under this
Agreement, whichever is less, and the Employee, or in the case of his death,
his spouse, shall continue to receive from the Company health insurance
benefits substantially similar to those being provided to the Employee prior
to the Date of Termination, for a period of six months from the Date of
Termination.
(d) Other Termination. If the Employee's employment is
terminated by the Company for reason other than Cause, Change in Control,
Death or Disability, the Company shall pay the Employee the lump sum payment
equal to the greater of (i) the amount the Employee would be entitled to
under the Company's severance pay policy in effect as of the date of this
Agreement; or (ii) the total salary that the Employee would have earned had
the Employee continued in the Company's employ through the remaining term of
the Agreement, such salary to be at the rate in effect at the time Notice of
Termination is given.
11. Termination Following a Change in Control. Upon termination of
the Employee's employment within thirty-six (36) months following a Change in
Control of the Company, unless such termination is (i) because of the
Employee's death or Retirement, or (ii) by the Company for Cause or
Disability, the Company shall pay to the Employee the benefits provided below
in lieu of those provided in paragraph 10:
(a) The Company shall pay the Employee his full salary (whether
such salary has been paid by the Company or by any of its subsidiaries)
through the Date of Termination at the rate in effect at the time Notice of
Termination is given and all other unpaid amounts, if any, to which the
Employee is entitled as of the Date of Termination under any plan or other
arrangement of the Company, at the time such payments are due;
(b) The Company shall pay to the Employee an amount equal to
2.99 multiplied by the Employee's annualized includable compensation for the
base period, within the meaning of Section 280G(d)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"), provided, however, that if any of such
payment is or will be subject to the excise tax imposed by Section 4999 of
the Code or any similar tax that may hereafter be imposed ("Excise Tax"),
such payment shall be reduced to a smaller amount, even to zero, which
smaller amount shall be the largest amount payable under this paragraph that
would not be subject in whole or in part to the Excise Tax after considering
all other payments to the Employee required to be considered under Sections
4999 or 280G of the Code. Such payment shall be referred to as the
"Severance Payment."
In the event that the Severance Payment is subsequently determined to
be less than the amount actually paid hereunder, the Employee shall repay the
excess to the Company at the time that the proper amount is finally
determined, plus interest on the amount of such repayment at the Applicable
Federal Rate. In the event that the Severance Payment is determined to
exceed the amount actually paid hereunder, the Company shall pay the Employee
such difference plus interest on the amount of such additional payment at the
Applicable Federal Rate at the time that the amount of such difference is
finally determined.
In the event that the amount of the Severance Payment exceeds or is
less than the amount initially paid, such difference shall constitute a loan
by the Company to the Employee, or by the Employee to the Company, as the
case may be, payable on the fifth (5th) day after demand (together with
interest at the Applicable Federal Rate).
<PAGE>
The amount of any payment provided for in this subparagraph shall not
be reduced, offset or subject to recovery by the Company or the Company's
Successor by reason of any compensation earned by the Employee as the result
of employment by another employer after the Date of Termination, or
otherwise.
(c) The Company shall also pay to the Employee all legal fees
and related expenses incurred by the Employee in connection with this
Agreement, whether or not the Employee prevails (including, without
limitation, all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any right
or benefit provided by this Agreement).
(d) The Company shall maintain in full force and effect, for
the Employee's continued benefit until the earlier of (i) the death of the
Employee and his spouse; or (ii) the Employee's commencement of full-time
employment with a new employer, all life insurance, medical, health and
accident, and disability plans, programs or arrangements in which the
Employee was entitled to participate immediately prior to the Date of
Termination, provided that the Employee's continued participation is possible
under the general terms and provisions of such plans and programs. In the
event that the Employee's participation in any such plan or program is
barred, the Company shall arrange to provide the Employee with benefits
substantially similar to those which the Employee is entitled to receive
under such plans and programs.
12. Restrictive covenant. (a) For a period of three (3) years from
the date that his employment ends or terminates under this Agreement, the
Employee shall not, directly or indirectly, own, manage, operate, control, be
employed by, participate in, or be connected in any manner with the
ownership, management, operation, or control of any business similar to the
type of business conducted by the Company at the time his employment under
this Agreement ends or terminates.
(b) In the event of the Employee's actual or threatened breach
of this paragraph, the Company shall be entitled to a preliminary restraining
order and injunction restraining the Employee from violating its provisions.
Nothing in this Agreement shall be construed to prohibit the Company from
pursuing any other available remedies for such breach or threatened breach,
including the recovery of damages from the Employee.
(c) The Employee acknowledges and agrees that the Company's
remedy at law for any breach of any of the Employee's obligations hereunder
would be inadequate, and agrees and consents that temporary and permanent
injunctive relief may be granted in any proceeding which may be brought to
enforce any provision hereof, without the necessity of proof of actual
damages.
