Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended: December 31, 1995 Commission
file number 1-5558
Katy Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware
75-1277589
(State of Incorporation) (IRS Employer
Identification Number)
6300 S. Syracuse #300, Englewood, Colorado
80111
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: (303)
290-9300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
Common Stock, $1.00 par value New York
Stock Exchange
Common Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
___________
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO ____
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by
non-affiliates of the registrant, as of February 29, 1996 was
$56,410,000. On that date 8,413,287 shares of Common Stock,
$1.00 par value, were outstanding, tzhe only class of the
registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 annual report to shareholders of Katy
Industries, Inc. (The "1995 Annual Report") are incorporated by
reference into Parts I and II of the Form 10-K and portions of
the definitive Proxy Statement of Katy Industries, Inc. (The
"1996 Proxy Statement") with respect to the 1996 annual meeting
of shareholders are incorporated by reference into Part III of
this Form 10-K.
Exhibit index appears on page 17. Report consists of
18 pages
<PAGE>
Part I
Item 1. Business
Katy Industries, Inc. ("Katy" or the "Company") was
organized as a Delaware corporation in 1967, and carries on
business through three principal operating groups: Distribution
and Service, Industrial and Consumer Manufacturing, and
Machinery Manufacturing. Katy also has equity investments in
two companies. Each Katy subsidiary has its own management and
the head of each subsidiary is responsible for the business and
affairs of that company. Nevertheless, each enterprise
operates within a framework of broad policies and corporate
goals established by Katy's corporate management, which is
responsible for overall planning, financial management,
acquisitions, dispositions and other related administrative and
corporate matters.
Management continuously reviews each of its businesses. As
a result of these ongoing reviews management may determine to
sell certain companies and may augment its remaining businesses
with acquisitions. Any acquisitions would be funded through
current cash balances, available lines of credit and/or new
borrowings.
As a result of recent acquisitions and dispositions, Katy's
operating groups have been realigned and renamed and the
business units reclassified during 1995. All operating data
for years prior to 1995 has been reclassified to reflect this
change. Selected restated operating data for each operating
group is incorporated herein by reference to "Managements
Discussion and Analysis of Financial Condition and Results of
Operations" in the 1995 Annual Report. Information regarding
foreign and domestic operations and export sales is
incorporated herein by reference to Note 10 of the consolidated
financial statements of Katy in the 1995 Annual Report. Set
forth below is information about Katy's operating groups,
investments, and Katy's business in general:
Distribution and Service Group
This group's principal business is the distribution of
electronic components and nonpowered hand tools. Other
companies in this group operate cold storage facilities,
operate a waste-to-energy facility and provide specialty metal
products to a wide range of high-tech industries. In 1995 the
group accounted for 41% of the Company's total sales. The
companies in this group do not experience a seasonal sales
trend, and all have a number of competitors, some of which are
larger and have greater financial resources. The five business
units comprising this group are described below:
GC Thorsen, Inc. GC Thorsen, acquired by Katy in April of
1995, is headquartered in Rockford, Illinois and has a sourcing
office in Taiwan. GC Thorsen is a leading value-added
distributor of electronic and electrical parts and accessories,
and nonpowered hand tools. In addition, the company produces
a full line of home entertainment, service technician products
and component parts.
Waldom Electronics, Inc. Waldom, located in Chicago,
Illinois, is a leading distributor of high quality, brand name
electronic and electrical components, and loudspeakers and
their components. Waldom distributes primarily to the
electronic, automotive and communication industries.
Hamilton Precision Metals, Inc. Hamilton, located in
Lancaster, Pennsylvania, mills a wide range of precision
rerolled metal strip and foil for the medical, electronics,
aerospace and computer industries. The company's products are
used in a wide range of high-tech applications.
C.E.G.F., U.S.A. This 95% owned company is headquartered
in Plant City, Florida, and operates a refrigeration and cold
storage facility there and one in Houston, Texas. The
facilities serve the needs of a variety of firms in the frozen
food, grocery and seafood industries.
Savannah Energy Systems Company Savannah operates a waste-to-energy
incinerator facility in Savannah, Georgia.
Industrial and Consumer Manufacturing Group
The group's principal business is the manufacture,
packaging and sale of sanitary maintenance supplies, abrasives
and paints and stains. The group accounted for 29% of the
Company's sales in 1995. The paint and stain manufacturer
experiences seasonal sales trends, while the other companies do
not. All have a number of competitors, some of which are
larger and have greater financial resources. The three business
units comprising this group are described below:
Glit/Microtron Abrasives Glit/Microtron, headquartered in
Wrens, Georgia, also has a manufacturing facility in Pineville,
North Carolina and a sales office in Mississauga, Ontario,
Canada. Glit/Microtron manufactures nonwoven floor maintenance
pads, scouring pads and sponges, and specialty abrasive
products for cleaning and finishing. Products are sold
primarily to the sanitary maintenance, restaurant supply and
consumer markets. In addition, Glit/Microtron manufactures a
line of wood sanding products which are sold through retail
stores across the United States and Canada. Consumer products
are marketed under the brand names Hannah's Helper and
Kleenfast through supermarket and drug and variety stores.
Gemtex Abrasives Gemtex, which was acquired by Katy in
August of 1995, is headquartered in Etobicoke, Ontario, Canada
and has an additional manufacturing plant in Buffalo, New York.
Gemtex is a manufacturer and distributor of coated abrasives
for the automotive, industrial and retail markets.
Duckback Products, Inc. Located in Chico, California,
Duckback is a manufacturer of high-tech exterior transparent
stains, coatings and water repellents. These products are sold
under the trade names Superdeck, Supershade and Fightback.
Machinery Manufacturing Group
The principal business of this group is the manufacture of
machinery for the food packaging, food processing and wood
working industries. One company manufactures testing and
measuring instruments for the electrical and electronic markets
and recording devices for the transportation industry, and
another produces gauging and control systems for the
metalworking industry. Sales of the group accounted for 30% of
the Company's sales in 1995. The companies in this group do
not experience seasonal sales trends. All the companies in the
group have a number of competitors, some of which are larger
and have greater financial resources. The six business units
comprising this group are described below:
Beehive, Inc. Located in Sandy, Utah, Beehive is a leading
manufacturer in the specialized field of mechanical meat and
food separation equipment for the food processing industry.
Approximately 50% of Beehive's sales are made outside the
United States.
Bach Simpson, Ltd. Bach Simpson is a manufacturer of
transportation test and monitoring system equipment, speed
indicators, fuel gauges, and specialized diagnostic and testing
products. Primary markets served are the railroad and general
industrial markets. Bach Simpson is located in London,
Ontario, Canada and has a sales office in Cary, Illinois.
Peters Machinery Company Peters, which designs and
manufactures proprietary machinery for producing and packaging
cookie and cracker sandwiches, is located in Chicago, Illinois.
Diehl Machines, Inc. Diehl, located in Wabash, Indiana,
is a pioneer in the production of ripsaws, veneer splicers,
automatic lathes and moulders. Primary customers are in the
millwork industry and manufacturers of doors, windows, cabinets
and furniture.
Airtronics Airtronics, which is located in Elgin,
Illinois, supplies the metalworking industry with engineered
gauging and control systems. In addition, Airtronics rebuilds
and resells centerless grinding machines.
Walsh Press Company Walsh, located in Forest Park, Illinois
is a supplier of parts and service specific to owners of
mechanical clutch and flywheel punch presses.
Investments, at equity
Katy has investments, at equity, in two companies. Bee Gee
Holding Company, Inc. harvests shrimp off the coast of South
America and processes shrimp and other seafoods in Tampa,
Florida for the domestic and foreign market. Schon & Cie, AG,
and its subsidiaries, manufacture a wide range of mechanical
and programmable four post, web and flat bed die-cutting
equipment and shoe manufacturing machines. These companies
have a number of competitors, some of which are larger and have
greater financial resources. For additional information
related to investments, reference is made to Notes 3 and 12 of
the Notes to Consolidated Financial Statements in this report,
which information is incorporated herein by reference.
Raw Materials
Katy operations have not experienced significant difficulty
in obtaining raw materials, fuels, parts or supplies for their
activities during the most recent fiscal year, but no
prediction can be made as to possible future supply problems or
production disruptions resulting from possible shortages.
Employees
Katy employed 1,109 people as of December 31, 1995,
approximately 109 of whom were members of various unions.
Katy's labor relations are generally satisfactory and there
have been no strikes in recent years which have materially
affected its operations.
Environmental Policies and Controls
Katy does not anticipate that federal, state or local
environmental laws or regulations will have a material adverse
effect on its consolidated operations or financial position.
Katy anticipates making additional expenditures for
environmental control facilities during 1996, in accordance
with terms agreed upon with the United States Environmental
Protection Agency and various state environmental agencies.
(See Part I, Item 3 - Legal Proceedings - Environmental Claims)
Licenses, Patents and Trademarks
The success of Katy's products has not depended on patent
and license protection, but rather on the quality of Katy's
products, proprietary technology, contract performance and the
technical competence and creative ability of Katy's personnel
to develop and introduce saleable products.
Research and Development Costs
Research and development costs are expensed as incurred and
are not material to Katy's operations.
Item 2. PROPERTIES
As of December 31, 1995, Katy's total building floor area
owned or leased was 2,013,000 square feet, of which 1,371,000
square feet were owned and 642,000 square feet were leased.
The following table shows by industry segment a summary of the
size (in square feet) and character of the various facilities
included in the above totals together with the location of the
principal facilities.
<TABLE>
<CAPTION>
Industry Segment Owned Leased Total
(in thousands of square feet)
<S> <C> <C> <C>
Distribution and Service -- primarily plant and
office facilities with principal facilities
located in Savannah, Georgia; Chicago, Illinois;
Plant City, Florida; Houston, Texas;
Lancaster, Pennsylvania; and Rockford, Illinois.. 629 511 1,140
Industrial and Consumer Manufacturing -- primarily
plant and office facilities with principal
facilities located in Wrens, Georgia; Pineville,
North Carolina; Chico, California; Buffalo,
New York; Etobicoke and Mississauga, Ontario,
Canada ....................... 264 111 375
Machinery Manufacturing -- primarily plant and
office facilities with principal facilities
located in Sandy, Utah; Elgin, Forest Park, and
Chicago, Illinois; Wabash, Indiana; and London,
Ontario, Canada................................ 340 2 342
Corporate -- office facilities in Englewood,
Colorado and Elgin, Illinois and rental
properties in Elk Grove Village, Illinois;
Elkhart, Indiana; and New York, New York...... 138 18 156
1,371 642 2,013
</TABLE>
All properties used in operations are owned or leased and are
suitable and adequate for Katy's operations. It is estimated
that approximately 94% of these properties are being utilized
and are fully productive.
Item 3. LEGAL PROCEEDINGS
Except as set forth below, no cases or legal proceedings
are pending against Katy, other than ordinary routine
litigation incidental to Katy and its businesses and other
non-material cases and proceedings.
1. In Re Katy Industries, Inc. Shareholders Litigation,
Civil Action No. 12612 (Chancery Court, new Castle County,
Delaware); filed November 13, 1992.
On February 22, 1996, this action, described in Katy's
Form 10-K for the year ended December 31, 1994, was dismissed
by stipulation of the parties to the action, without prejudice
to the members of the purported class on whose behalf the
action was brought.
2. Mendel, et. Al. V. Carroll, et. al., Civil Action No.
13306 (Chancery Court, New Castle County, Delaware); Filed
December 22, 1993.
On December 22, 1993, a purported stockholder of the
Company filed an alleged class action complaint against the
Company and its Board of Directors, which raised three counts.
Count I alleged, among other things, that the Company's Board
of Directors breached its fiduciary duties in connection with
the June 1992 proposal, since withdrawn, by the family of
Wallace E. Carroll, former Chairman of the Company, to acquire
the minority interest in the Company, by failing to dilute the
Carroll family's interest to below a majority of the
outstanding shares. Count II alleged that the Carroll family
breached its fiduciary duties to the minority stockholders of
the Company by (I) announcing that the Carroll family's
interest in the Company was not for sale and (ii) enforcing an
agreement among Carroll family members that required family
members to offer their shares in the Company to other family
members before selling them to a third party. Count III
challenged a 1988 assignment by Katy of a right to receive a
percentage of revenues from an oil and gas field in Indonesia
to certain entities owned or controlled by the Carroll family
and alleged that such assignment was without consideration and
constituted an illegal waste of Katy's assets. The complaint
sought, among other things, (I) an order enjoining defendants
from refusing to maximize the value of the Company's stock and
damages in connection therewith, (ii) an order enjoining the
Carroll family from enforcing its agreement among family
members described above and from otherwise taking actions
designed to reduce the demand for the Company by other bidders,
and (iii) an order rescinding the challenged assignment of oil
and gas interests.
An agreement has been reached by the parties to dismiss
this action without prejudice to the members of the purported
class on whose behalf the action was brought. A Stipulation of
Dismissal is expected to be filed shortly.
3. Pensler Capital Partners, I.L.P., et. al.v. Katy
Industries, Inc., et. al., Civil Action No. 13386 (Chancery
Court, New Castle County, Delaware); filed February 18, 1994.
On February 26, 1996 this action, described in Katy's Form
10-K for the year ended December 31, 1994, was dismissed by
stipulation of the parties to the action, without prejudice to
the members of the purported class on whose behalf the action
was brought.
4. Environmental Claims
(1) United States vs. Midwest Solvent Recovery,
Inc., et. al. And (Third Party Action American Can Company et. al.
Vs. Accutronics, et. al., Case no. 79-556 (U.S. D Indiana). Third Party
Complaint filed January 17, 1985 (Size Control Company, a former division
of a subsidiary of Katy, is a third party defendant).
(2) United States vs. W.J. Smith Wood Preserving Co.,
Civil No. S-87-193 CA (U.S. District Court, Eastern District of Texas,
Sherman Division); and Texas Water Commission Administrative Enforcement
Action.
(3) Notice of Potential Liability, issued by United States
Environmental Protection Agency to LaBour Pump Company, a former division of
a Katy subsidiary, concerning Himco Dump site in Elkhart, Indiana.
(4) Notice of Potential Liability, issued by United States
Environmental Protection Agency to Katy concerning Double Eagle Refining
site in Oklahoma City, Oklahoma.
(5) Notice of Potential Liability, issued by United States
Environmental Protection Agency to Katy concerning Galaxy/Spectron Refining
site in Elkton, Maryland.
(6) Notice of Claim - Medford, Oregon.
(7) Demand for Indemnification - Northampton, Massachusetts.
(8) Demand for Indemnification - Southington, Connecticut.
(9) Notice of Potential Liability, issued by United States
Environmental Protection Agency to Katy concerning Old Southington Landfill
Site in Southington, Connecticut.
(10) Notice of Potential Liability, issued by Kansas Department of
Health and Environment to Panhandle Industrial Company, Inc. concerning
municipal landfill in McPherson, Kansas.
(11) Demand for Indemnification - Londonderry, New Hampshire.
(12) Request that Katy join Potentially Responsible Party Group -
Fuels and Chemicals Superfund Site, Coaling, Alabama.
(13) Demand for Indemnification - Elgin, Illinois.
In matters (1, (3), (4), (5), (8), and (9) above, the
United States is alleging, under the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA"
or "Superfund"), that various generators and/or transporters of
hazardous wastes are responsible for the clean-up of certain
sites where there have been releases or threatened releases of
hazardous substances into the environment. One or more Katy
subsidiaries, or former subsidiaries, has been identified as a
potentially responsible party ("PRP") in these matters. Under
the federal Superfund statute, parties are held to be jointly
and severally liable, thus subjecting them to potential
individual liability for the entire cost of clean-up at the
site. These costs are, by nature, difficult to estimate and
subject to substantial change as litigation or negotiations
with the United States, states, and other parties proceed.
In the Midwest Solvent case, matter (1) above, the United
States brought action to recover its costs in completing the
initial clean-up of two dump sites. A number of original
defendants in the case filed a third party complaint against a
former Katy subsidiary, Size Control Company ("Size Control"),
and other PRP's, for contribution. Size Control disputed
liability. A partial settlement agreement was entered into
pursuant to which the United States has been reimbursed for its
initial clean-up costs. Size Control has entered into a
settlement, approved by the court, in order to settle its
liability in this matter. Pursuant to this arrangement and
assuming that projected clean-up costs are accurate, Size
Control will pay approximately $200,000 over ten years, of
which approximately $83,000 has been paid to date.