(d) In the event that any court shall hold that any provision
hereof is too broad or is unreasonable, whether in time, scope, geographic
area or otherwise, it is agreed that such provision shall not be rendered
void, but shall be deemed reformed to be limited to the maximum restriction
which is deemed reasonable by such court under applicable law.
13. Disclosure of information. (a) Employee will not at any time,
either during employment (except pursuant to agreements executed by the
Company) or after employment terminates, directly or indirectly make known or
divulge to any person, firm or corporation the names or addresses of any of
the customers, employees, suppliers or potential customers of the Company or
any other confidential propriety, material or important information of any
kind, nature or description concerning the business of the Company, its
manner of operation, or its plans or data.
<PAGE>
(b) The Employee will not, during the period of three (3) years
after the date his employment is terminated or ends, directly or indirectly,
either for himself or for any other person, firm or corporation, solicit,
divert, or take away, or attempt to solicit, divert, or take away, any of the
customers, employees, suppliers or potential customers of the Company.
(c) All books, records, files, forms, reports, memoranda,
papers, accounts and documents relating in any manner to the Company's
business, employees, customers or suppliers, whether prepared or paid for by
the Employee or anyone else, shall be the exclusive property of the Company
and shall be returned immediately to the Company upon termination of
employment or upon the Company's request at any time.
(d) The parties hereby stipulate that each of the foregoing
matters are important, material and confidential, and affect the effective
and successful conduct of the business of the Company and its reputation and
good will, and in the event of the Employee's breach or threatened breach of
this paragraph, the Company shall be entitled to a preliminary restraining
order and temporary and permanent injunctions restraining and enjoining the
Employee from the prohibited activity. In addition to or in lieu of the
above, the Company may pursue all other remedies available to the Company for
such breach or threatened breach, including the recovery of damages from the
Employee.
14. Arbitration. In the event of a dispute arising out of or in
connection with this Agreement, including any questions regarding its
existence, validity, breach or termination, either party may give notice in
writing to the other party informing it of the matter in dispute. If the
parties are unable to resolve the dispute within thirty (30) days of the
notice, then such dispute shall be submitted to arbitration and resolved by a
three-arbitrator panel. The party desiring to submit a matter to arbitration
shall select one qualified disinterested arbitrator and shall notify the
other party in writing of its appointment. Within thirty (30) days after
receipt of notice of the appointment of the initial arbitrator, the remaining
party shall select a qualified disinterested arbitrator and shall notify the
party initiating the arbitration procedure of its selection in writing. The
two arbitrators so selected shall then select a third arbitrator who shall
act as chairman of the arbitration panel which shall determine the dispute.
The arbitrators so appointed shall hold such hearing or hearings as the
arbitrators may determine in order to permit the parties to the dispute to
present such evidence as they may desire. All such arbitration hearings
shall take place in the City of Roanoke, Virginia. The arbitrators shall
decide the issues presented by majority decision. In all other respects the
arbitration proceeding shall be conducted in accordance with the Virginia
Uniform Arbitration Act (the "Arbitration Act"). The award or decision
rendered by the arbitration panel (including an allocation of the costs of
arbitration) shall be final, binding and conclusive, and judgment may be
entered upon such award by any court of competent jurisdiction. The
arbitration provisions of this Agreement shall not prevent any party from
obtaining injunctive relief from a court of competent jurisdiction to enforce
the obligations of the other party hereunder for which such party may require
provisional relief pending a decision on the merits by the arbitration panel.
The arbitration panel shall have authority to award any remedy or relief that
a court of competent jurisdiction could grant in conformity to applicable
law, including the authority to award attorneys' fees or punitive damages.
If either party to this Agreement brings an arbitration or action to enforce
its rights under this Agreement, the prevailing party shall be entitled to
recover its costs and expenses, including, without limitation, reasonable
attorneys' fees and fees of experts incurred in connection with such action,
including any appeal to the arbitrators award or confirmation proceedings
with respect thereto, which may be filed pursuant to the Arbitration Act.
<PAGE>
15. Stock Options.
(a) Grant of Option. Employee is hereby granted the option to
purchase up to 20,000 shares of Company common stock under the following
terms and conditions, at a purchase price of $5.63 per share, which is the
market price on the date of the execution of this Agreement:
(i) The options granted hereunder may be exercised,
during the applicable period set forth below, either at once or from time to
time in blocks of not less than 100 shares.