The W.J. Smith case, matter (2) above, originated as an
enforcement action for civil penalties and injunctive relief
under the Federal Resource Conservation and Recovery Act
("RCRA"). The United States Environmental Protection Agency
("USEPA") alleged violations of RCRA based upon the alleged
status of sludge drying beds of W.J. Smith Wood Preserving
Company, a Katy subsidiary ("W.J. Smith"), as a hazardous waste
management unit. A consent decree was entered in this case on
November 8, 1989. The consent provided for a $60,000 civil
penalty that was paid in December, 1989, clean closure of the
sludge drying beds , and installation of a new groundwater
monitoring system.
The Texas Water Commission's ("TWC") administrative
enforcement action was settled with the entry of an Agreed
Order (the "Order") on January 20, 1988, whereby a civil penalty
of $8,800 was assessed against W.J. Smith, $3,300 of which was
deferred so long as W.J. Smith complies with the terms of the
Order. The Order required W.J. Smith to: close an earthen
basin and the sludge drying beds; conduct soil and groundwater
contamination studies; and, if necessary, propose and implement
a remedial action plan. On September 27, 1990, the TWC issued
a notice of solid waste violations to W.J. Smith.
In 1993, TWC referred the entire matter to the USEPA,
which initiated a Unilateral Administrative Order Proceeding
under Section 7003 of RCRA against W.J. Smith and Katy. The
proceeding requires certain actions at the site and certain
off-site areas as well as development and implementation of
additional cleanup activities to mitigate off-site releases.
In December, 1995, W.J. Smith, Katy and USEPA agreed to resolve
the Proceeding through an Administrative Order on Consent under
Section 7003 of RCRA. Pursuant to the Order, W.J. Smith is
currently implementing a cleanup to mitigate off-site releases.
Since 1990, the Company has spent in excess of $4,000,000
in undertaking cleanup and compliance activities in connection
with this matter and has established a reserve for future such
activities. The Company believes that the amount reserved will
be adequate, however, total cleanup and compliance costs cannot
be determined at this time.
Concerning matter (3) above, on April 20, 1989, USEPA
issued a Notice of Potential Liability to a former division of
a Katy subsidiary and thirty-six other PRP's concerning the
Himco, Inc. Dump site in Elkhart, Indiana. The notice stated
that USEPA was planning to spend public funds to perform a
remedial investigation and feasibility study ("RIFS") at the
site unless such action was undertaken by responsible parties,
and identifies all recipients of the notice as PRP's. The
notice also requested further information. There was no
agreement among PRP's to perform the RIFS and, therefore, USEPA
undertook to perform it. USEPA issued another general notice
with regard to this site and Katy and its counsel are
continuing to investigate this matter. The liability of Katy's
subsidiary cannot be determined at this time.
Concerning matter (4) above, on September 26, 1989, USEPA
issued a Notice of Potential Liability to Katy and numerous
other PRP's concerning the Double Eagle Refinery site in
Oklahoma City, Oklahoma. The notice identifies all recipients
as PRP's, demands reimbursement for $145,000 for its costs and
requests information. Katy has disputed any liability with
respect to this matter and Katy's liability, if any, cannot be
determined at this time.
Concerning matter (5) above, on March 19, 1990, USEPA
issued a Notice of Potential Liability to Hamilton Precision
Metals ("Hamilton"), a subsidiary of Bush Universal Inc. (A Katy
subsidiary) and numerous other PRP's concerning the second
phase of a cleanup of the Galaxy/Spectron Site in Elkton,
Maryland. In September, 1991, Hamilton elected to participate
in such cleanup. To date, Hamilton has paid approximately
$1,600 in connection therewith. The future liability of
Hamilton cannot be determined at this time.
Concerning matter (6) above, by letter dated August 20,
1993, a claim was asserted by Balteau Standard, Inc. ("Balteau")
against Katy concerning PCB contamination at the Medford,
Oregon facility of a former division of a Katy subsidiary.
Balteau has demanded that Katy accept financial responsibility
for investigation and cleanup costs incurred as a result of the
contamination. Cost estimates for the cleanup currently range
between $2,000,000 and $3,000,000. Katy and Balteau have
agreed to share such costs. Pursuant to such agreement, Katy
provided a trust fund of $1,300,000 to fund cleanup costs at
the site. The agreement also called for Balteau to provide the
next $450,000 of cost, with any additional costs to be shared
equally between the two parties. Katy believes the cleanup has
been successful and has requested the Oregon Department of
Environmental Quality to inspect the property and approve the
remediation work and release Katy from any further liability.
Concerning matter (7) above, on March 9, 1992, Katy
received a letter from Wallace International Silversmiths, Inc.
("Wallace") requesting that Katy assume Wallace's defense in a
case captioned Katherine M. Georgianna v. Wallace International
Silversmiths, Inc., Case No. Civ. 91-11820N (U.S. District
Court, District of Massachusetts); filed July 9, 1991. Such
request stems from certain agreements among Katy, Wallace and
other parties (the "Agreements"). The case at issue concerns
alleged dumping of hazardous waste on property located in
Northampton, Massachusetts, states claims under CERCLA and
state law, and seeks unspecified monetary damages. Katy does
not believe that it has any obligation to assume Wallace's
defense in this matter and no material developments have
occurred with respect to this matter. Katy's liability, if
any, cannot be determined at this time.
Concerning matter (8) above, on July 9, 1992, Katy
received a letter from Syratech Corporation ("Syratech")
requesting that Katy indemnify Syratech for any liability
incurred by it in connection with the investigation and cleanup
by USEPA of the Solvents Recovery Service Of New England
Superfund Site in Southington, Connecticut (the "Southington
Site"). Such request stems from the Agreements. On April 22,
1993, USEPA sent Katy a Notice of Potential Liability with
regard to the Southington Site, which indicated that Katy was
responsible for all or a portion of the contamination at he
Southington Site that USEPA had previously attributed to
Syratech. Katy and its counsel have determined that the volume
of materials that USEPA has sought to attribute to Katy and its
subsidiaries is small in quantity. On February 15, 1994, USEPA
sent a letter to Katy and certain other PRP's advising these
parties of an opportunity to enter into a "de minimis"
settlement agreement with USEPA concerning alleged liability
for cleanup of the Southington Site. All PRP's that sent no
more than 10,000 gallons of material to the Southington Site
are eligible to participate. The terms of the offer require
the settlors to pay their volumetric share of the estimated
costs of cleanup of the Southington Site, plus a premium of
153%. As of April 1994, USEPA estimated total cleanup costs at
$73,740,665. Under the terms of the offer, Katy is eligible to
participate in the settlement if it elects to do so. Katy also
has the option of delaying its participation in the settlement
in favor of a second phase comprehensive settlement of this
matter and the Old Southington Landfill matter (see matter (9)
below). If Katy elects to participate in such a second
settlement it will be subject to an interest charge at the rate
of 8.75% per annum for any amounts due as of the payment date
of the first phase settlement. Katy's liability in this matter
cannot be determined at this time.
Concerning matter (9) above, on January 21, 1994, USEPA
sent a Notice of Potential Liability to Katy advising Katy that
it is potentially liable under CERCLA and RCRA for the costs of
remedial investigations and remedial actions to clean up
hazardous substances disposed at the Old Southington Landfill
Site in Southington, Connecticut. USEPA alleged that Katy's
former subsidiary, Wallace Silversmiths, sent hazardous
substances to Solvents Recovery Services of New England (see
matter (8) above), which in turn, sent an unspecified amount of
these materials to the Old Southington Landfill Site for
disposal. At this time, USEPA has not produced any direct
evidence concerning the alleged transactions between the two
sites. Katy's liability with regard to this matter cannot be
ascertained at this time.
Concerning matter (10) above, on May 22, 1992, Panhandle
Industrial Company, Inc., a Katy subsidiary ("Panhandle"),
received a notice from the Kansas Department of Health and
Environment stating that Panhandle may be responsible under
Kansas law for a portion of the cleanup costs relating to a
municipal landfill in McPherson, Kansas. Present cleanup cost
estimates for the landfill approximate $1,000,000. Panhandle,
together with other PRP's, are currently negotiating an
agreement to fund investigation and cleanup activities.
Panhandle's liability cannot be determined at this time.
Concerning matter (11) above, in September 1993, Katy
received a letter from counsel to Allard Industries, Inc.
("Allard") requesting that Katy and its subsidiaries, American
Gage and JEI Liquidating, Inc., indemnify Allard for any
liability incurred by it in connection with a case captioned
Town of Londonderry v. Exxon Corporation, et al., Case No. C-93-95-L
(United States District Court, District of New
Hampshire). Such request stems from certain agreements among
Katy, Allard and other parties. The case at issue concerns the
disposal and treatment of hazardous wastes and substances at a
landfill site in Londonderry, New Hampshire (the "Londonderry
Site"), states claims under CERCLA and state law, and seeks,
inter alia recovery of response costs with respect to the
Londonderry Site, declaratory judgment with respect to the
defendants' liability for future response costs and unspecified
monetary damages. Katy has agreed to defend and indemnify
Allard in this matter. Katy and its counsel have not yet fully
evaluated the underlying claims and the liability of Katy and
its subsidiaries with respect to this matter, if any, cannot be
determined at this time.
Concerning matter (12) above, in December 1993, Katy
received a letter addressed to LaBour from Stephan K. Todd,
Chairman-Fuels and Chemicals CERCLA PRP Group. Mr. Todd
contended that LaBour is a PRP at the site, and requested that
LaBour join the Fuels and Chemicals PRP Group, which would
require payment of administrative costs, as well as a share of
past and future remediation costs. The extent of these costs
is not known at this time. Katy has agreed to pay
approximately $5,000 in settlement of its liability in this
matter, to the extent that total cleanup costs are less than or
equal to $5,000,000, and has agreed to a formula for future
contribution to the extent that total cleanup costs exceed
$5,000,000. Katy's future liability with respect to this
matter, if any, cannot be determined at this time.
Concerning matter (13) above, American Gage received a
claim from Elgiloy Limited Partners ("Elgiloy") requesting that
it pay costs associated with the cleanup of solvent
contamination at Elgiloy's Elgin, Illinois property pursuant to
the terms of a Settlement Agreement, General Release and
Covenant Not to Sue which American Gage executed on September
25, 1989. Under such agreement, American Gage agreed to pay
67.7% of future costs associated with environmental cleanup
activities at such property, up to a maximum of $500,000.
American Gage and Elgiloy are currently in the process of
identifying those environmental cleanup activities. The total
amount of American Gage's liability cannot be determined at
this time.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security
holders during the fourth quarter of 1995.
PART II.
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information regarding the prices of and dividends on the
Common Stock, and certain related matters, is incorporated
herein by reference to "Shareholder Information" at the inside
back cover of the 1995 Annual Report. Katy's Common Stock is
traded on the New York Stock Exchange ("NYSE"). As of
February 29, 1996, there were 1,485 record holders of the
Common Stock and there were 8,586,087 shares of Common Stock
outstanding.
Item 6. SELECTED FINANCIAL DATA
The information set forth under "Financial Highlights" in
the 1995 Annual Report is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information set forth under "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
in the 1995 Annual Report is incorporated herein by reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of Katy, including
the notes thereto, together with the report thereon of Deloitte
& Touche LLP in the 1995 Annual Report are incorporated herein
by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS
ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Part III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of Katy is incorporated
herein by reference to the information set forth under the
section entitled "Election of Directors" in the 1996 Proxy
Statement.
Information regarding executive officers of the Company is
incorporated herein by reference to the information set forth
under the section "Information Concerning Directors and
Executive Officers" in the 1996 Proxy Statement.
Item 11. EXECUTIVE COMPENSATION
Information regarding compensation of executive officers
is incorporated by reference to the materials under the caption
"Executive Compensation" in the 1996 Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information regarding beneficial ownership of stock by
certain beneficial owners and by management of Katy is
incorporated herein by reference to the information set forth
under the section "Security Ownership of Certain Beneficial
Owners" and "Security Ownership of Management" in the 1996
Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related
transactions with management is incorporated herein by
reference to the information set forth under the section
"Certain Relationships and Related Transactions" in the 1996
Proxy Statement.
Part IV.
Item 14. FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements
The following financial statements are incorporated
herein by reference to the 1995 Annual Report
1995 Annual
Report Page
Independent Auditors' Report
Consolidated Balance Sheets as of December 31,
1995 and 1994
Statements of Consolidated Operations for the
Years Ended December 31, 1995, 1994 and 1993
Statements of Consolidated Shareholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993
Statements of Consolidated Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
The Financial statement schedules filed with this report
are listed on the "Index to Financial Statement Schedules."
3. Exhibits
The exhibits filed with this report are listed on the
"Exhibit Index."
(b) Reports on Form 8-K
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: March 29, 1996 KATY INDUSTRIES, INC.
Registrant
President, Chief Executive and Operating Officer
POWER OF ATTORNEY
Each person signing below appoints John R.
Prann, Jr. and Stephen P. Nicholson, or either
of them, his attorneys-in-fact for him in any
and all capacities, with power of
substitution, to sign any amendments to this
report, and to file the same with any exhibits
thereto and other documents in connection
therewith, with the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated as of this 29th day of March, 1996.
Signature Title
/S/Philip E. Johnson Chairman of the Board and Director
Philip E. Johnson
/S/John R. Prann, Jr. President, Chief Executive Officer,
John R. Prann, Jr. Chief Operating Officer and Director
(Principal Executive Officer)
/S/ Stephen P. Nicholson Treasurer and Chief Financial Officer
Stephen P. Nicholson Principal Financial and Accounting Officer)
/S/ Glenn W. Turcotte Executive Vice President and Director
Glenn W. Turcotte
/S/ W. F. Andrews Director
W. F. Andrews
/S/ D. B. Carroll Director
D. B. Carroll
/S/ W. E. Carroll, Jr. Director
W. E. Carroll, Jr.
/S/ A. R. Miller Director
A. R. Miller
/S/ W. H. Murphy Director
W. H. Murphy
/S/ L. Raettig Director
L. Raettig
/S/ C. W. Sahlman Director
C. W. Sahlman
/S/ J. Saliba Director
J. Saliba
INDEX TO FINANCIAL STATEMENT SCHEDULES
Page
Independent Auditors' Report 15
Schedule II - Valuation and Qualifying Accounts 16
All other schedules are omitted because they are not
applicable, or not required, or because the required
information is included in the Consolidated Financial
Statements of Katy or the Notes thereto.
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
KATY INDUSTRIES, INC.
ENGLEWOOD, COLORADO
We have audited the consolidated financial statements of Katy
Industries, Inc. and subsidiaries (the "Company") as of
December 31, 1995 and 1994, and for each of the three years in
the period ended December 31, 1995, and have issued our report
thereon dated February 29, 1996; such financial statements and
report are included in your 1995 Annual Report to Shareholders
and are incorporated herein by reference. Our audits also
included the financial statement schedule of Katy Industries,
Inc., listed in Item 14. This financial statement schedule is
the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 29, 1996
<TABLE>
<CAPTION>
KATY INDUSTRIES, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(Thousands of Dollars)
Balance at Additions Recoveries Balance
Beginning Charged to Credited to Other at End
Description of Year Expense Expense Adjustments of Year
<S> <C> <C> <C> <C> <C>
Reserves deducted from
assets to which they apply:
Year ended December 31, 1995:
Reserve for doubtful accounts:
Trade receivables $ 3,183 $ 257 ($ 105) $ 12 (a) 886
( 2,461) (e)
Current notes and other
accounts receivable 854 422 ( 54) ( 256) (a) 966
Long-term notes receivable 2,500 0 0 0 2,500
$ 6,537 $ 679 ($ 159) ($2,705) $4,352
Year ended December 31, 1994:
Reserve for doubtful accounts:
Trade receivables $ 7,975 $ 548 ($ 1,725) ($ 4,515) (a)
900 (c)$3,183
Current notes and other
accounts receivable 10 708 ( 97) ( 67) (a)
300 (d) 854
Long-term notes receivable 1,700 0 ( 447) 1,547 (b)
( 300) (d) 2,500
$ 9,685 $ 1,256 ($ 2,269) ($ 2,135) $6,537
Year ended December 31, 1993:
Reserve for doubtful accounts:
Trade receivables $ 8,877 $ 583 ($ 45) ($ 732) (a)
( 708) (c)$7,975
Current notes and other
accounts receivable 10 30 ( 57) 27 (a) 10
Long-term notes receivable 4,755 1,000 - ( 4,055) (a) 1,700
$13,642 $ 1,613 ($ 102) ($ 5,468) $9,685
</TABLE>
(a) Doubtful accounts written off against the reserve.