(ii) The grant of options above are exercisable only
during a period which begins with the date of this Agreement and ends on the
ten-year anniversary date of this Agreement, provided, however, that all
unexercised options shall expire thirty (30) days after the termination of
Employee's employment for any reason except death, and provided, further,
that in the event of Employee's death, any options held by him which were
exercisable at the time of his death may be exercised by the person
designated in Employee's will or by the proper legal representative of the
Employee only within one year following Employee's death, but in no event
later than the expiration date of the option. Any option which is not
exercisable at the time of Employee's termination of employment for any
reason, including death, shall expire on the date Employee's employment
terminates. No stock option granted hereunder shall be transferrable by
Employee other than by will or the laws of descent and distribution, and an
option may be exercised during the lifetime of Employee only by him or his
guardian or legal representative.
(b) Restrictions. The options granted hereunder and the shares
of common stock issuable upon exercise of such options have not been
registered under the Securities Act of 1933 ("Securities Act"), or under the
Blue Sky or other securities laws of any state, and cannot be sold or offered
for sale unless subsequently so registered or an exemption from registration
is available. Employee understands that these securities are being issued in
reliance on Section 4(2) of the Securities Act and other available exemptions
from registration under federal and state securities laws and that he may be
required to hold the securities indefinitely. Employee further understands
and agrees that the Company has no obligation to register or qualify the
securities or any portion thereof, either under the Securities Act or any
other law. All certificates representing the securities shall be subject to
stop transfer orders and shall bear an appropriate restrictive legend.
Employee agrees that he will not dispose of any of the securities except in a
manner and fashion which is in total compliance with the law and unless and
until either (i) the Company shall have received an opinion of legal counsel
satisfactory to it that such disposition does not violate the Securities Act
and regulations promulgated thereunder and any applicable state securities
laws or regulations, or (ii) the securities have been validly registered
under the Securities Act and any applicable state Blue Sky or securities
laws.
(c) Miscellaneous Considerations. The number of optioned
shares shall be adjusted from time to time to prevent dilution of Employee's
rights caused by stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, reorganizations,
liquidations and similar matters. An option may be exercised by giving
written notice of exercise to the Company specifying the number of shares to
be purchased and by paying in full in cash the exercise price. Upon
notification of the amount due and prior to, or concurrently with, the
delivery to Employee of a certificate representing any shares purchased
pursuant to the exercise of an Option, Employee shall promptly pay to the
Company any amount necessary to satisfy applicable federal, state or local
tax requirements.
<PAGE>
16. Indemnity. The Company shall indemnify the Employee and hold him
harmless for any acts or decisions made by him in good faith while performing
services for the Company and use its best efforts to obtain coverage for the
Employee under any insurance policy now in force or hereinafter obtained
during the term of this Agreement covering the other officers and directors
of the Company against lawsuits. The Company will pay all expenses,
including attorneys' fees, actually and necessarily incurred by the Employee
in connection with the defense of such act, suit or proceeding and in
connection with any appeal thereon, including the costs of court settlements.
17. Notices. Any notice required or desired to be given under this
Agreement shall be deemed given if in writing sent by certified mail to his
residence in the case of the Employee, or to its principal office in the case
of the Company.
18. Waiver of Breach. The waiver by the Company of a breach of any
provision of this Agreement by the Employee shall not operate or be construed
as a waiver of any subsequent breach by the Employee. No waiver shall be
valid unless in writing and signed by an authorized officer of the Company.
19. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the
Successors and assigns of the Company.
20. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally, but only by an
agreement in writing approved by the Board of Directors of the Company and
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. The respective obligations
of, and benefits afforded to the Employee in, paragraphs 10, 11, and 12 shall
survive termination of this Agreement.
21. Governing law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF the parties have executed this Agreement as of
November 30, 1997, pursuant to a resolution of the Board of Directors, duly
convened following timely notice, on the 30th day of September, 1997, and
pursuant to a resolution of the Compensation Committee of the Board of
Directors, duly convened following timely notice, on the 21st day of
November, 1997.
BONTEX, INC.
By s/Robert J. Weeks
--------------------------------
Robert J. Weeks, Chairman
Compensation Committee of the
Board of Directors of Bontex, Inc.
s/Charles W. J. Kostelni
------------------------------------
Charles W. J. Kostelni
<PAGE>
EXECUTIVE COMPENSATION AGREEMENT
THIS AGREEMENT is dated November 21, 1997, between Bontex, Inc., a
Virginia corporation (the "Company"), and Jeffrey C. Kostelni (the
"Employee").
1. Employment. The Company employs Jeffrey C. Kostelni as Chief
Financial Officer and Treasurer of the Company, and the Employee accepts
employment upon the terms and conditions of this Agreement.
2. Definitions. As used in this Agreement, the following
capitalized terms have the indicated meanings unless the context clearly
requires otherwise:
(a) "Applicable Federal Rate" has the meaning ascribed to that
term in Section 1274(d)(1) of the Internal Revenue Code of 1986, as amended.