(b) Reclassification from (to) other balance sheet accounts.
(c) Adjustment due to the fluctuation of foreign exchange rates.
(d) Reclassification from long-term to current notes receivable.
(e) Adjustment due to deconsolidation of subsidiary
KATY INDUSTRIES, INC.
INDEX OF EXHIBITS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title Page
<S> <C> <C>
3.1 Certificate of Incorporation (incorporated by reference to Katy's *
Form 10-K for year ended December 31, 1987, filed March 29, 1988)
3.2 By-Laws (incorporated by reference to Katy's Form 8-K filed *
February 15, 1996)
4.1 Rights Agreement dated as of January 13, 1995 between Katy and *
Harris Trust and Savings Bank as Rights Agent (incorporated by
reference to Katy's Form 8-A filed January 24, 1995)
10.1 Katy's Industries, Inc. 1994 Key Employee and Director Stock *
Purchase Plan (incorporated by reference to Katy's Registration
Statement on Form S-8 filed September 28, 1994, Reg. No. 33-55647)
10.2 Katy Industries, Inc. Long-Term Incentive Plan (incorporated by *
reference to Katy's Registration Statement on Form S-8 filed
June 21, 1995, Reg. No. 33-60443)
10.3 Katy Industries, Inc. Non-Employee Director Stock Option Plan *
(incorporated by reference to Katy's Registration Statement on
Form S-8 filed June 21, 1995, Reg. No. 33-60449)
10.4 Katy Industries, Inc. Supplemental Retirement and Deferral Plan
effective as of June 1, 1995.
10.5 Katy Industries, Inc. Directors' Deferred Compensation Plan
effective as of June 1, 1995.
10.6 Katy Industries, Inc. Form of Compensation and Benefits
Assurance Agreement (covering Tier I employees: John R. Prann, Jr.,
Glenn W. Turcotte and Robert Baratta).
10.7 Katy Industries, Inc. Form of Compensation and Benefits Assurance
Agreement (covering Tier II employees: Michael G. Gordono).
13 1995 Annual Report to Shareholders of Katy
21 Subsidiaries of registrant 13
23 Independent Auditors' Consent
27 Financial Data Schedule
* Indicates incorporated by reference.
</TABLE>
Exhibit 21
SUBSIDIARIES OF REGISTRANT
The following list sets forth subsidiaries of Katy Industries,
Inc. as of February 29, 1996, with successive indentation indicating
parent/subsidiary relationships of such subsidiaries. The percentage
(unless 100%) of outstanding equity securities owned by the immediate
parent and the state of jurisdiction or incorporation of each such
subsidiary is stated in parentheses. Omitted subsidiaries do not, in
the aggregate, constitute a "significant subsidiary".
American Gage & Machine Company (Illinois)
Walsh Press Company (Illinois)
Bach Simpson, Inc. (Delaware)
Bach-Simpson, Ltd. (Ontario, Canada)
Bee Gee Holding Company, Inc. (Florida) (39%)
Bush Universal, Inc. (New York)
Hamilton Precision Metals, Inc. (Delaware)
Waldom Electronics, Inc. (Delaware)
C.E.G.F.(USA), Inc. (Delaware) (95%)
Duckback Products, Inc. (Delaware)
Hallmark Holdings, Inc. (Delaware) (Formerly Elgin Watch International,
Inc.)
Diehl Machines, Inc.
GC Thorsen, Inc.
Glit/Gemtex, Inc.
Glit/Gemtex, Ltd.
Katy Oil Company of Indonesia (Delaware)
Katy-Teweh Petroleum Company (Delaware)
Katy-Seghers, Inc. (Delaware)
Peters Machinery Company (Delaware)
Schon & Cie, AG (Germany) (37.5%)
American Shoe Machinery Corporation, Inc. (Delaware)
Societe de Fabrication Europeenne des Machines, S.A.R.L.
(France)
Schoen Machinery U.S.A., Inc. (Illinois)
Schon Engineering KFT (Hungary) (51%)
Schon-Kaev-Eger KFT (Hungary) (58%)
Sinecure Financial Corp. (Colorado) (11%)
The Original Italian Pasta Products Co., Inc. (Massachusetts) (21%)
Exhibit 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
33-55647, Registration Statement No. 33-60443, and Registration Statement
No. 33-60449 of Katy Industries, Inc. on Forms S-8 of our report dated
February 29, 1996, appearing in this Annual Report on Form 10-K of Katy
Industries, Inc. for the year ended December 31, 1995.
/s/
DELOITTE & TOUCHE LLP
Chicago, Illinois
March 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 43701
<SECURITIES> 16653
<RECEIVABLES> 39896
<ALLOWANCES> 1852
<INVENTORY> 35902
<CURRENT-ASSETS> 149597
<PP&E> 75495
<DEPRECIATION> 32847
<TOTAL-ASSETS> 225412
<CURRENT-LIABILITIES> 53172
<BONDS> 9346
0
0
<COMMON> 9821
<OTHER-SE> 120509
<TOTAL-LIABILITY-AND-EQUITY> 225412
<SALES> 171269
<TOTAL-REVENUES> 171269
<CGS> 120437
<TOTAL-COSTS> 166730
<OTHER-EXPENSES> (16883)
<LOSS-PROVISION> 520
<INTEREST-EXPENSE> 2753
<INCOME-PRETAX> 18149
<INCOME-TAX> 3771
<INCOME-CONTINUING> 14362
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28571
<EPS-PRIMARY> 3.18
<EPS-DILUTED> 3.18
</TABLE>
KATY INDUSTRIES, INC.
SUPPLEMENTAL RETIREMENT AND DEFERRAL PLAN
Article 1.
Establishment and Purpose
1.1 Establishment. Katy Industries, Inc., a Delaware
corporation (the "Company"), hereby establishes, effective as
of June 1, 1995 (the "Effective Date"), a deferred compensation
plan for key management employees as described herein, which
shall be known as the "Katy Industries, Inc. Supplemental
Retirement and Deferral Plan" (the "Plan").
1.2 Purpose. The primary purpose of the Plan is to
provide key management employees of the Company with the
opportunity to defer a portion of their compensation, subject
to the terms of the Plan. By adopting the Plan, the Company
desires to enhance its ability to attract and retain management
employees of outstanding competence.
Article 2.
Definitions
Whenever used herein, the following terms shall have the
meanings set forth below, and, when the defined meaning is
intended, the term is capitalized:
(a) "Adjusted Pretax Income" means the Company's pretax
income from consolidated operations as shown in its
annual financial statements, exclusive of any gains
or losses from the sale of nonoperating stock
investments (including stock or other equity
investments in corporations that are not
consolidated with the Company for financial
statement purposes) and exclusive of any
extraordinary write-offs or substantial changes in
reserves that are extraordinary in nature, all as
determined by the Committee in its sole discretion.
(b) "Board" or "Board of Directors" means the Board of
Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Compensation Committee of the
Board, which has the authority to administer the
Plan.
(e) "Company" means Katy Industries, Inc., a Delaware
corporation.
(f) "Disability" shall have the meaning ascribed to such
term in the Company's governing long-term disability
plan or if no plan is then in effect, shall mean the
determination by the Committee that the physical or
mental condition of a Participant renders such
Participant unable to carry out his or her duties
and obligations to the Company.
(g) "Effective Date" means the date the Plan becomes
effective, as set forth in Section 1.1 herein.
(h) "Participant" means any key management employee who
is designated to participate in the Plan by the
Committee in writing pursuant to Article 4 and who
is actively participating in the Plan.
(i) "Plan" means the Katy Industries, Inc. Supplemental
Retirement and Deferral Plan.
(j) "Plan Year" means the calendar year.
(k) "Prior Service Allocation" is defined in Section 5.4
below.
(l) "Profit Sharing Allocation" is defined in Section
5.3 below.
(m) "Profit Sharing Participant" is defined in Section
5.3 below.
Article 3.
Administration
3.1 Administration of the Plan. The Plan shall be
administered by the Committee. Subject to the provisions set
forth herein, the Committee shall have full power to determine
the terms and conditions of each Participant's participation in
the Plan; to construe and interpret the Plan and any agreement
or instrument entered into under the Plan; to establish, amend,
or waive rules and regulations for the Plan's administration;
to amend (subject to the provisions of Article 9 herein) the
terms and conditions of the Plan and any agreement or
instrument entered into under the Plan; and to make other
determinations which may be necessary or advisable for the
administration of the Plan.
Subject to the terms of the Plan, the Committee may
delegate any or all of its authority granted under the Plan to
an executive or executives of the Company.
3.2 Decisions Binding. All determinations and decisions
of the Committee as to any disputed question arising under the
Plan, including questions of construction and interpretation,
shall be final, conclusive, and binding on all parties.
3.3 Indemnification. Each person who is or shall have
been a member of the Committee shall be indemnified and held
harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any
claim, action, suit, or proceeding to which he or she may be a
party, or in which he or she may be involved by reason of any
action taken or failure to act under the Plan. The Company
shall, subject to the requirements and limitations of Delaware
law, pay such loss, cost, liability or expense imposed on or
incurred by such person promptly upon demand by him or her,
whether or not he or she has actually advanced such amount
prior thereto.
The Company shall also indemnify each such person who is
or shall have been a member of the Committee against and from
any and all amounts paid by him or her in settlement thereof,
with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or
proceeding against him or her, provided her or she shall give
the Company an opportunity, at its own expense, to handle and
defend the same before he or she undertakes to handle and
defend it on his or her own behalf.
The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's Certificate of
Incorporation or Bylaws, as a matter of law, or otherwise, or
any power that the Company may have to indemnify them or hold
them harmless.
Article 4.
Eligibility and Participation
4.1 Eligibility. Eligibility to participate in the Plan
will be limited to a select group of management or highly
compensated employees composed only of key management employees
who are designated by the Committee to participate in the Plan.
The Committee shall have absolute discretion as to the key
management employees it chooses to designate as Participants.
In the event a Participant no longer meets the requirements for
eligibility to participate in the Plan, such Participant shall
become an inactive Participant retaining all of the rights
described under the Plan, except the right to make any further
deferrals hereunder and the right to share in any Profit
Sharing Allocation made after such Participant becomes an
inactive Participant.
4.2 Participation. When a Participant first becomes
eligible to participate in the Plan, such Participant shall, as
soon as practicable thereafter, be notified by the Committee of
his or her eligibility to participate. At such time, the
Committee shall provide such Participant with an "Election to
Defer Form" and an "Investment Election Form" which shall be
submitted by the Participant as provided in Sections 5.2 and
6.2 hereof.
Unless otherwise determined by the Committee, once
notified of eligibility to participate, each Participant shall
be entitled to make deferrals and investment elections with
respect to each subsequent Plan Year by submitting an Election
to Defer Form as provided in Section 5.2, and an Investment
Election Form as provided in Section 6.2.
4.3 Partial Plan Year Participation. In the event a
Participant first becomes eligible to participate in the Plan
after the beginning of the Plan Year, the Committee may, in its
discretion, allow such Participant to complete an Election to
Defer Form and Investment Election Form within thirty (30) days
of becoming eligible to participate; such election to be valid
and applicable for the Plan Year then in progress. An Election
to Defer Form and an Investment Election Form submitted
pursuant to this Section 4.3 shall apply only to Compensation
earned subsequent to the date on which a valid Election to
Defer Form and/or Investment Election Form, as applicable, is
received by the Company from the Participant.
Article 5.
Deferral Opportunity; Profit Sharing and
Prior Service Allocations
5.1 Amounts Which May Be Deferred. A Participant may
elect to defer up to fifty percent (50%) of his or her base
salary and up to one hundred percent (100%) of his or her
annual bonus for any Plan Year.
5.2 Deferral Election. Participants shall make their
elections to defer compensation under the Plan during the
thirty (30) calendar days prior to the beginning of each Plan
Year, or not later than thirty (30) calendar days following
notification of initial eligibility to participate for a
partial Plan Year, as applicable. All deferral elections shall
be irrevocable, and shall be made on an "Election to Defer
Form," as described herein.
Unless determined otherwise by the Committee, Participants
shall make an irrevocable election on the initial and each
subsequent "Election to Defer Form," as applicable, of the
amount to be deferred with respect to each component of
compensation for the Plan Year.
5.3 Profit Sharing Allocations. Within ninety (90)
calendar days following the end of each Plan Year (or as soon
as practicable thereafter, as determined by the Committee), if
the Company has positive Adjusted Pretax Income for such Plan
Year, the Committee shall make an allocation (the "Profit
Sharing Allocation") to the account of each Participant who was
a Participant in the Plan during the entire Plan Year (a
"Profit Sharing Participant"). The total Profit Sharing
Allocation will equal two percent (2%) of the Company's
Adjusted Pretax Income for the Plan Year. The Company will
credit the Profit Sharing Allocation to the accounts of Profit
Sharing Participants in the same proportion that each such
Profit Sharing Participant's base salary (whether or not
deferred) earned for the Plan Year bears to the total of the
base salaries earned by all of the Profit Sharing Participants
(whether or not deferred) for the Plan Year. For this purpose,
a Participant who became a Participant on June 1, 1995 and who
continues to be a Participant for the remainder of calendar
1995 shall be deemed to be a Profit Sharing Participant for
purposes of the Profit Sharing Allocation for the Plan Year
ending December 31, 1995. A Participant shall be fully vested
in his or her Profit Sharing Allocations (and any earnings
thereon) if the Participant has completed at least five (5)
years of continuous service with the Company. A Participant
who has completed less than five (5) years of service with the
Company shall be vested to the extent of twenty percent (20%)
of his or her Profit Sharing Allocations (and any earnings
thereon) for each full year of continuous service that the
Participant has completed with the Company. For this purpose,
all years of service (including years before the Effective
Date) shall be counted. In the event that a Participant's
employment with the Company terminates for any reason before
the Participant has completed five (5) years of continuous
service with the Company, the nonvested portion of the
Participant's Profit Sharing Allocations (and any earnings
thereon) shall be forfeited.
5.4 Prior Service Allocation. The Committee shall
establish and allocate to a Prior Service account for each
Participant a "Prior Service Allocation" in the amount approved
by the Board of Directors and set forth in the minutes of the
Board of Directors Meeting of April 21, 1995.
5.5 Length of Deferral. Except as otherwise provided
herein, all deferrals and other amounts payable hereunder and
(including investment returns thereon, if applicable) shall be
maintained in deferred status until the respective
Participant's attainment of age 62 or termination of employment
with the Company (or any subsidiary or affiliate) for any
reason, whichever is later.
5.6 Payment of Deferred Amounts. Participants shall
receive payment of deferred amounts and vested Profit Sharing
Allocations together with investment return accrued thereon
pursuant to Section 6.2, and the Prior Service Allocation
(without adjustment for investment returns) at the end of the
applicable deferral period. Such payment shall be made in the
form of five (5) approximately equal annual installments. The
first installment shall be paid to the Participant thirty (30)
days following the date specified in Section 5.3 for payment.
Subsequent installments shall be paid to the Participant
annually on the anniversary of the initial payment date,
commencing with the calendar year immediately following the
calendar year in which the Participant received the first
installment. Each installment shall be equal to the vested
balance credited to the Participant's accounts under the Plan
multiplied by a fraction, the numerator of which is one (1) and
the denominator of which is five (5) minus the number of annual
installments previously paid the Participant (so that the first
installment will be one-fifth (1/5) of the accounts, the second
installment will be one-fourth (1/4) of the accounts and so
on). Notwithstanding the foregoing, the Committee in its sole
discretion may direct that all amounts due to the Participant
be paid in a lump sum.
Notwithstanding the foregoing, any unpaid deferred amounts
and vested Profit Sharing Allocations, with accumulated
investment return thereon, and any unpaid Prior Service
Allocation (without adjustment for investment returns) shall be
paid to the Participant in the event that, at any time prior to
full payment of such amounts, the Participant's employment with
the Company is terminated by reason of death or Disability. In
such event, payment shall be made in a single lump sum, in
cash, within thirty (30) calendar days after the termination of
the Participant's employment.