(b) "Cause" means (i) the Employee's conviction of a felony
during the term of this Agreement; (ii) the Employee's material breach of
this Agreement which remains uncured sixty (60) days after notice by the
Company to the Employee of such material breach; or (iii) the Employee's
dishonesty directly related to the performance of his duties hereunder.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Cause under this Agreement based upon either clause (ii) or
(iii) above, unless and until there shall have been delivered to him a copy
of a resolution, duly adopted by the affirmative vote of not less than a
majority (more than 50%) of the Board of Directors of the Company at a
meeting called and held for the purpose (after reasonable notice to the
Employee and an opportunity for him, together with his counsel, to be heard
before the Board of Directors of the Company), finding that, in the good
faith opinion of the Board, the Employee was guilty of conduct set forth
above in either clause (ii) or (iii) and specifying the particulars thereof
in detail.
(c) "Change in Control" means a change in control occurring
after the date of this Agreement of a nature that would be required to be
reported (assuming such event has not been "previously reported") in response
to Item 1(a) of the Current Report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act"); provided that, notwithstanding the
foregoing and without limitation, such a change in control shall be deemed to
have occurred at such time after the date of this Agreement as (i) any Person
(as hereinafter defined) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 or Rule 13d-5 under the Exchange Act as in effect on January 1,
1997), directly or indirectly, of 20% or more of the combined voting power of
the Company's voting securities; (ii) the members of the Company's Board of
Directors on the date of this Agreement (the "Incumbent Board") cease for any
reason to constitute at least the majority of the Board, provided that any
person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's shareholders, was approved by a vote
of at least 75% of the directors comprising the Incumbent Board (either by a
specific vote or by approval of the proxy statement of the Company in which
such person is named as a nominee for director, without objection to such
nomination) shall be, for purposes of this clause (ii) considered as though
such person were a member of the Incumbent Board; (iii) all or substantially
all of the assets of the Company are sold, transferred or conveyed by any
means, including, but not limited to, direct purchase or merger, if the
transferee is not controlled by the Company, control meaning the ownership of
more than 75% of the combined voting power of such entity's voting
securities; or (iv) the Company is merged or consolidated with another
corporation or entity and as a result of such merger or consolidation less
than 75% of the outstanding voting securities of the surviving or resulting
corporation or entity shall be owned in the aggregate by the former
<PAGE>
shareholders of the Company. Notwithstanding anything in the foregoing to
the contrary, no change in control shall be deemed to have occurred for
purposes of this Agreement by virtue of any transaction after the date hereof
(i) which results in the Employee (his heirs, assigns or successors in
interest) or a group of Persons which includes the Employee (his heirs,
assigns or successors in interest), acquiring, directly or indirectly, 20% or
more of the combined voting power of the Company's voting securities; or
(ii) which results in the Company, any subsidiary of the Company or any
profit-sharing plan, employee stock ownership plan or employee benefit plan
of the Company or any of its subsidiaries (or any trustee of or fiduciary
with respect to any such plan acting in such capacity) acquiring, directly or
indirectly, 20% or more of the combined voting power of the Company's voting
securities; or (iii) which results in the heirs, successors or assigns of
Hugo N. Surmonte acquiring, directly or indirectly, 20% or more of the
combined voting power of the Company's voting securities.
(d) "Date of Termination" means (i) if the Employee's
employment is to be terminated for Disability (as defined in paragraph 9
below), thirty (30) days after Notice of Termination is given (provided that
in the case of Disability, the Employee shall not have returned to the
performance of his duties on a full-time basis during such thirty (30) day
period), (ii) if the Employee's employment is to be terminated for Cause, the
date specified in the Notice of Termination, (iii) the date of the Employee's
death, or (iv) if the Employee's employment is to be terminated by the
Company for any reason other than Cause, the date specified in the Notice of
Termination, which in no event shall be a date earlier than ninety (90) days
after the date on which such Notice of Termination is given, unless an
earlier date has been expressly agreed to by the Employee in writing either
in advance of, or after, receiving such Notice of Termination.
(e) "Company" includes any corporation or other entity which is
the surviving or continuing entity in respect of any merger, consolidation or
form of business combination in which the Company ceases to exist.
(f) "Notice of Termination" means a written notice that
indicates the specific termination provision of this Agreement relied upon
and sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the
provision so indicated.
(g) "Person" has the meaning ascribed to that term in Sections
3(d)(9) and 13(d)(3) of the Exchange Act.
(h) "Retirement" and means the Employee's voluntary termination
of employment after the attainment of age sixty-five (65) or the attainment
of age fifty-five (55) having worked full time for the Company for a period
of ten (10) consecutive employment years.
(i) "Successor" means any Person that succeeds to, or has the
practical ability to control (either immediately or with the passage of time)
the Company's business directly by merger or consolidation, or indirectly by
purchase of the Company's voting securities, all or substantially all of its
assets or otherwise.
3. Term. (b) The term of this Agreement shall begin on the date
hereof and shall terminate on November 30, 2000.
(b) Notwithstanding anything in this Agreement to the contrary,
this Agreement shall continue in effect for at least a period of thirty-six
(36) months beyond the date of a Change in Control of the Company, if one
shall have occurred during any term of this Agreement.
4. Compensation. For all services rendered by the Employee, the
Company shall pay the Employee a base salary of One Hundred Thirty Thousand
Dollars ($130,000) a year for the first year of this Agreement, payable in
twenty-four (24) equal installments on the 15th and last day of each month.
Salary payments shall be subject to withholding and other applicable taxes.
The base salary herein set forth shall be annually adjusted by the
Compensation Committee of the Board of Directors of the Company, and the
<PAGE>
Employee shall receive during the term of this Agreement such bonuses as are
approved by the Board of Directors of the Company and all fringe benefits
offered to Company employees, including medical, dental, hospital, life and
long-term disability insurance coverage. The Company shall not alter or
reduce the compensation or benefits being provided to the Employee as of the
date of this Agreement without prior written consent of the Employee.
5. Services. The Employee shall exert his best efforts and devote
substantially all of his time and attention to the affairs of the Company.
Unless the Employee agrees otherwise, in writing, the Employee shall be the
Chief Financial Officer and Treasurer of the Company (the "Positions") and
shall have such responsibilities, duties and authority as are generally
associated with such Positions as may from time to time be assigned to the
Employee by the Board of Directors of the Company.
6. Working Facilities. The Employee shall have a private office at
the Company's plant to which he is assigned, and shall have stenographic and
secretarial help and such other facilities and services as are suitable to
his position and appropriate for the performance of his duties. The office
and other facilities and services to be provided to the Employee shall be of
no less quality than those available to the Employee as of the date of this
Agreement.
7. Reimbursement of Expenses. The Company will reimburse the
Employee for all reasonable and necessary expenses incurred by him in
carrying out his duties under this Agreement, including, without limitation,
travel and lodging expenses. The Employee shall be provided credit and
travel cards comparable to those being used as of the date of this Agreement,
and the Employee shall present to the Company from time to time an itemized
account of such expenses in such form as may be required by the Board of
Directors of the Company.
8. Vacations. The Employee shall be entitled each year to a
vacation of three (3) weeks, and all Company holidays, during which time the
Employee's compensation shall be paid in full.
9. Disability. If the Employee is unable to perform his services by
reason of illness, incapacity or accident for a period of more than six (6)
consecutive months ("Disability"), the Company may terminate the Employee's
employment upon thirty (30) days written notice to the Employee.
10. Payment Upon Termination.
Subject to the provisions of Paragraph 11 below, the following shall
apply in the case of termination of employment:
(a) Termination for Cause. If the Employee's employment is
terminated by the Company for Cause, the Company shall pay the Employee his
full salary through the Date of Termination at the rate in effect at the time
Notice of Termination is given and all other unpaid amounts, if any, to which
the Employee is entitled as of the Date of Termination under any plan or
arrangement of the Company at the time such payments are due.
(b) Termination due to Death. If the Employee dies during the
term of this Agreement, the Company shall pay to the estate of the Employee
the compensation which would otherwise be payable to the Employee up to the
end of the month in which his death occurs. In addition, his estate shall be
paid, as additional compensation hereunder, within forty-five (45) days after
his date of death, an amount equal to six (6) months compensation or the
balance due under this Agreement, whichever is less. The Company shall also
pay, within sixty (60) days after the death of the Employee, $5,000 to the
widow of the Employee, or if he is not then survived by his widow, to the
Employee's surviving children in equal shares, or if there are no such
surviving children, to the estate of the Employee.
(c) Termination Due to Disability. If the Employee's
employment hereunder is terminated under paragraphs 9 because of the
Employee's Disability, the Employee shall be paid, as additional compensation
hereunder, within forty-five (45) days after the Date of Termination, an
amount equal to six (6) months compensation or the balance due under this
<PAGE>
Agreement, whichever is less, and the Employee, or in the case of his death,
his spouse, shall continue to receive from the Company health insurance
benefits substantially similar to those being provided to the Employee prior
to the Date of Termination, for a period of six months from the Date of
Termination.
(d) Other Termination. If the Employee's employment is
terminated by the Company for reason other than Cause, Change in Control,
Death or Disability, the Company shall pay the Employee the lump sum payment
equal to the greater of (i) the amount the Employee would be entitled to
under the Company's severance pay policy in effect as of the date of this
Agreement; or (ii) the total salary that the Employee would have earned had
the Employee continued in the Company's employ through the remaining term of
the Agreement, such salary to be at the rate in effect at the time Notice of
Termination is given.