5.7 Financial Hardship. The Committee shall have the
authority to alter the timing or manner of payment of deferred
amounts in the event that the Participant establishes, to the
satisfaction of the Committee, severe financial hardship. In
such event, the Committee may, in its sole discretion:
(a) Authorize the cessation of deferrals by such
Participant under the Plan; or
(b) Provide that all, or a portion, of the amount
previously deferred by the Participant shall
immediately be paid in a lump-sum cash payment;
or
(c) Provide for such other payment schedule as
deemed appropriate by the Committee under the
circumstances.
For purposes of this Section 5.7, "severe financial
hardship" shall mean any financial hardship resulting from
extraordinary and unforeseeable circumstances arising as a
result of one or more recent events beyond the control of the
Participant. In any event, payment may not be made to the
extent such emergency is or may be relieved: (i) through
reimbursement or compensation by insurance or otherwise; (ii)
by liquidation of the Participant's assets, to the extent the
liquidation of such assets would not itself cause severe
financial hardship; and (iii) by cessation of deferrals under
the Plan. Withdrawals of amounts because of a severe financial
hardship may only be permitted to the extent reasonably
necessary to satisfy the hardship. Examples of what are not
considered to be severe financial hardships include the need to
send a Participant's child to college or the desire to purchase
a home.
The severity of the financial hardship shall be judged by
the Committee. The Committee's decision with respect to the
severity of financial hardship and the manner in which, if at
all, the Participant's future deferral opportunities shall be
ceased, and/or the manner in which, if at all the payment of
deferred amounts to the Participant shall be altered or
modified, shall be final, conclusive, and not subject to
appeal.
Article 6.
Accounts
6.1 Participants' Accounts. The Company shall establish
and maintain an individual bookkeeping account for deferrals
made by each Participant, Profit Sharing Allocations credited
to such Participant, and investment returns thereon, under
Article 5 herein. Each account shall be credited as of the
date the amount deferred otherwise would have become due and
payable to the Participant. The Company shall also establish
and maintain a separate bookkeeping account for each
Participant's Prior Service Allocation (if any), which account
shall not be adjusted for investment returns. The
establishment and maintenance of such accounts, however, shall
not be construed as entitling any Participant to any specific
assets of the Company.
6.2 Investment Return on Deferred Amounts and Profit
Sharing Allocations. Compensation deferred under Section 5.2
and Profit Sharing Allocations under Section 5.3 shall be
deemed to be invested as elected by each Participant from a
choice of one or more investment alternatives offered by the
Company. Such investment election shall be made by each
Participant pursuant to an "Investment Election Form" described
herein. Participants shall be permitted to change their
investment elections annually, at the same time as Elections to
Defer are made pursuant to the Plan, except that the Committee
may permit more frequent elections, in its discretion.
The rates of return earned on deferrals shall be equal to
the actual returns achieved on the selected investments. Each
Participant's deferred compensation and Profit Sharing
Allocations accounts shall be credited on the last day of each
calendar quarter, with earnings thereon and charged with
losses, such earnings and losses to be based upon the actual
returns that would have been achieved on such amounts if such
amounts had actually been invested pursuant to the investment
elections of each Participant. Investment return on deferred
amounts and Profit Sharing Allocations shall be paid out to
Participants at the same time and in the same manner as the
underlying deferred amounts and Profit Sharing Allocations.
6.3 Charges Against Accounts. There shall be charged
against each Participant's deferred compensation account any
payments made to the Participant or to his or her beneficiary.
Article 7.
Beneficiary Designation
Each Participant shall designate a beneficiary or
beneficiaries who, upon the Participant's death, will receive
the amounts that otherwise would have been paid to the
Participant under the Plan. All designations shall be signed
by the Participant, and shall be in such form as prescribed by
the Committee. Each designation shall be effective as of the
date delivered to a Company employee so designated by the
Committee.
Participants may change their designations of beneficiary
on such form as prescribed by the Committee. The payment of
amounts deferred under the Plan shall be in accordance with the
last unrevoked written designation of beneficiary that has been
signed by the Participant and delivered by the Participant to
the designated employee prior to the Participant's death.
In the event that all the beneficiaries named by a
Participant pursuant to this Article 7 predecease the
Participant, the deferred amounts that would have been paid to
the Participant or the Participant's beneficiaries under the
Plan shall be paid to the Participant's estate.
In the event a Participant does not designate a
beneficiary, or for any reason such designation is ineffective,
in whole or in part, the amounts that otherwise would have been
paid to the Participant or the Participant's beneficiaries
under the Plan shall be paid to the Participant's estate.
Article 8.
Rights of Participants
8.1 Contractual Obligation. The Plan shall create a
contractual obligation on the part of the Company to make
payments of amounts reflected in the Participants' accounts
when due. Payment of account balances shall be made out of the
general funds of the Company.
8.2 Unsecured Interest. No Participant or party claiming
an interest in deferred amounts or contributions of a
Participant shall have any interest whatsoever in any specific
asset of the Company. To the extent that any party acquires a
right to receive payments under the Plan, such right shall be
equivalent to that of an unsecured general creditor of the
Company.
8.3 Employment by the Company. Neither the establishment
of the Plan, nor any action taken hereunder, shall in any way
obligate (i) the Company to continue the employment of a
Participant; or (ii) a Participant to continue as an employee
of the Company.
8.4 Application for Benefits. Each person eligible for
a benefit under the Plan may apply for such benefit by filing
with the Committee a claim for benefits, on a form or forms to
be furnished by the Committee. Each such person shall also
furnish the Company with such documents, evidence, data, or
information in support of such claim as the Committee considers
necessary or desirable.
8.5 Appeals from Denial of Claims. If any claim for
benefits under the Plan is wholly or partially denied, the
claimant shall be given notice in writing of such denial within
a reasonable period of time, but not later than ninety (90)
days after the claim is filed. Such notice shall set forth the
following information:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent Plan provisions
on which the denial is based;
(c) A description of any additional material or
information necessary for the claimant to
perfect the claim and an explanation of why
such material or information is necessary;
(d) An explanation that a full and fair review by
the Committee of the decision denying the claim
may be requested by the claimant or his
authorized representative by filing with the
Committee, within ninety (90) days after such
notice of denial has been received, a written
request for such review; and
(e) If such request is so filed, the claimant or
his authorized representative may review
pertinent documents and submit issues and
comments in writing within the same ninety (90)
day period specified in subsection 8.5(d)
above.
The decision of the Committee on review shall be made
promptly, but not later than sixty (60) days after the
Committee's receipt of the request for review, unless special
circumstances require an extension of time for processing, in
which case a decision shall be rendered as soon as possible,
but not later than one hundred twenty (120) days after receipt
of the request for review. The decision on review shall be in
writing and shall include specific reasons for the denial,
written in a manner calculated to be understood by the
claimant, and shall include specific references to the
pertinent Plan provisions on which the denial is based.
Article 9.
Amendment and Termination
The Company hereby reserves the right to amend, modify, or
terminate the Plan at any time by action of the Board. No such
amendment or termination shall in any material manner adversely
affect any Participant's rights to amounts theretofore accrued
and payable hereunder, without the written consent of the
Participant.
Article 10.
Miscellaneous
10.1 Notice. Any notice or filing required or permitted
to be given to the Company under the Plan shall be sufficient
if in writing and hand delivered, or sent by registered or
certified mail to the Chairman of the Compensation Committee of
the Company. Such notice, if mailed, shall be addressed to the
principal executive offices of the Company. Notice mailed to
a Participant shall be at such address as is given in the
records of the Company. Notices shall be deemed given as of
the date of delivery or, if delivery is made by mail, as of the
date shown on the postmark on the receipt for registration or
certification.
10.2 Successors. All obligations of the Company under the
Plan shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation, or otherwise, of all
or substantially all of the business and/or assets of the
Company.
10.3 Nontransferability. Participants' rights to deferred
amounts, contributions, and investment return earned thereon
under the Plan may not be sold, transferred, assigned, or
otherwise alienated or hypothecated, other than by will or by
the laws of descent and distribution. In no event shall the
Company make any payment under the Plan to any assignee or
creditor of a Participant.
10.4 Severability. In the event any provision of the Plan
shall be held illegal or invalid for any reason, the illegality
or invalidity shall not affect the remaining parts of the Plan,
and the Plan shall be construed and enforced as if the illegal
or invalid provision had not been included.
10.5 Costs of the Plan. All costs of implementing and
administering the Plan shall be borne by the Company.
10.6 Gender and Number. Except where otherwise indicated
by the context, any masculine term used herein also shall
include the feminine; the plural shall include the singular,
and the singular shall include the plural.
10.7 Governing Law. The Plan shall be governed by and
construed in accordance with the laws of the State of Delaware
without giving effect to any choice or conflict of law
provision or rule.
10.8 Effect on Prior Deferred Compensation Arrangements.
The Plan is intended to replace nonqualified deferred
compensation arrangements heretofore established by the Company
that cover Participants. From and after the Effective Date, no
further deferrals shall be permitted under such prior
arrangements and amounts previously deferred thereunder (other
than Prior Service Allocations referred to in Section 5.4
above) by or for the benefit of Participants shall be credited
with interest pursuant to the terms of the Plan at the prime
rate in effect at Harris Bank and Trust, adjusted quarterly,
compounded monthly.
KATY INDUSTRIES, INC.
DIRECTORS' DEFERRED COMPENSATION PLAN
Article 1.
Establishment and Purpose
1.1 Establishment. Katy Industries, Inc., a Delaware
corporation (the "Company"), hereby establishes, effective as
of June 1, 1995 (the "Effective Date"), a deferred
compensation plan for directors as described herein, which
shall be known as the "Katy Industries, Inc. Directors'
Deferred Compensation Plan" (the "Plan").
1.2 Purpose. The primary purpose of the Plan is to
provide Directors of the Company with the opportunity to
voluntarily defer all or a portion of their Compensation,
subject to the terms of the Plan. By adopting the Plan, the
Company desires to enhance its ability to attract and retain
Directors of outstanding competence.
Article 2.
Definitions
Whenever used herein, the following terms shall have the
meanings set forth below, and, when the defined meaning is
intended, the term is capitalized:
(a) "Board" or "Board of Directors" means the Board of
Directors of the Company.
(b) "Change in Control" of the Company means, and
shall be deemed to have occurred upon, any of the
following events:
(i) Any Person (other than those Persons in
control of the Company as of the Effective
Date, or other than a trustee or other
fiduciary holding securities under an employee
benefit plan of the Company, or a corporation
owned directly or indirectly by the
stockholders of the Company in substantially
the same proportions as their ownership of
stock of the Company) becomes the Beneficial
Owner, directly or indirectly, of securities
of the Company representing thirty percent
(30%) or more of the combined voting power of
the Company's then outstanding securities; or
(ii) During any period of two (2) consecutive
years (not including any period prior to the
Effective Date), individuals who at the
beginning of such period constitute the Board
(and any new Director, whose election by the
Company's stockholders was approved by a vote
of at least two-thirds (2/3) of the Directors
then still in office who either were
Directors at the beginning of the period or
whose election or nomination for election was
so approved), cease for any reason to
constitute a majority thereof; or
(iii) The stockholders of the Company approve: (i)
a plan of complete liquidation of the
Company; or (ii) an agreement for the sale or
disposition of all or substantially all the
Company's assets; or (iii) a merger,
consolidation, or reorganization of the
Company with or involving any other
corporation, other than a merger,
consolidation, or reorganization that would
result in the voting securities of the
Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) at least
fifty percent (50%) of the combined voting
power of the voting securities of the Company
(or such surviving entity) outstanding
immediately after such merger, consolidation,
or reorganization.
However, in no event shall a "Change in Control"
be deemed to have occurred, with respect to a
Participant, if the Participant is part of a
purchasing group which consummates the
Change-in-Control transaction. A Participant shall
be deemed "part of a purchasing group" for
purposes of the preceding sentence if the
Participant is an equity participant in the
purchasing company or group (except for: (i)
passive ownership of less than one percent (1%) of
the stock of the purchasing company; (ii) ownership
of equity participation in the purchasing company
or group which is otherwise not significant, as
determined prior to the Change in Control by a
majority of the nonemployee continuing Directors).
For this purpose, a "Person" includes an
individual, corporation, partnership, trust,
association, joint venture, pool, syndicate,
unincorporated organization, joint-stock company or
similar organization or group acting in concert.
A person for these purposes shall be deemed to be
a beneficial owner as that term is used in
Rule 13d-3 under the Securities Exchange Act of
1934.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Company" means Katy Industries, Inc., a Delaware
corporation.
(e) "Compensation" means the Retainer and Meeting Fees
and any other compensation payable to a Participant
by the Company for services performed as a
Director during Plan Year.
(f) "Director" means a member of the Board of
Directors of the Company on or following the
Effective Date of the Plan.
(g) "Disability" shall have the meaning ascribed to
such term in the Company's governing long-term
disability plan or if no plan is then in effect,
shall mean the determination by the Board that the
physical or mental condition of a Participant
renders such Participant unable to carry out the
duties and obligations as a Director of the
Company.
(h) "Effective Date" means the date the Plan becomes
effective, as set forth in Section 1.1 herein.
(i) "Meeting Fees" means fees paid by the Company to
a Director for attendance at Board and various
Board committee meetings during the relevant Plan
Year, and exclusive of Retainer earned during such
Plan Year.
(j) "Participant" means any Director who is actively
participating in the Plan.
(k) "Plan" means the Katy Industries, Inc. Directors'
Deferred Compensation Plan.
(l) "Plan Year" means the period commencing with the
date of the Company's annual meeting of
shareholders through and including the last date
prior to the succeeding annual meeting.
(m) "Retainer" means the annual retainer paid by the
Company and earned by a Director during the
relevant Plan Year with respect to the Director's
service on the Board, exclusive of Meeting Fees
earned during such Plan Year.
Article 3.
Administration
3.1 Administration of the Plan. The Plan shall be
administered by the Board. Subject to the provisions set
forth herein, the Board shall have full power to determine
the terms and conditions of each Director's participation in
the Plan; to construe and interpret the Plan and any
agreement or instrument entered into under the Plan; to
establish, amend, or waive rules and regulations for the
Plan's administration; to amend (subject to the provisions
of Article 9 herein) the terms and conditions of the Plan
and any agreement or instrument entered into under the Plan;
and to make other determinations which may be necessary or
advisable for the administration of the Plan.
Subject to the terms of the Plan, the Board may
delegate any or all of its authority granted under the Plan
to an executive or executives of the Company.
3.2 Decisions Binding. All determinations and decisions
of the Board as to any disputed question arising under the
Plan, including questions of construction and interpretation,
shall be final, conclusive, and binding on all parties.
3.3 Indemnification. Each person who is or shall have
been a member of the Board shall be indemnified and held
harmless by the Company against and from any loss, cost,
liability, or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from
any claim, action, suit, or proceeding to which he or she
may be a party, or in which he or she may be involved by
reason of any action taken or failure to act under the Plan.
The Company shall, subject to the requirements and
limitations of Delaware law, pay such loss, cost, liability
or expense imposed on or incurred by such person promptly
upon demand by him or her, whether or not he or she has
actually advanced such amount prior thereto.
The Company shall also indemnify each such person who
is or shall have been a member of the Board against and from
any and all amounts paid by him or her in settlement
thereof, with the Company's approval, or paid by him or her
in satisfaction of any judgment in any such action, suit, or
proceeding against him or her, provided her or she shall
give the Company an opportunity, at its own expense, to
handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf.
The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which
such persons may be entitled under the Company's Certificate
of Incorporation or Bylaws, as a matter of law, or
otherwise, or any power that the Company may have to
indemnify them or hold them harmless.
Article 4.
Eligibility and Participation
4.1 Eligibility. Each Director of the Company on or
following the Effective Date shall be eligible to participate
in the Plan. In the event a Participant no longer meets the
requirements for eligibility to participate in the Plan, such
Participant shall become an inactive Participant retaining
all of the rights described under the Plan, except the right
to make any further deferrals hereunder.
4.2 Participation. When a Director first becomes
eligible to participate in the Plan, such Director shall, as
soon as practicable thereafter, be notified by the Board of
his or her eligibility to participate. At such time, the
Board shall provide such Director with an "Election to Defer
Form" and an "Investment Election Form" which shall be
submitted by the Director as provided in Sections 5.2 and
6.2 hereof.
Unless otherwise determined by the Board, once notified
of eligibility to participate, each eligible Director shall
be entitled to make deferrals and investment elections with
respect to each subsequent Plan Year by submitting an
Election to Defer Form as provided in Section 5.2, and an
Investment Election Form as provided in Section 6.2.
4.3 Partial Plan Year Participation. In the event a
Director first becomes eligible to participate in the Plan
after the beginning of the Plan Year, the Board may, in its
discretion, allow such Director to complete an Election to
Defer Form and Investment Election Form within thirty (30)
days of becoming eligible to participate; such election to
be valid and applicable for the Plan Year then in progress.
An Election to Defer Form and an Investment Election Form
submitted pursuant to this Section 4.3 shall apply only to
Compensation earned subsequent to the date on which a valid
Election to Defer Form and/or Investment Election Form, as
applicable, is received by the Board from the Participant.
Article 5.
Deferral Opportunity
5.1 Amount Which May Be Deferred. A Participant may
elect to defer up to one hundred percent (100%) of each
component of Compensation in any Plan Year.
5.2 Deferral Election. Participants shall make their
elections to defer Compensation under the Plan prior to the
beginning of each Plan Year, or not later than thirty (30)
calendar days following notification of initial eligibility
to participate for a partial Plan Year, as applicable. All
deferral elections shall be irrevocable, and shall be made
on an "Election to Defer Form," as described herein.
Unless determined otherwise by the Board, Participants
shall make the following irrevocable elections on the initial
and each subsequent "Election to Defer Form," as applicable:
(a) The amount to be deferred with respect to each
component of Compensation for the Plan Year; and
(b) The eventual form of payout of all deferrals,
within certain parameters as provided in Section
5.4 herein.
5.3 Length of Deferral. Except as otherwise provided
herein, all deferrals hereunder and investment return thereon
shall be maintained in deferred status until the respective
Participant's attainment of age 62 or termination of service
as a Director for any reason, whichever is later.
5.4 Payment of Deferred Amounts. Participants shall
receive payment of deferred amounts, together with investment
return accrued thereon pursuant to Section 6.2, at the end
of the applicable deferral period. Such payment shall be
made in cash, in a single lump-sum payment within thirty
(30) calendar days of the date specified for payment, as
determined under Section 5.3 herein. However, upon making
his or her first deferral under the Plan, a Participant may
elect to receive payment in the form of five (5)
approximately equal annual installments, rather than in a
lump sum. This election shall be made on the Participant's
initial Election to Defer Form, shall be irrevocable
thereafter, and shall apply to all future deferrals and
investment returns thereon.
Notwithstanding the foregoing, any unpaid deferred
amounts and accumulated investment return thereon shall be
paid to the Participant in the event that, at any time prior
to full payment of such deferred amounts and investment
return thereon, (i) the Participant's service as a Director
of the Company is terminated by reason of death or
Disability, or (ii) a Change in Control of the Company
occurs, as determined by the Board. In such event, payment
shall be made in a single lump sum, in cash, within thirty
(30) calendar days after the termination of the Participant's
service as a Director or the effective date of a Change in
Control, as applicable.
5.5 Financial Hardship. The Board shall have the
authority to alter the timing or manner of payment of
deferred amounts in the event that the Participant
establishes, to the satisfaction of the Board, severe
financial hardship. In such event, the Board may, in its
sole discretion:
(a) Authorize the cessation of deferrals by such
Participant under the Plan; or
(b) Provide that all, or a portion, of the amount
previously deferred by the Participant shall
immediately be paid in a lump-sum cash payment; or
(c) Provide for such other payment schedule as deemed
appropriate by the Board under the circumstances.
For purposes of this Section 5.5, "severe financial
hardship" shall mean any financial hardship resulting from
extraordinary and unforeseeable circumstances arising as a
result of one or more recent events beyond the control of
the Participant. In any event, payment may not be made to
the extent such emergency is or may be relieved: (i)
through reimbursement or compensation by insurance or
otherwise; (ii) by liquidation of the Participant's assets,
to the extent the liquidation of such assets would not
itself cause severe financial hardship; and (iii) by
cessation of deferrals under the Plan. Withdrawals of
amounts because of a severe financial hardship may only be
permitted to the extent reasonably necessary to satisfy the
hardship. Examples of what are not considered to be severe
financial hardships include the need to send a Participant's
child to college or the desire to purchase a home.
The severity of the financial hardship shall be judged
by the Board. The Board's decision with respect to the
severity of financial hardship and the manner in which, if
at all, the Participant's future deferral opportunities shall
be ceased, and/or the manner in which, if at all the payment
of deferred amounts to the Participant shall be altered or
modified, shall be final, conclusive, and not subject to
appeal.
Article 6.
Deferred Compensation Accounts
6.1 Participants' Accounts. The Company shall
establish and maintain an individual bookkeeping account for
deferrals made by each Participant, and investment return
thereon, under Article 5 herein. Each account shall be
credited as of the date the amount deferred otherwise would
have become due and payable to the Participant. The
establishment and maintenance of such accounts, however,
shall not be construed as entitling any Participant to any
specific assets of the Company.
6.2 Investment Return on Deferred Amounts.
Compensation deferred under Article 5 shall be deemed to be
invested as elected by each Participant from a choice of one
or more investment alternatives offered by the Company.
Such investment election shall be made by each Participant
pursuant to an "Investment Election Form" described herein.
Participants shall be permitted to change their investment
elections annually, at the same time as Elections to Defer
are made pursuant to the Plan, except that the Board may
permit more frequent elections in its discretion.
The rates of return earned on deferrals shall be equal
to the actual returns achieved on the selected investments.
Each Participant's deferred compensation account shall be
credited on the last day of each calendar quarter with
earnings thereon and charged with losses, such earnings and
losses to be based upon the actual returns that would have
been achieved on the deferred amounts if such amounts had
actually been invested pursuant to the investment elections
of each Participant. Investment return on deferred amounts
shall be paid out to Participants at the same time and in
the same manner as the underlying deferred amounts.
6.3 Charges Against Accounts. There shall be charged
against each Participant's deferred compensation account any
payments made to the Participant or to his or her
beneficiary.
Article 7.
Beneficiary Designation
Each Participant shall designate a beneficiary or
beneficiaries who, upon the Participant's death, will receive
the amounts that otherwise would have been paid to the
Participant under the Plan. All designations shall be
signed by the Participant, and shall be in such form as
prescribed by the Board. Each designation shall be
effective as of the date delivered to a Company employee so
designated by the Board.
Participants may change their designations of
beneficiary on such form as prescribed by the Board. The
payment of amounts deferred under the Plan shall be in
accordance with the last unrevoked written designation of
beneficiary that has been signed by the Participant and
delivered by the Participant to the designated employee prior
to the Participant's death.
In the event that all the beneficiaries named by a
Participant pursuant to this Article 7 predecease the
Participant, the deferred amounts that would have been paid
to the Participant or the Participant's beneficiaries under
the Plan shall be paid to the Participant's estate.
In the event a Participant does not designate a
beneficiary, or for any reason such designation is
ineffective, in whole or in part, the amounts that otherwise
would have been paid to the Participant or the Participant's
beneficiaries under the Plan shall be paid to the
Participant's estate.
Article 8.
Rights of Participants
8.1 Contractual Obligation. The Plan shall create a
contractual obligation on the part of the Company to make
payments from the Participants' accounts when due. Payment
of account balances shall be made out of the general funds
of the Company.
8.2 Unsecured Interest. No Participant or party
claiming an interest in deferred amounts or contributions of
a Participant shall have any interest whatsoever in any
specific asset of the Company. To the extent that any party
acquires a right to receive payments under the Plan, such
right shall be equivalent to that of an unsecured general
creditor of the Company.
8.3 Service as a Director. Neither the establishment
of the Plan, nor any action taken hereunder, shall in any
way obligate (i) the Company to nominate a Director for
reelection or to continue to retain a Director; or (ii) a
Director to agree to be nominated for reelection or to
continue to serve on the Board.
Article 9.
Amendment and Termination
The Company hereby reserves the right to amend, modify,
or terminate the Plan at any time by action of the Board.
No such amendment or termination shall in any material
manner adversely affect any Participant's rights to deferred
amounts or interest earned thereon, without the consent of
the Participant.
Article 10.
Miscellaneous
10.1 Notice. Any notice or filing required or
permitted to be given to the Company under the Plan shall be
sufficient if in writing and hand delivered, or sent by
registered or certified mail to the Chairman of the
Compensation Committee of the Company. Such notice, if
mailed, shall be addressed to the principal executive offices
of the Company. Notice mailed to a Participant shall be at
such address as is given in the records of the Company.
Notices shall be deemed given as of the date of delivery or,
if delivery is made by mail, as of the date shown on the
postmark on the receipt for registration or certification.
10.2 Successors. All obligations of the Company
under the Plan shall be binding on any successor to the
Company, whether the existence of such successor is the
result of a direct or indirect purchase, merger,
consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
10.3 Nontransferability. Participants' rights to
deferred amounts, contributions, and investment return earned
thereon under the Plan may not be sold, transferred,
assigned, or otherwise alienated or hypothecated, other than
by will or by the laws of descent and distribution. In no
event shall the Company make any payment under the Plan to
any assignee or creditor of a Participant.
10.4 Severability. In the event any provision of
the Plan shall be held illegal or invalid for any reason,
the illegality or invalidity shall not affect the remaining
parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been
included.
10.5 Costs of the Plan. All costs of implementing
and administering the Plan shall be borne by the Company.
10.6 Gender and Number. Except where otherwise
indicated by the context, any masculine term used herein
also shall include the feminine; the plural shall include
the singular, and the singular shall include the plural.
10.7 Governing Law. The Plan shall be governed by
and construed in accordance with the laws of the State of
Delaware without giving effect to any choice or conflict of
law provision or rule.
Compensation and Benefits
Assurance Agreement
For Tier I Participants
Katy Industries, Inc.
(Effective January 1, 1996)
Contents
Page
Section 1. Term of Agreement 1
Section 2. Severance Benefits 2
Section 3. Rabbi Trust and Change-in-Control
Payments 7
Section 4. Excise Tax 8
Section 5. Successors and Assignments 9
Section 6. Miscellaneous 10
Section 7. Contractual Rights and Legal
Remedies 10
Compensation and Benefits Assurance Agreement
This COMPENSATION AND BENEFITS ASSURANCE AGREEMENT (this
"Agreement") is made, entered into, and is effective as of
this first day of January 1996 (the "Effective Date") by and
between Katy Industries, Inc. (hereinafter referred to as the
"Company") and __________________________ (hereinafter
referred to as the "Executive").
WHEREAS, the Executive is presently employed by the
Company in a key management capacity; and
WHEREAS, the Executive possesses considerable experience
and knowledge of the business and affairs of the Company
concerning its policies, methods, personnel, and operations;
and
WHEREAS, the Company is desirous of assuring the continued
employment of the Executive in a key management capacity, and
the Executive is desirous of having such assurances.
NOW THEREFORE, in consideration of the foregoing and of
the mutual covenants and agreements of the parties set forth
in this Agreement, and of other good and valuable
consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
Section 1. Term of Agreement
This Agreement will commence on the Effective Date and
shall continue in effect for two full calendar years (through
December 31, 1997) (the "Initial Term").
The Initial Term of this Agreement automatically shall be
extended for two additional years at the end of the Initial
Term, and then again after each successive two-year period
thereafter (each such two-year period following the Initial
Term a "Successive Period"). However, either party may
terminate this Agreement at the end of the Initial Term, or
at the end of any Successive Period thereafter, by giving the
other party written notice of intent not to renew, delivered
at least six (6) months prior to the end of such Initial Term
or Successive Period. If such notice is properly delivered by
either party, this Agreement, along with all corresponding
rights, duties, and covenants shall automatically expire at
the end of the Initial Term or Successive Period then in
progress.
In the event that a "Change in Control" of the Company
occurs (as such term is hereinafter defined) during the
Initial Term or any Successive Period, upon the effective
date of such Change in Control, the term of this Agreement
shall automatically and irrevocably be renewed for a period
of twenty-four (24) full calendar months from the effective
date of such Change in Control. This Agreement shall
thereafter automatically terminate following the twenty-four
(24) month Change-in-Control renewal period. Further, this
Agreement shall be assigned to, and shall be assumed by the
purchaser in such Change in Control, as further provided in
Section 5 herein.
Section 2. Severance Benefits
2.1. Right to Severance Benefits. The Executive shall be
entitled to receive from the Company Severance Benefits as
described in Paragraph 2.3 herein, if during the term of this
Agreement there has been a Change in Control of the Company
(as defined in Paragraph 2.4 herein) and if, within twenty-four
(24) calendar months immediately thereafter, the
Executive's employment with the Company shall end for any
reason specified in Paragraph 2.2 herein as being a
Qualifying Termination. The Severance Benefits described in
Paragraphs 2.3(a), 2.3(b), 2.3(c), and 2.3(d) herein shall be
paid in cash to the Executive in a single lump sum as soon as
practicable following the Qualifying Termination, but in no
event later than thirty (30) calendar days from such date.
Notwithstanding the foregoing, Severance Benefits which
become due pursuant to Paragraphs 2.2(c) and 5.1 shall be
paid immediately.
The Severance Benefits described in Paragraphs 2.3(a),
2.3(b), 2.3(c), and 2.3(d) herein shall be paid out of the
general assets of the Company. To the extent the Company pays
such amounts out of its general assets, the Company shall be
entitled to a payment from the Rabbi Trust established
pursuant to Paragraph 3.1 herein, in accordance with the
terms of such Rabbi Trust. In the event that the Executive
does not receive the Severance Benefits due hereunder from
the Company within thirty (30) days of his Qualifying
Termination, the Executive may provide written notice to the
Trustee of the Rabbi Trust of the amount due hereunder and
the Trustee shall pay such amount in accordance with the
terms of the Rabbi Trust.
2.2. Qualifying Termination. The occurrence of any one or
more of the following events (i.e., a "Qualifying
Termination") within twenty-four (24) calendar months
immediately following a Change in Control of the Company
shall trigger the payment of Severance Benefits to the
Executive, as such benefits are described under Paragraph 2.3
herein:
(a) The Company's involuntary termination of the Executive's
employment without Cause (as such term is defined in
Paragraph 2.6 herein);
<PAGE>
(b) The Executive's voluntary termination of employment for
Good Reason (as such term is defined in Paragraph 2.5
herein); and
(c) The Company, or any successor company, commits a
material breach of any of the provisions of this
Agreement.
A Qualifying Termination shall not include a termination
of the Executive's employment within twenty-four (24)
calendar months after a Change in Control by reason of death,
Disability (as such term is defined under the Company's
governing disability plan, or any successor plan thereto),
the Executive's voluntary termination without Good Reason, or
the Company's involuntary termination of the Executive's
employment for Cause.
2.3. Description of Severance Benefits. In the event that
the Executive becomes entitled to receive Severance Benefits,
as provided in Paragraphs 2.1 and 2.2 herein, the Company
shall pay to the Executive and provide the Executive with the
following:
(a) A lump-sum cash amount equal to the Executive's
unpaid Base Salary (as such term is defined in Paragraph 2.7
herein), accrued vacation pay, unreimbursed business
expenses, and all other items earned by and owed to the
Executive through and including the date of the Qualifying
Termination. Such payment shall constitute full satisfaction
for these amounts owed to the Executive.
(b) A lump-sum cash amount equal to three (3) multiplied
by the Executive's annual rate of Base Salary in effect upon
the date of the Qualifying Termination or, if greater, by the
Executive's annual rate of Base Salary in effect immediately
prior to the occurrence of the Change in Control.
(c) A lump-sum cash amount equal to the greater of (i)
the Executive's then-current target bonus opportunity (stated
in terms of a percentage of Base Salary) established under
the Katy Industries, Inc. Annual Bonus Plan (or any successor
plan thereto) for the bonus plan year in which the
Executive's date of Qualifying Termination occurs, adjusted
on a pro rata basis based on the number of days the Executive
was actually employed during such bonus plan year (but in no
event shall such target bonus be less than that in effect for
the period immediately prior to the occurrence of the Change
in Control); or (ii) the actual bonus earned through the date
of the Qualifying Termination, based on the then-current
level of goal achievement. Such payment shall constitute full
satisfaction for these amounts owed to the Executive.