11. Termination Following a Change in Control. Upon termination of
the Employee's employment within thirty-six (36) months following a Change in
Control of the Company, unless such termination is (i) because of the
Employee's death or Retirement, or (ii) by the Company for Cause or
Disability, the Company shall pay to the Employee the benefits provided below
in lieu of those provided in paragraph 10:
(a) The Company shall pay the Employee his full salary (whether
such salary has been paid by the Company or by any of its subsidiaries)
through the Date of Termination at the rate in effect at the time Notice of
Termination is given and all other unpaid amounts, if any, to which the
Employee is entitled as of the Date of Termination under any plan or other
arrangement of the Company, at the time such payments are due;
(b) The Company shall pay to the Employee an amount equal to
2.99 multiplied by the Employee's annualized includable compensation for the
base period, within the meaning of Section 280G(d)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"), provided, however, that if any of such
payment is or will be subject to the excise tax imposed by Section 4999 of
the Code or any similar tax that may hereafter be imposed ("Excise Tax"),
such payment shall be reduced to a smaller amount, even to zero, which
smaller amount shall be the largest amount payable under this paragraph that
would not be subject in whole or in part to the Excise Tax after considering
all other payments to the Employee required to be considered under Sections
4999 or 280G of the Code. Such payment shall be referred to as the
"Severance Payment."
In the event that the Severance Payment is subsequently determined to
be less than the amount actually paid hereunder, the Employee shall repay the
excess to the Company at the time that the proper amount is finally
determined, plus interest on the amount of such repayment at the Applicable
Federal Rate. In the event that the Severance Payment is determined to
exceed the amount actually paid hereunder, the Company shall pay the Employee
such difference plus interest on the amount of such additional payment at the
Applicable Federal Rate at the time that the amount of such difference is
finally determined.
In the event that the amount of the Severance Payment exceeds or is
less than the amount initially paid, such difference shall constitute a loan
by the Company to the Employee, or by the Employee to the Company, as the
case may be, payable on the fifth (5th) day after demand (together with
interest at the Applicable Federal Rate).
The amount of any payment provided for in this subparagraph shall not
be reduced, offset or subject to recovery by the Company or the Company's
Successor by reason of any compensation earned by the Employee as the result
of employment by another employer after the Date of Termination, or
otherwise.
<PAGE>
(c) The Company shall also pay to the Employee all legal fees
and related expenses incurred by the Employee in connection with this
Agreement, whether or not the Employee prevails (including, without
limitation, all such fees and expenses, if any, incurred in contesting or
disputing any such termination or in seeking to obtain or enforce any right
or benefit provided by this Agreement).
(d) The Company shall maintain in full force and effect, for
the Employee's continued benefit until the earlier of (i) the death of the
Employee and his spouse; or (ii) the Employee's commencement of full-time
employment with a new employer, all life insurance, medical, health and
accident, and disability plans, programs or arrangements in which the
Employee was entitled to participate immediately prior to the Date of
Termination, provided that the Employee's continued participation is possible
under the general terms and provisions of such plans and programs. In the
event that the Employee's participation in any such plan or program is
barred, the Company shall arrange to provide the Employee with benefits
substantially similar to those which the Employee is entitled to receive
under such plans and programs.
12. Restrictive covenant. (a) For a period of three (3) years from
the date that his employment ends or terminates under this Agreement, the
Employee shall not, directly or indirectly, own, manage, operate, control, be
employed by, participate in, or be connected in any manner with the
ownership, management, operation, or control of any business similar to the
type of business conducted by the Company at the time his employment under
this Agreement ends or terminates.
(b) In the event of the Employee's actual or threatened breach
of this paragraph, the Company shall be entitled to a preliminary restraining
order and injunction restraining the Employee from violating its provisions.
Nothing in this Agreement shall be construed to prohibit the Company from
pursuing any other available remedies for such breach or threatened breach,
including the recovery of damages from the Employee.
(c) The Employee acknowledges and agrees that the Company's
remedy at law for any breach of any of the Employee's obligations hereunder
would be inadequate, and agrees and consents that temporary and permanent
injunctive relief may be granted in any proceeding which may be brought to
enforce any provision hereof, without the necessity of proof of actual
damages.
(d) In the event that any court shall hold that any provision
hereof is too broad or is unreasonable, whether in time, scope, geographic
area or otherwise, it is agreed that such provision shall not be rendered
void, but shall be deemed reformed to be limited to the maximum restriction
which is deemed reasonable by such court under applicable law.
13. Disclosure of information. (a) Employee will not at any time,
either during employment (except pursuant to agreements executed by the
Company) or after employment terminates, directly or indirectly make known or
divulge to any person, firm or corporation the names or addresses of any of
the customers, employees, suppliers or potential customers of the Company or
any other confidential propriety, material or important information of any
kind, nature or description concerning the business of the Company, its
manner of operation, or its plans or data.