(d) A lump-sum cash amount equal to the sum of (i) three
(3) multiplied by the maximum possible estimated Company
match of the Executive's contributions to the Company's
401(k) savings plan as of the date the Executive's Qualifying
Termination occurs; and (ii) the not yet vested Company
contributions (with interest thereon up to the date of
payment) credited to the Executive's account under the
Company's 401(k) plan measured as of the date of the
Executive's Qualifying Termination. Provided, however, that
the source of payment of this sum shall be the general assets
of the Company unless the payment of such amounts is
otherwise permissible from the corresponding qualified plan
trust without violating any governmental regulations or
statutes. Such payment shall constitute full satisfaction for
these amounts owed to the Executive.
(e) At the exact same cost to the Executive, and at the
same coverage level as in effect as of the Executive's date
of the Qualifying Termination (subject to changes in coverage
levels applicable to all employees generally), a continuation
of the Executive's (and the Executive's eligible dependents')
health insurance coverage for thirty-six (36) months from the
date of the Qualifying Termination. The applicable COBRA
health insurance benefit continuation period shall begin at
the end of this thirty-six (36) month benefit continuation
period.
The providing of these health insurance benefits by the
Company shall be discontinued prior to the end of the
thirty-six (36) month continuation period to the extent
that the Executive becomes covered under the health
insurance coverage of a subsequent employer which does
not contain any exclusion or limitation with respect to
any preexisting condition of the Executive or the
Executive's eligible dependents. For purposes of
enforcing this offset provision, the Executive shall
have a duty to inform the Company as to the terms and
conditions of any subsequent employment and the
corresponding benefits earned from such employment. The
Executive shall provide, or cause to provide, to the
Company in writing correct, complete, and timely
information concerning the same.
(f) The Executive shall be entitled, at the expense of
the Company, to receive standard outplacement services from a
nationally recognized outplacement firm of the Executive's
selection, for a period of up to two (2) years from the
Executive's date of Qualifying Termination. However, such
services shall be at the Company's expense to a maximum
amount not to exceed thirty-five percent (35%) of the
Executive's annual rate of Base Salary as of the date of the
Qualifying Termination.
<PAGE>
2.4. Definition of "Change in Control." "Change in
Control" of the Company means, and shall be deemed to have
occurred upon, the first to occur of any of the following
events:
(a) Any Person (other than those Persons in control of
the Company as of the Effective Date, or other than a trustee
or other fiduciary holding securities under an employee
benefit plan of the Company, or a corporation owned directly
or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of
stock of the Company) becomes the Beneficial Owner, directly
or indirectly, of securities of the Company representing
thirty percent (30%) or more of the combined voting power of
the Company's then outstanding securities; or
(b) During any period of two (2) consecutive years (not
including any period prior to the Effective Date),
individuals who at the beginning of such period constitute
the Board (and any new Director, whose election by the
Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the Directors then still in office who
either were Directors at the beginning of the period or whose
election or nomination for election was so approved), cease
for any reason to constitute a majority thereof; or
(c) The stockholders of the Company approve: (i) a plan
of complete liquidation of the Company; or (ii) an agreement
for the sale or disposition of all or substantially all of
the Company's assets; or (iii) a merger, consolidation, or
reorganization of the Company with or involving any other
corporation, other than a merger, consolidation, or
reorganization that would result in the voting securities of
the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least fifty percent (50%) of the combined voting power of the
voting securities of the Company (or such surviving entity)
outstanding immediately after such merger, consolidation, or
reorganization.
However, in no event shall a "Change in Control" be deemed
to have occurred, with respect to the Executive, if the
Executive is part of a purchasing group which consummates
the Change-in-Control transaction. The Executive shall be
deemed "part of a purchasing group" for purposes of the
preceding sentence if the Executive is an equity
participant in the purchasing company or group (except
for: (i) passive ownership of less than one percent (1%)
of the stock of the purchasing company; or (ii) ownership
of equity participation in the purchasing company or group
which is otherwise not significant, as determined prior to
the Change in Control by a majority of the nonemployee
continuing Directors).
2.5. Definition of "Good Reason." "Good Reason" shall be
determined by the Executive, in the exercise of good faith
and reasonable judgment, and shall mean, without the
Executive's express written consent, the occurrence of any
one or more of the following within two (2) years immediately
following a Change in Control:
(i) The assignment of the Executive to duties inconsistent
with the Executive's authorities, duties,
responsibilities, and status as an officer of the
Company, or a reduction or alteration in the nature or
status of the Executive's authorities, duties, or
responsibilities, from those in effect as of ninety
(90) calendar days prior to the Change in Control,
other than an insubstantial and inadvertent act that is
remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(ii) The Company's requiring the Executive to be based at a
location in excess of fifty (50) miles from the
location of the Executive's principal job location or
office immediately prior to the Change in Control;
except for required travel on the Company's business to
an extent consistent with the Executive's then present
business travel obligations;
(iii) A reduction by the Company of the Executive's Base
Salary in effect on the Effective Date, or as the same
shall be increased from time to time;
(iv) The failure of the Company to keep in effect any of the
Company's compensation, health and welfare benefits, or
perquisite programs under which the Executive receives
value, as such program exists immediately prior to the
Change in Control. However, the replacement of an
existing program with a new program will be permissible
(and not grounds for a Good Reason termination) if done
for all employees generally and the value to be
delivered to the Executive under the new program is at
least as great as the value delivered to the Executive
under the existing programs; or
(v) Any breach by the Company of its obligations under
Section 5 of this Agreement or any failure of a
successor company to assume and agree to perform the
Company's entire obligations under this Agreement, as
required by Section 5 herein.
The Executive's right to terminate employment for Good
Reason shall not be affected by the Executive's
incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason herein.
2.6. Definition of "Cause." "Cause" shall be determined by
the Administrative Committee, in the exercise of good faith
and reasonable judgment, and shall mean the occurrence of any
one or more of the following:
(a) A demonstrably willful and deliberate act or failure to
act by the Executive (other than as a result of
incapacity due to physical or mental illness) which is
committed in bad faith, without reasonable belief that
such action or inaction is in the best interests of the
Company, which causes actual material financial injury
to the Company and which act or inaction is not
remedied within fifteen (15) business days of written
notice from the Company; or
(b) The Executive's conviction for committing an act of
fraud, embezzlement, theft, or any other act
constituting a felony involving moral turpitude or
causing material harm, financial or otherwise, to the
Company.
2.7. Other Defined Terms. The following terms shall have the
meanings set forth below:
(a) "Base Salary" means, at any time, the then-regular
annual rate of pay which the Executive is receiving as
annual salary, excluding amounts (i) designated by the
Company as payment toward reimbursement of expenses; or
(ii) received under incentive or other bonus plans,
regardless of whether or not the amounts are deferred.
(b) "Beneficial Owner" shall have the meaning ascribed to
such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act (as such term is
defined below).
(c) "Exchange Act" means the Securities Exchange Act of
1934, as amended from time to time, or any successor
act thereto.
(d) "Person" shall have the meaning ascribed to such term
in Section 3(a)(9) of the Exchange Act and used in
Sections 13(d) and 14(d) thereof, including a "group"
as defined in Section 13(d) thereof.
Section 3. Rabbi Trust and Change-in-Control Payments
3.1. Establishment of a Rabbi Trust. As soon as
administratively possible following the Effective Date, the
Company shall establish an irrevocable Rabbi Trust, governed
by this Agreement (which shall be a grantor trust within the
meaning of Internal Revenue Code Sections 671-678) for the
benefit of the Executive, other executives covered by a
similar agreement, and their beneficiaries, as appropriate.
The Rabbi Trust shall have an independent Trustee (such
Trustee to have a fiduciary duty to carry out the terms and
conditions of the Trust) as selected by the Company, and
shall have restrictions as to the Company's ability to amend
the Trust or to cancel benefits provided thereunder.
Assets contained in the Rabbi Trust shall at all times be
specifically subject to the claims of the Company's general
creditors in the event of bankruptcy or insolvency; such
terms shall be specifically defined within the provisions of
the Rabbi Trust, along with a required procedure for
notifying the Trustee of any such bankruptcy or insolvency.
3.2. Funding of Rabbi Trust. As soon as practicable
following a Change in Control, but in no event later than
thirty (30) calendar days from such date, the Company shall
fund the Rabbi Trust in an amount (without regard to any
contributions made to the Rabbi Trust pursuant to other
severance agreements between the Company and any other
executives of the Company) equal to the sum of (a) the
Severance Benefits described in Paragraphs 2.3(a), 2.3(b),
2.3(c), and 2.3(d) herein, calculated as if the Executive's
Qualifying Termination occurred on the effective date of the
Change in Control; (b) the estimated Gross-Up Payment (as
such term is defined in Paragraph 4.1 herein), calculated as
if the Executive's Qualifying Termination occurred on the
effective date of the Change in Control and as if the
Executive were taxed at the highest marginal state and
federal income and employment tax rates; and (c) one hundred
thousand dollars ($100,000) for potential legal fees incurred
by the Executive in enforcing his rights under this
Agreement.
Section 4. Excise Tax
4.1. Excise Tax Payment. If any portion of the Severance
Benefits or any other payment under this Agreement, or under
any other agreement with, or plan of the Company, including
but not limited to stock options and other long-term
incentives (in the aggregate "Total Payments") would
constitute an "excess parachute payment," such that a golden
parachute excise tax is due, the Company shall provide to the
Executive, in cash, an additional payment in an amount to
cover the full cost of any excise tax and the Executive's
state and federal income and employment taxes on this
additional payment (cumulatively, the "Gross-Up Payment").
For this purpose, the Executive shall be deemed to be in the
highest marginal rate of federal and state taxes. This
payment shall be made as soon as possible following the date
of the Executive's Qualifying Termination, but in no event
later than thirty (30) calendar days of such date.
The Gross-Up Payment described herein shall be paid out of
the general assets of the Company. To the extent the Company
pays such amount out of its general assets, the Company shall
be entitled to a payment from the Rabbi Trust established
pursuant to Paragraph 3.1 herein, in accordance with the
terms of such Rabbi Trust. In the event that the Executive
does not receive the Gross-Up Payments due hereunder from the
Company within thirty (30) days of his Qualifying
Termination, the Executive may provide written notice to the
Trustee of the Rabbi Trust of the amount due hereunder and
the Trustee shall pay such amount in accordance with the
terms of the Rabbi Trust.
For purposes of this Agreement, the term "excess parachute
payment" shall have the meaning assigned to such term in
Section 280G of the Internal Revenue Code, as amended (the
"Code"), and the term "excise tax" shall mean the tax imposed
on such excess parachute payment pursuant to Sections 280G
and 4999 of the Code.
4.2. Subsequent Recalculation. In the event the Internal
Revenue Service subsequently adjusts the excise tax
computation herein described, the Company shall reimburse the
Executive for the full amount necessary to make the Executive
whole on an after-tax basis (less any amounts received by the
Executive that the Executive would not have received had the
computations initially been computed as subsequently
adjusted), including the value of any underpaid excise tax,
and any related interest and/or penalties due to the Internal
Revenue Service.
Section 5. Successors and Assignments
5.1. Successors. The Company will require any successor
(whether via a Change in Control, direct or indirect, by
purchase, merger, consolidation, or otherwise) of the Company
to expressly assume and agree to perform the obligations
under this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no
such succession had taken place.
Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such succession
shall, as of the date immediately preceding the date of a
Change in Control, automatically give the Executive Good
Reason to collect, immediately, full benefits hereunder as a
Qualifying Termination.
5.2. Assignment by Executive. This Agreement shall inure
to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees. If
an Executive should die while any amount is still payable to
the Executive hereunder had the Executive continued to live,
all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement, to the
Executive's devisee, legatee, or other designee, or if there
is no such designee, to the Executive's estate.
An Executive's rights hereunder shall not otherwise be
assignable.
<PAGE>
Section 6. Miscellaneous
6.1. Administration. This Agreement shall be administered
by the Board of Directors of the Company, or by a Committee
of the Board designated by the Board (the "Administrative
Committee"). The Administrative Committee (with the approval
of the Board, if the Board is not the Administrative
Committee) is authorized to interpret this Agreement, to
prescribe and rescind rules and regulations, and to make all
other determinations necessary or advisable for the
administration of this Agreement.
In fulfilling its administrative duties hereunder, the
Administrative Committee may rely on outside counsel,
independent accountants, or other consultants to render
advice or assistance.
6.2. Notices. Any notice required to be delivered to the
Company or the Administrative Committee by the Executive
hereunder shall be properly delivered to the Company when
personally delivered to (including by a reputable overnight
courier), or actually received through the U.S. mail, postage
prepaid, by:
Katy Industries, Inc.
6300 South Syracuse Way, Suite 300
Englewood, CO 80111
Attn: President
Any notice required to be delivered to the Executive by
the Company or the Administrative Committee hereunder shall
be properly delivered to the Executive when personally
delivered to (including by a reputable overnight courier), or
actually received through the U.S. mail, postage prepaid, by,
the Executive at his last known address as reflected on the
books and records of the Company.
Section 7. Contractual Rights and Legal Remedies
7.1. Contractual Rights to Benefits. This Agreement
establishes in the Executive a right to the benefits to which
the Executive is entitled hereunder. However, except as
expressly stated herein, nothing herein contained shall
require or be deemed to require, or prohibit or be deemed to
prohibit, the Company to segregate, earmark, or otherwise set
aside any funds or other assets, in trust or otherwise, to
provide for any payments to be made or required hereunder.
<PAGE>
7.2. Legal Fees and Expenses. The Company shall pay all
legal fees, costs of litigation, prejudgment interest, and
other expenses which are incurred in good faith by the
Executive as a result of the Company's refusal to provide the
Severance Benefits to which the Executive becomes entitled
under this Agreement, or as a result of the Company's (or any
third party's) contesting the validity, enforceability, or
interpretation of the Agreement, or as a result of any
conflict between the parties pertaining to this Agreement.
Such payment shall be made from the funds earmarked for such
purpose in the trust fund described in Paragraph 3.1 hereto
and, to the extent such fees and expenses exceed such
earmarked amount, the Company shall pay such fees and
expenses from the general assets of the Company.
7.3. Arbitration. The Executive shall have the right and
option to elect (in lieu of litigation) to have any dispute
or controversy arising under or in connection with this
Agreement settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the
Executive within fifty (50) miles from the location of his or
her job with the Company, in accordance with the rules of the
American Arbitration Association then in effect. The
Executive's election to arbitrate, as herein provided, and
the decision of the arbitrators in that proceeding, shall be
binding on the Company and the Executive.
Judgment may be entered on the award of the arbitrator in
any court having jurisdiction. All expenses of such
arbitration, including the fees and expenses of the counsel
for the Executive, shall be borne by the Company.
7.4. Unfunded Agreement. This Agreement is intended to be
an unfunded general asset promise for a select, highly
compensated member of the Company's management and,
therefore, is intended to be exempt from the substantive
provisions of the Employee Retirement Income Security Act of
1974 as amended.
7.5. Exclusivity of Benefits. Unless specifically
provided herein, neither the provisions of this Agreement nor
the benefits provided hereunder shall reduce any amounts
otherwise payable, or in any way diminish the Executive's
rights as an employee of the Company, whether existing now or
hereafter, under any compensation and/or benefit plans,
programs, policies, or practices provided by the Company, for
which the Executive may qualify.
Vested benefits or other amounts which the Executive is
otherwise entitled to receive under any plan, policy,
practice, or program of the Company (i.e., including, but not
limited to, vested benefits under the Company's 401(k) plan),
at or subsequent to the Executive's date of Qualifying
Termination shall be payable in accordance with such plan,
policy, practice, or program except as expressly modified by
this Agreement.
<PAGE>
7.6. Includable Compensation. Severance Benefits provided
hereunder shall not be considered "includable compensation"
for purposes of determining the Executive's benefits under
any other plan or program of the Company.
7.7. Employment Status. Nothing herein contained shall be
deemed to create an employment agreement between the Company
and the Executive, providing for the employment of the
Executive by the Company for any fixed period of time. The
Executive's employment with the Company is terminable at will
by the Company or the Executive and each shall have the right
to terminate the Executive's employment with the Company at
any time, with or without Cause, subject to the Company's
obligation to provide Severance Benefits as required
hereunder.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of
the amounts payable to the Executive under any of the
provisions of this Agreement, nor shall the amount of any
payment hereunder be reduced by any compensation earned by
the Executive as a result of employment by another employer,
other than as provided in Paragraph 2.3(e) herein.
7.8. Entire Agreement. This Agreement represents the
entire agreement between the parties with respect to the
subject matter hereof, and supersedes all prior discussions,
negotiations, and agreements concerning the subject matter
hereof, including, but not limited to, any prior severance
agreement made between the Executive and the Company.
7.9. Tax Withholding. The Company shall withhold from any
amounts payable under this Agreement all federal, state,
city, or other taxes as legally required to be withheld.
7.10. Waiver of Rights. Except as otherwise provided herein,
the Executive's acceptance of Severance Benefits, the Gross-Up Payment
(if applicable), and any other payments required
hereunder shall be deemed to be a waiver of all rights and
claims of the Executive against the Company pertaining to any
matters arising under this Agreement.
7.11. Severability. In the event any provision of the
Agreement shall be held illegal or invalid for any reason,
the illegality or invalidity shall not affect the remaining
parts of the Agreement, and the Agreement shall be construed
and enforced as if the illegal or invalid provision had not
been included.
7.12. Applicable Law. To the extent not preempted by the laws
of the United States, the laws of the State of Delaware shall
be the controlling law in all matters relating to this
Agreement.
IN WITNESS WHEREOF, the Company has executed this
Agreement, to be effective as of the day and year first
written above.
ATTEST: Katy Industries, Inc.
By: ____________________________By:_________________________
Secretary Title:_______________________
____________________________
Executive
Compensation and Benefits
Assurance Agreement
Katy Industries, Inc.
(Effective January 1, 1996)
Contents
Page
Section 1. Terms of Agreement 1
Section 2. Severance Benefits 2
Section 3. Rabbi Trust and Change-in-Control
Payments 7
Section 4. Excise Tax 8
Section 5. Successors and Assignments 9
Section 6. Miscellaneous 10
Section 7. Contractual Rights and Legal
Remedies 10
Compensation and Benefits Assurance Agreement
This COMPENSATION AND BENEFITS ASSURANCE AGREEMENT
(this "Agreement") is made, entered into, and is
effective as of this first day of January 1996 (the
"Effective Date") by and between Katy Industries, Inc.
(hereinafter referred to as the "Company") and
___________________________ (hereinafter referred to as
the "Executive").
WHEREAS, the Executive is presently employed by the
Company in a key management capacity; and
WHEREAS, the Executive possesses considerable
experience and knowledge of the business and affairs of
the Company concerning its policies, methods,
personnel, and operations; and
WHEREAS, the Company is desirous of assuring the
continued employment of the Executive in a key
management capacity, and the Executive is desirous of
having such assurances.
NOW THEREFORE, in consideration of the foregoing and
of the mutual covenants and agreements of the parties
set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
Section 1. Term of Agreement.
This Agreement will commence on the Effective Date
and shall continue in effect for two full calendar
years (through December 31, 1997) (the "Initial Term").
The Initial Term of this Agreement automatically
shall be extended for two additional years at the end
of the Initial Term, and then again after each
successive two-year period thereafter (each such two-year period
following the Initial Term a "Successive
Period"). However, either party may terminate this
Agreement at the end of the Initial Term, or at the end
of any Successive Period thereafter, by giving the
other party written notice of intent not to renew,
delivered at least six (6) months prior to the end of
such Initial Term or Successive Period. If such notice
is properly delivered by either party, this Agreement,
along with all corresponding rights, duties, and
covenants shall automatically expire at the end of the
Initial Term or Successive Period then in progress.
<PAGE>
In the event that a "Change in Control" of the
Company occurs (as such term is hereinafter defined)
during the Initial Term or any Successive Period, upon
the effective date of such Change in Control, the term
of this Agreement shall automatically and irrevocably
be renewed for a period of twenty-four (24) full
calendar months from the effective date of such Change
in Control. This Agreement shall thereafter
automatically terminate following the twenty-four (24)
month Change-in-Control renewal period. Further, this
Agreement shall be assigned to, and shall be assumed by
the purchaser in such Change in Control, as further
provided in Section 5 herein.
Section 2. Severance Benefits
2.1. Right to Severance Benefits. The Executive
shall be entitled to receive from the Company Severance
Benefits as described in Paragraph 2.3 herein, if
during the term of this Agreement there has been a
Change in Control of the Company (as defined in
Paragraph 2.4 herein) and if, within twenty-four (24)
calendar months immediately thereafter, the Executive's
employment with the Company shall end for any reason
specified in Paragraph 2.2 herein as being a Qualifying
Termination. The Severance Benefits described in
Paragraphs 2.3(a), 2.3(b), 2.3(c), and 2.3(d) herein
shall be paid in cash to the Executive in a single lump
sum as soon as practicable following the Qualifying
Termination, but in no event later than thirty (30)
calendar days from such date. Notwithstanding the
foregoing, Severance Benefits which become due pursuant
to Paragraphs 2.2(c) and 5.1 shall be paid immediately.
The Severance Benefits described in
Paragraphs 2.3(a), 2.3(b), 2.3(c), and 2.3(d) herein
shall be paid out of the general assets of the Company.
To the extent the Company pays such amounts out of its
general assets, the Company shall be entitled to a
payment from the Rabbi Trust established pursuant to
Paragraph 3.1 herein, in accordance with the terms of
such Rabbi Trust. In the event that the Executive does
not receive the Severance Benefits due hereunder from
the Company within thirty (30) days of his Qualifying
Termination, the Executive may provide written notice
to the Trustee of the Rabbi Trust of the amount due
hereunder and the Trustee shall pay such amount in
accordance with the terms of the Rabbi Trust.
2.2. Qualifying Termination. The occurrence of any
one or more of the following events (i.e., a
"Qualifying Termination") within twenty-four (24)
calendar months immediately following a Change in
Control of the Company shall trigger the payment of
Severance Benefits to the Executive, as such benefits
are described under Paragraph 2.3 herein:
(a) The Company's involuntary termination of the
Executive's employment without Cause (as such term is
defined in Paragraph 2.6 herein);
<PAGE>
(b) The Executive's voluntary termination of
employment for Good Reason (as such term is defined in
Paragraph 2.5 herein); and
(c) The Company, or any successor company, commits
a material breach of any of the provisions of this
Agreement.
A Qualifying Termination shall not include a
termination of the Executive's employment within
twenty-four (24) calendar months after a Change in
Control by reason of death, Disability (as such term is
defined under the Company's governing disability plan,
or any successor plan thereto), the Executive's
voluntary termination without Good Reason, or the
Company's involuntary termination of the Executive's
employment for Cause.
2.3. Description of Severance Benefits. In the event
that the Executive becomes entitled to receive
Severance Benefits, as provided in Paragraphs 2.1 and
2.2 herein, the Company shall pay to the Executive and
provide the Executive with the following:
(a) A lump-sum cash amount equal to the Executive's
unpaid Base Salary (as such term is defined in
Paragraph 2.7 herein), accrued vacation pay,
unreimbursed business expenses, and all other items
earned by and owed to the Executive through and
including the date of the Qualifying Termination. Such
payment shall constitute full satisfaction for these
amounts owed to the Executive.
(b) A lump-sum cash amount equal to two (2)
multiplied by the Executive's annual rate of Base
Salary in effect upon the date of the Qualifying
Termination or, if greater, by the Executive's annual
rate of Base Salary in effect immediately prior to the
occurrence of the Change in Control.
(c) A lump-sum cash amount equal to the greater of
(i) the Executive's then-current target bonus
opportunity (stated in terms of a percentage of Base
Salary) established under the Katy Industries, Inc.
Annual Bonus Plan (or any successor plan thereto) for
the bonus plan year in which the Executive's date of
Qualifying Termination occurs, adjusted on a pro rata
basis based on the number of days the Executive was
actually employed during such bonus plan year (but in
no event shall such target bonus be less than that in
effect for the period immediately prior to the
occurrence of the Change in Control); or (ii) the
actual bonus earned through the date of the Qualifying
Termination, based on the then-current level of goal
achievement. Such payment shall constitute full
satisfaction for these amounts owed to the Executive.
<PAGE>
(d) A lump-sum cash amount equal to the sum of (i)
two (2) multiplied by the maximum possible estimated
Company match of the Executive's contributions to the
Company's 401(k) savings plan as of the date the
Executive's Qualifying Termination occurs; and (ii) the
not yet vested Company contributions (with interest
thereon up to the date of payment) credited to the
Executive's account under the Company's 401(k) plan
measured as of the date of the Executive's Qualifying
Termination. Provided, however, that the source of
payment of this sum shall be the general assets of the
Company unless the payment of such amounts is otherwise
permissible from the corresponding qualified plan trust
without violating any governmental regulations or
statutes. Such payment shall constitute full
satisfaction for these amounts owed to the Executive.
(e) At the exact same cost to the Executive, and at
the same coverage level as in effect as of the
Executive's date of the Qualifying Termination (subject
to changes in coverage levels applicable to all
employees generally), a continuation of the Executive's
(and the Executive's eligible dependents') health
insurance coverage for twenty-four (24) months from the
date of the Qualifying Termination. The applicable
COBRA health insurance benefit continuation period
shall begin at the end of this twenty-four (24) month
benefit continuation period.
The providing of these health insurance benefits
by the Company shall be discontinued prior to the
end of the twenty-four (24) month continuation
period to the extent that the Executive becomes
covered under the health insurance coverage of a
subsequent employer which does not contain any
exclusion or limitation with respect to any
preexisting condition of the Executive or the
Executive's eligible dependents. For purposes of
enforcing this offset provision, the Executive
shall have a duty to inform the Company as to the
terms and conditions of any subsequent employment
and the corresponding benefits earned from such
employment. The Executive shall provide, or cause
to provide, to the Company in writing correct,
complete, and timely information concerning the
same.
(f) The Executive shall be entitled, at the expense
of the Company, to receive standard outplacement
services from a nationally recognized outplacement firm
of the Executive's selection, for a period of up to two
(2) years from the Executive's date of Qualifying
Termination. However, such services shall be at the
Company's expense to a maximum amount not to exceed
twenty-five percent (25%) of the Executive's annual
rate of Base Salary as of the date of the Qualifying
Termination.
<PAGE>
2.4. Definition of "Change in Control." "Change in
Control" of the Company means, and shall be deemed to
have occurred upon, the first to occur of any of the
following events:
(a) Any Person (other than those Persons in control
of the Company as of the Effective Date, or other than
a trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or a
corporation owned directly or indirectly by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company)
becomes the Beneficial Owner, directly or indirectly,
of securities of the Company representing thirty
percent (30%) or more of the combined voting power of
the Company's then outstanding securities; or
(b) During any period of two (2) consecutive years
(not including any period prior to the Effective Date),
individuals who at the beginning of such period
constitute the Board (and any new Director, whose
election by the Company's stockholders was approved by
a vote of at least two-thirds (2/3) of the Directors
then still in office who either were Directors at the
beginning of the period or whose election or nomination
for election was so approved), cease for any reason to
constitute a majority thereof; or
(c) The stockholders of the Company approve: (i) a
plan of complete liquidation of the Company; or (ii) an
agreement for the sale or disposition of all or
substantially all of the Company's assets; or (iii) a
merger, consolidation, or reorganization of the Company
with or involving any other corporation, other than a
merger, consolidation, or reorganization that would
result in the voting securities of the Company
outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving
entity) at least fifty percent (50%) of the combined
voting power of the voting securities of the Company
(or such surviving entity) outstanding immediately
after such merger, consolidation, or reorganization.
However, in no event shall a "Change in Control" be
deemed to have occurred, with respect to the
Executive, if the Executive is part of a purchasing
group which consummates the Change-in-Control
transaction. The Executive shall be deemed "part of
a purchasing group" for purposes of the preceding
sentence if the Executive is an equity participant
in the purchasing company or group (except for: (i)
passive ownership of less than one percent (1%) of
the stock of the purchasing company; or (ii)
ownership of equity participation in the purchasing
company or group which is otherwise not significant,
as determined prior to the Change in Control by a
majority of the nonemployee continuing Directors).
2.5. Definition of "Good Reason." "Good Reason"
shall be determined by the Executive, in the exercise
of good faith and reasonable judgment, and shall mean,
without the Executive's express written consent, the
occurrence of any one or more of the following within
two (2) years immediately following a Change in
Control:
(i) The assignment of the Executive to duties
inconsistent with the Executive's authorities,
duties, responsibilities, and status as an
officer of the Company, or a reduction or
alteration in the nature or status of the
Executive's authorities, duties, or
responsibilities, from those in effect as of
ninety (90) calendar days prior to the Change
in Control, other than an insubstantial and
inadvertent act that is remedied by the
Company promptly after receipt of notice
thereof given by the Executive;
(ii) The Company's requiring the Executive to be based
at a location in excess of fifty (50) miles
from the location of the Executive's principal
job location or office immediately prior to the
Change in Control; except for required
travel on the Company's business to an
extent consistent with the Executive's then
present business travel obligations;
(iii) A reduction by the Company of the Executive's
Base Salary in effect on the Effective Date,
or as the same shall be increased from time to
time;
(iv) The failure of the Company to keep in effect any
of the Company's compensation, health and
welfare benefits, or perquisite programs
under which the Executive receives value,
as such program exists
immediately prior to the Change in Control.
However, the replacement of an existing program
with a new program will be permissible (and not
grounds for a Good Reason termination) if done
for all employees generally and the value to be
delivered to the Executive under the new
program is at least as great as the value
delivered to the Executive under the existing
programs; or
(v) Any breach by the Company of its obligations
under Section 5 of this Agreement or any
failure of a successor company to assume and
agree to perform the Company's entire
obligations under this Agreement, as
required by Section 5 herein.
The Executive's right to terminate employment for
Good Reason shall not be affected by the
Executive's incapacity due to physical or
mental illness. The Executive's continued
employment shall not constitute consent to,
or a waiver of rights with respect to, any
circumstance constituting Good Reason herein.
2.6. Definition of "Cause." "Cause" shall be
determined by the Administrative Committee, in the
exercise of good faith and reasonable judgment, and
shall mean the occurrence of any one or more of the
following:
(a) A demonstrably willful and deliberate act or
failure to act by the Executive (other than as a
result of incapacity due to physical or mental
illness) which is committed in bad faith, without
reasonable belief that such action or inaction is
in the best interests of the Company, which
causes actual material financial injury to the
Company and which act or inaction is not remedied
within fifteen (15) business days of written
notice from the Company; or
(b) The Executive's conviction for committing an act
of fraud, embezzlement, theft, or any other act
constituting a felony involving moral turpitude
or causing material harm, financial or otherwise,
to the Company.
2.7. Other Defined Terms. The following terms shall
have the meanings set forth below:
(a) "Base Salary" means, at any time, the then-regular
annual rate of pay which the Executive is
receiving as annual salary, excluding amounts (i)
designated by the Company as payment toward
reimbursement of expenses; or (ii) received under
incentive or other bonus plans, regardless of
whether or not the amounts are deferred.
(b) "Beneficial Owner" shall have the meaning
ascribed to such term in Rule 13d-3 of the
General Rules and Regulations under the Exchange
Act (as such term is defined below).
(c) "Exchange Act" means the Securities Exchange Act
of 1934, as amended from time to time, or any
successor act thereto.
(d) "Person" shall have the meaning ascribed to such
term in Section 3(a)(9) of the Exchange Act and
used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d)
thereof.
Section 3. Rabbi Trust and Change-in-Control Payments
3.1. Establishment of a Rabbi Trust. As soon as
administratively possible following the Effective Date,
the Company shall establish an irrevocable Rabbi Trust,
governed by this Agreement (which shall be a grantor
trust within the meaning of Internal Revenue Code
Sections 671-678) for the benefit of the Executive,
other executives covered by a similar agreement, and
their beneficiaries, as appropriate. The Rabbi Trust
shall have an independent Trustee (such Trustee to have
a fiduciary duty to carry out the terms and conditions
of the Trust) as selected by the Company, and shall
have restrictions as to the Company's ability to amend
the Trust or to cancel benefits provided thereunder.
Assets contained in the Rabbi Trust shall at all
times be specifically subject to the claims of the
Company's general creditors in the event of bankruptcy
or insolvency; such terms shall be specifically defined
within the provisions of the Rabbi Trust, along with a
required procedure for notifying the Trustee of any
such bankruptcy or insolvency.