(b) The Employee will not, during the period of three (3) years
after the date his employment is terminated or ends, directly or indirectly,
either for himself or for any other person, firm or corporation, solicit,
divert, or take away, or attempt to solicit, divert, or take away, any of the
customers, employees, suppliers or potential customers of the Company.
<PAGE>
(c) All books, records, files, forms, reports, memoranda,
papers, accounts and documents relating in any manner to the Company's
business, employees, customers or suppliers, whether prepared or paid for by
the Employee or anyone else, shall be the exclusive property of the Company
and shall be returned immediately to the Company upon termination of
employment or upon the Company's request at any time.
(d) The parties hereby stipulate that each of the foregoing
matters are important, material and confidential, and affect the effective
and successful conduct of the business of the Company and its reputation and
good will, and in the event of the Employee's breach or threatened breach of
this paragraph, the Company shall be entitled to a preliminary restraining
order and temporary and permanent injunctions restraining and enjoining the
Employee from the prohibited activity. In addition to or in lieu of the
above, the Company may pursue all other remedies available to the Company for
such breach or threatened breach, including the recovery of damages from the
Employee.
14. Arbitration. In the event of a dispute arising out of or in
connection with this Agreement, including any questions regarding its
existence, validity, breach or termination, either party may give notice in
writing to the other party informing it of the matter in dispute. If the
parties are unable to resolve the dispute within thirty (30) days of the
notice, then such dispute shall be submitted to arbitration and resolved by a
three-arbitrator panel. The party desiring to submit a matter to arbitration
shall select one qualified disinterested arbitrator and shall notify the
other party in writing of its appointment. Within thirty (30) days after
receipt of notice of the appointment of the initial arbitrator, the remaining
party shall select a qualified disinterested arbitrator and shall notify the
party initiating the arbitration procedure of its selection in writing. The
two arbitrators so selected shall then select a third arbitrator who shall
act as chairman of the arbitration panel which shall determine the dispute.
The arbitrators so appointed shall hold such hearing or hearings as the
arbitrators may determine in order to permit the parties to the dispute to
present such evidence as they may desire. All such arbitration hearings
shall take place in the City of Roanoke, Virginia. The arbitrators shall
decide the issues presented by majority decision. In all other respects the
arbitration proceeding shall be conducted in accordance with the Virginia
Uniform Arbitration Act (the "Arbitration Act"). The award or decision
rendered by the arbitration panel (including an allocation of the costs of
arbitration) shall be final, binding and conclusive, and judgment may be
entered upon such award by any court of competent jurisdiction. The
arbitration provisions of this Agreement shall not prevent any party from
obtaining injunctive relief from a court of competent jurisdiction to enforce
the obligations of the other party hereunder for which such party may require
provisional relief pending a decision on the merits by the arbitration panel.
The arbitration panel shall have authority to award any remedy or relief that
a court of competent jurisdiction could grant in conformity to applicable
law, including the authority to award attorneys' fees or punitive damages.
If either party to this Agreement brings an arbitration or action to enforce
its rights under this Agreement, the prevailing party shall be entitled to
recover its costs and expenses, including, without limitation, reasonable
attorneys' fees and fees of experts incurred in connection with such action,
including any appeal to the arbitrators award or confirmation proceedings
with respect thereto, which may be filed pursuant to the Arbitration Act.
15. Stock Options.
(a) Grant of Option. Employee is hereby granted the option to
purchase up to 20,000 shares of Company common stock under the following
terms and conditions, at a purchase price of $5.63 per share, which is the
market price on the date of the execution of this Agreement:
(i) The options granted hereunder may be exercised,
during the applicable period set forth below, either at once or from time to
time in blocks of not less than 100 shares.<PAGE>
(ii) The grant of options above are exercisable only
during a period which begins with the date of this Agreement and ends on the
ten-year anniversary date of this Agreement, provided, however, that all
unexercised options shall expire thirty (30) days after the termination of
Employee's employment for any reason except death, and provided, further,
that in the event of Employee's death, any options held by him which were
exercisable at the time of his death may be exercised by the person
designated in Employee's will or by the proper legal representative of the
Employee only within one year following Employee's death, but in no event
later than the expiration date of the option. Any option which is not
exercisable at the time of Employee's termination of employment for any
reason, including death, shall expire on the date Employee's employment
terminates. No stock option granted hereunder shall be transferrable by
Employee other than by will or the laws of descent and distribution, and an
option may be exercised during the lifetime of Employee only by him or his
guardian or legal representative.
(b) Restrictions. The options granted hereunder and the shares
of common stock issuable upon exercise of such options have not been
registered under the Securities Act of 1933 ("Securities Act"), or under the
Blue Sky or other securities laws of any state, and cannot be sold or offered
for sale unless subsequently so registered or an exemption from registration
is available. Employee understands that these securities are being issued in
reliance on Section 4(2) of the Securities Act and other available exemptions
from registration under federal and state securities laws and that he may be
required to hold the securities indefinitely. Employee further understands
and agrees that the Company has no obligation to register or qualify the
securities or any portion thereof, either under the Securities Act or any
other law. All certificates representing the securities shall be subject to
stop transfer orders and shall bear an appropriate restrictive legend.
Employee agrees that he will not dispose of any of the securities except in a
manner and fashion which is in total compliance with the law and unless and
until either (i) the Company shall have received an opinion of legal counsel
satisfactory to it that such disposition does not violate the Securities Act
and regulations promulgated thereunder and any applicable state securities
laws or regulations, or (ii) the securities have been validly registered
under the Securities Act and any applicable state Blue Sky or securities
laws.
(c) Miscellaneous Considerations. The number of optioned
shares shall be adjusted from time to time to prevent dilution of Employee's
rights caused by stock dividends, stock splits, recapitalizations, mergers,
consolidations, combinations or exchanges of shares, reorganizations,
liquidations and similar matters. An option may be exercised by giving
written notice of exercise to the Company specifying the number of shares to
be purchased and by paying in full in cash the exercise price. Upon
notification of the amount due and prior to, or concurrently with, the
delivery to Employee of a certificate representing any shares purchased
pursuant to the exercise of an Option, Employee shall promptly pay to the
Company any amount necessary to satisfy applicable federal, state or local
tax requirements.
16. Indemnity. The Company shall indemnify the Employee and hold him
harmless for any acts or decisions made by him in good faith while performing
services for the Company and use its best efforts to obtain coverage for the
Employee under any insurance policy now in force or hereinafter obtained
during the term of this Agreement covering the other officers and directors
of the Company against lawsuits. The Company will pay all expenses,
including attorneys' fees, actually and necessarily incurred by the Employee
in connection with the defense of such act, suit or proceeding and in
connection with any appeal thereon, including the costs of court settlements.
<PAGE>
17. Notices. Any notice required or desired to be given under this
Agreement shall be deemed given if in writing sent by certified mail to his
residence in the case of the Employee, or to its principal office in the case
of the Company.
18. Waiver of Breach. The waiver by the Company of a breach of any
provision of this Agreement by the Employee shall not operate or be construed
as a waiver of any subsequent breach by the Employee. No waiver shall be
valid unless in writing and signed by an authorized officer of the Company.
19. Assignment. The Employee acknowledges that the services to be
rendered by him are unique and personal. Accordingly, the Employee may not
assign any of his rights or delegate any of his duties or obligations under
this Agreement. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the
Successors and assigns of the Company.
20. Entire Agreement. This Agreement contains the entire
understanding of the parties. It may not be changed orally, but only by an
agreement in writing approved by the Board of Directors of the Company and
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. The respective obligations
of, and benefits afforded to the Employee in, paragraphs 10, 11, and 12 shall
survive termination of this Agreement.
21. Governing law. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF the parties have executed this Agreement as of
November 21, 1997, pursuant to a resolution of the Board of Directors, duly
convened following timely notice, on the 30th day of September, 1997, and
pursuant to a resolution of the Compensation Committee of the Board of
Directors, duly convened following timely notice, on the 21st day of
November, 1997.
BONTEX, INC.
By s/Robert J. Weeks
----------------------------------
Robert J. Weeks, Chairman
Compensation Committee of the
Board of Directors of Bontex, Inc.
s/Jeffrey C. Kostelni
-------------------------------------
Jeffrey C. Kostelni
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANICAL INFORMATION EXTRACTED FROM BONTEX,
INC.'S UNAUDITED CONDENSED CONSOLIDATED FINANICIAL STATEMENT FOR THE SIX MONTHS
ENDED DECEMBER 31, 1997, AS SET FORTH IN THE COMPANY'S QUARTERLY REPORT ON FORM
10-Q, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANICAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 959
<SECURITIES> 0
<RECEIVABLES> 11,981
<ALLOWANCES> 111
<INVENTORY> 7,133
<CURRENT-ASSETS> 21,215
<PP&E> 23,328
<DEPRECIATION> 12,077
<TOTAL-ASSETS> 33,045
<CURRENT-LIABILITIES> 18,627
<BONDS> 2,667
157
0
<COMMON> 0
<OTHER-SE> 11,284
<TOTAL-LIABILITY-AND-EQUITY> 33,045
<SALES> 21,621
<TOTAL-REVENUES> 21,682
<CGS> 15,172
<TOTAL-COSTS> 20,910
<OTHER-EXPENSES> 106
<LOSS-PROVISION> 59
<INTEREST-EXPENSE> 533
<INCOME-PRETAX> 133
<INCOME-TAX> 93
<INCOME-CONTINUING> 40
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