3.2. Funding of Rabbi Trust. As soon as practicable
following a Change in Control, but in no event later
than thirty (30) calendar days from such date, the
Company shall fund the Rabbi Trust in an amount
(without regard to any contributions made to the Rabbi
Trust pursuant to other severance agreements between
the Company and any other executives of the Company)
equal to the sum of (a) the Severance Benefits
described in Paragraphs 2.3(a), 2.3(b), 2.3(c), and
2.3(d) herein, calculated as if the Executive's
Qualifying Termination occurred on the effective date
of the Change in Control; (b) the estimated Gross-Up
Payment (as such term is defined in Paragraph 4.1
herein), calculated as if the Executive's Qualifying
Termination occurred on the effective date of the
Change in Control and as if the Executive were taxed at
the highest marginal state and federal income and
employment tax rates; and (c) one hundred thousand
dollars ($100,000) for potential legal fees incurred by
the Executive in enforcing his rights under this
Agreement.
Section 4. Excise Tax
4.1. Excise Tax Payment. If any portion of the
Severance Benefits or any other payment under this
Agreement, or under any other agreement with, or plan
of the Company, including but not limited to stock
options and other long-term incentives (in the
aggregate "Total Payments") would constitute an "excess
parachute payment," such that a golden parachute excise
tax is due, the Company shall provide to the Executive,
in cash, an additional payment in an amount to cover
the full cost of any excise tax and the Executive's
state and federal income and employment taxes on this
additional payment (cumulatively, the "Gross-Up
Payment"). For this purpose, the Executive shall be
deemed to be in the highest marginal rate of federal
and state taxes. This payment shall be made as soon as
possible following the date of the Executive's
Qualifying Termination, but in no event later than
thirty (30) calendar days of such date.
The Gross-Up Payment described herein shall be paid
out of the general assets of the Company. To the extent
the Company pays such amount out of its general assets,
the Company shall be entitled to a payment from the
Rabbi Trust established pursuant to Paragraph 3.1
herein, in accordance with the terms of such Rabbi
Trust. In the event that the Executive does not receive
the Gross-Up Payments due hereunder from the Company
within thirty (30) days of his Qualifying Termination,
the Executive may provide written notice to the Trustee
of the Rabbi Trust of the amount due hereunder and the
Trustee shall pay such amount in accordance with the
terms of the Rabbi Trust.
For purposes of this Agreement, the term "excess
parachute payment" shall have the meaning assigned to
such term in Section 280G of the Internal Revenue Code,
as amended (the "Code"), and the term "excise tax"
shall mean the tax imposed on such excess parachute
payment pursuant to Sections 280G and 4999 of the Code.
4.2. Subsequent Recalculation. In the event the
Internal Revenue Service subsequently adjusts the
excise tax computation herein described, the Company
shall reimburse the Executive for the full amount
necessary to make the Executive whole on an after-tax
basis (less any amounts received by the Executive that
the Executive would not have received had the
computations initially been computed as subsequently
adjusted), including the value of any underpaid excise
tax, and any related interest and/or penalties due to
the Internal Revenue Service.
Section 5. Successors and Assignments
5.1. Successors. The Company will require any
successor (whether via a Change in Control, direct or
indirect, by purchase, merger, consolidation, or
otherwise) of the Company to expressly assume and agree
to perform the obligations under this Agreement in the
same manner and to the same extent that the Company
would be required to perform it if no such succession
had taken place.
Failure of the Company to obtain such assumption and
agreement prior to the effectiveness of any such
succession shall, as of the date immediately preceding
the date of a Change in Control, automatically give the
Executive Good Reason to collect, immediately, full
benefits hereunder as a Qualifying Termination.
5.2. Assignment by Executive. This Agreement shall
inure to the benefit of and be enforceable by the
Executive's personal or legal representatives,
executors, administrators, successors, heirs,
distributees, devisees, and legatees. If an Executive
should die while any amount is still payable to the
Executive hereunder had the Executive continued to
live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of
this Agreement, to the Executive's devisee, legatee, or
other designee, or if there is no such designee, to the
Executive's estate.
An Executive's rights hereunder shall not otherwise
be assignable.
<PAGE>
Section 6. Miscellaneous
6.1.Administration. This Agreement shall be
administered by the Board of Directors of the Company,
or by a Committee of the Board designated by the Board
(the "Administrative Committee"). The Administrative
Committee (with the approval of the Board, if the Board
is not the Administrative Committee) is authorized to
interpret this Agreement, to prescribe and rescind
rules and regulations, and to make all other
determinations necessary or advisable for the
administration of this Agreement.
In fulfilling its administrative duties hereunder,
the Administrative Committee may rely on outside
counsel, independent accountants, or other consultants
to render advice or assistance.
6.2. Notices. Any notice required to be delivered
to the Company or the Administrative Committee by the
Executive hereunder shall be properly delivered to the
Company when personally delivered to (including by a
reputable overnight courier), or actually received
through the U.S. mail, postage prepaid, by:
Katy Industries, Inc.
6300 South Syracuse Way, Suite 300
Englewood, CO 80111
Attn: President
Any notice required to be delivered to the Executive
by the Company or the Administrative Committee
hereunder shall be properly delivered to the Executive
when personally delivered to (including by a reputable
overnight courier), or actually received through the
U.S. mail, postage prepaid, by, the Executive at his
last known address as reflected on the books and
records of the Company.
Section 7. Contractual Rights and Legal Remedies
7.1. Contractual Rights to Benefits. This Agreement
establishes in the Executive a right to the benefits to
which the Executive is entitled hereunder. However,
except as expressly stated herein, nothing herein
contained shall require or be deemed to require, or
prohibit or be deemed to prohibit, the Company to
segregate, earmark, or otherwise set aside any funds or
other assets, in trust or otherwise, to provide for any
payments to be made or required hereunder.
<PAGE>
7.2. Legal Fees and Expenses. The Company shall pay
all legal fees, costs of litigation, prejudgment
interest, and other expenses which are incurred in good
faith by the Executive as a result of the Company's
refusal to provide the Severance Benefits to which the
Executive becomes entitled under this Agreement, or as
a result of the Company's (or any third party's)
contesting the validity, enforceability, or
interpretation of the Agreement, or as a result of any
conflict between the parties pertaining to this
Agreement. Such payment shall be made from the funds
earmarked for such purpose in the trust fund described
in Paragraph 3.1 hereto and, to the extent such fees
and expenses exceed such earmarked amount, the Company
shall pay such fees and expenses from the general
assets of the Company.
7.3. Arbitration. The Executive shall have the
right and option to elect (in lieu of litigation) to
have any dispute or controversy arising under or in
connection with this Agreement settled by arbitration,
conducted before a panel of three (3) arbitrators
sitting in a location selected by the Executive within
fifty (50) miles from the location of his or her job
with the Company, in accordance with the rules of the
American Arbitration Association then in effect. The
Executive's election to arbitrate, as herein provided,
and the decision of the arbitrators in that proceeding,
shall be binding on the Company and the Executive.
Judgment may be entered on the award of the
arbitrator in any court having jurisdiction. All
expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be
borne by the Company.
7.4. Unfunded Agreement. This Agreement is intended
to be an unfunded general asset promise for a select,
highly compensated member of the Company's management
and, therefore, is intended to be exempt from the
substantive provisions of the Employee Retirement
Income Security Act of 1974 as amended.
7.5. Exclusivity of Benefits. Unless specifically
provided herein, neither the provisions of this
Agreement nor the benefits provided hereunder shall
reduce any amounts otherwise payable, or in any way
diminish the Executive's rights as an employee of the
Company, whether existing now or hereafter, under any
compensation and/or benefit plans, programs, policies,
or practices provided by the Company, for which the
Executive may qualify.
Vested benefits or other amounts which the Executive
is otherwise entitled to receive under any plan,
policy, practice, or program of the Company (i.e.,
including, but not limited to, vested benefits under
the Company's 401(k) plan), at or subsequent to the
Executive's date of Qualifying Termination shall be
payable in accordance with such plan, policy, practice,
or program except as expressly modified by this
Agreement.
<PAGE>
7.6. Includable Compensation. Severance Benefits
provided hereunder shall not be considered "includable
compensation" for purposes of determining the
Executive's benefits under any other plan or program of
the Company.
7.7. Employment Status. Nothing herein contained
shall be deemed to create an employment agreement
between the Company and the Executive, providing for
the employment of the Executive by the Company for any
fixed period of time. The Executive's employment with
the Company is terminable at will by the Company or the
Executive and each shall have the right to terminate
the Executive's employment with the Company at any
time, with or without Cause, subject to the Company's
obligation to provide Severance Benefits as required
hereunder.
In no event shall the Executive be obligated to seek
other employment or take any other action by way of
mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement, nor
shall the amount of any payment hereunder be reduced by
any compensation earned by the Executive as a result of
employment by another employer, other than as provided
in Paragraph 2.3(e) herein.
7.8. Entire Agreement. This Agreement represents
the entire agreement between the parties with respect
to the subject matter hereof, and supersedes all prior
discussions, negotiations, and agreements concerning
the subject matter hereof, including, but not limited
to, any prior severance agreement made between the
Executive and the Company.
7.9. Tax Withholding. The Company shall withhold
from any amounts payable under this Agreement all
federal, state, city, or other taxes as legally
required to be withheld.
7.10. Waiver of Rights. Except as otherwise provided
herein, the Executive's acceptance of Severance
Benefits, the Gross-Up Payment (if applicable), and any
other payments required hereunder shall be deemed to be
a waiver of all rights and claims of the Executive
against the Company pertaining to any matters arising
under this Agreement.
7.11. Severability. In the event any provision of the
Agreement shall be held illegal or invalid for any
reason, the illegality or invalidity shall not affect
the remaining parts of the Agreement, and the Agreement
shall be construed and enforced as if the illegal or
invalid provision had not been included.
7.12. Applicable Law. To the extent not preempted by
the laws of the United States, the laws of the State of
Delaware shall be the controlling law in all matters
relating to this Agreement.
IN WITNESS WHEREOF, the Company has executed this
Agreement, to be effective as of the day and year first
written above.
ATTEST: Katy Industries, Inc.
By: ______________________ By:______________________
Secretary Title: _________________
_______________________ Executive
Katy's Common Stock is traded on the New York
Stock Exchange ("NYSE"). The following table sets
forth high and low sales prices for the Common
Stock in composite transactions as reported on the
NYSE Composite Tape for the prior two years and
dividends declared during such periods.
<TABLE>
<CAPTION>
Cash
Dividends
Period High Low Declared
<S> <C> <C> <C>
1995
First Quarter............. $ 10 1/8 $ 8 3/8 $ .0625
Second Quarter............ 9 5/8 7 .0625
Third Quarter............. 9 5/8 7 3/4 .0625
Fourth Quarter............ 10 7/8 9 1/8 .0625
1994
First Quarter............. $ 26 7/8 $ 25 1/8 $ .0625
Second Quarter............ 25 7/8 24 1/2 14.0000
Third Quarter............. 25 3/8 9 5/8 .0625
Fourth Quarter............ 9 7/8 7 1/2 .0625
</TABLE>
In the third quarter of 1994, Katy paid a special dividend of $14 cash
per share to each common stockholder of the Company.
As of February 29, 1996, there were 1,485 record holders of the Common
Stock. There are no restrictions on Katy's ability to pay dividends on
its Common Stock.
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
Years Ended December 31,
1995 1994 1993 1992 1991
(Thousands of Dollars, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Net sales........................... $171,269 $159,581 $168,723 $177,077 $181,494
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle .............. 28,571 ( 8,843) 5,496 1,102 7,718
Earnings per common share 3.18 ( .98) .60 .12 .82
Net income (loss)*................. 28,571 ( 8,843) ( 1,540) 1,102 11,090
Cash flows from operating activities..... 7,620 8,418 ( 1,844) 22,390
Total assets........................ 225,412 203,142 330,225 314,661 319,974
Total liabilities and minority
interest.......................... 95,082 92,364 86,459 67,461 71,217
Shareholders' equity................ 130,330 110,778 243,766 247,200 248,757
Long-term debt...................... 9,346 10,572 4,289 5,942 8,458
Depreciation and amortization....... 5,949 6,049 5,716 5,709 8,747
Capital expenditures................ 9,163 4,105 4,278 5,504 10,210
Working capital..................... 96,425 50,041 175,075 135,965 136,633
Ratio of debt to total debt and equity.... 15.8% 15.9% 6.7% 6.4% 7.6%
Shareholders' equity 14.94 12.21 27.03 27.41 27.57
Return on average shareholders'
equity............................. 23.7% ( 5.3%) ( .6%) .4% 4.4%
Shares outstanding-Common stock.... 8,724,187 9,076,387 9,017,387 9,017,387 9,023,187
Number of shareholders.............. 1,410 1,471 1,560 1,741 1,914
Number of employees................. 1,109 1,285 1,506 1,972 2,078
Cash dividends declared per
common share..................... $.25 $14.1875 $.25 $.25 $.25
</TABLE>
* Includes extraordinary gains of $3,372 in 1991, loss from
discontinued operations of $5,618 in 1993 and the cumulative
effect of change in accounting principle of $1,418 loss in
1993.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
For purposes of this discussion and analysis section,
reference is made to the table below and the Company's
Statements of Consolidated Operations. Katy consists of
three business segments: Distribution and Service, Industrial
and Consumer Manufacturing and Machinery Manufacturing. The
Distribution and Service Group is primarily involved in the
distribution of electronic components and nonpowered hand
tools. Additionally this group provides cold storage
services, waste-to-energy services and produces specialty
metal products for high-tech industries. The Industrial
and Consumer Manufacturing Group produces sanitary
maintenance supplies, abrasives and paints and stains for
the consumer, maintenance, automotive and industrial markets.
The Machinery Manufacturing Group manufactures machinery for
the food packaging, food processing and wood working
industries and also manufactures testing and measuring
instruments for the electrical and electronic markets and
recording devices for the transportation industry and gauging
and control systems for the metalworking industry. These
segments represent a change from those reported in the
past and reflect the new alignment of the Company's
product lines as a result of recent acquisitions and
dispositions. The acquisitions of GC Thorsen, a
distributor of electronic and electrical parts and
components and nonpowered hand tools, and Gemtex, a
manufacturer of coated abrasives and the dispositions of
Schon and other operating units during the year have made
the new segmentation more meaningful and in line with
future plans of the Company. Katy intends to seek
additional acquisitions to grow these business segments and
which complement existing operations. Years prior to 1995
have been reclassified to reflect the new segmentation.
The table below and the narrative which follows summarize
the key factors in the year-to-year changes in operating
results.
<TABLE>
<CAPTION>
Years Ended December 31
Dollars in Thousands 1995 1994 1993
<S> <C> <C> <C>
Distribution and Service Group
Net sales $70,596 $ 32,343 $ 26,035
Income from operations 6,076 3,766 2,454
Operating margin 8.6% 11.6% 9.4%
Identifiable assets 76,713 42,520 32,477
Depreciation and amortization 2,930 1,741 1,280
Capital expenditures 6,638 1,742 968
Industrial and Consumer Manufacturing Group
Net sales $49,021 $ 46,283 $ 44,370
Income from operations 3,814 4,237 2,702
Operating margin 7.8% 9.2% 6.1%
Identifiable assets 33,093 21,917 22,705
Depreciation and amortization 1,527 1,185 1,058
Capital expenditures 1,055 892 1,474
Machinery Manufacturing Group
Net sales $51,652 $ 80,955 $ 98,318
Income (loss) from operations 1,319 ( 2,396) ( 7,860)
Operating margin 2.6% ( 3.0%) ( 8.0%)
Identifiable assets 27,153 50,501 70,796
Depreciation and amortization 1,318 2,754 3,136
Capital expenditures 1,303 1,319 1,769
Corporate
Corporate expenses $ 6,670 $ 12,624 $ 15,956
Identifiable assets 88,453 88,204 204,247
Depreciation and amortization 174 369 242
Capital expenditures 167 152 67
Company
Net sales $171,269 $159,581 $168,723
Income (loss) from operations 4,539 ( 7,017) ( 18,660)
Operating margin 2.7% ( 4.4%) ( 11.1%)
Identifiable assets 225,412 203,142 330,225
Depreciation and amortization 5,949 6,049 5,716
Capital expenditures 9,163 4,105 4,278
</TABLE>
1995 Compared to 1994
Distribution and Service Group sales increased $38,253,000 or 118%.
The acquisition of GC Thorsen effective March 31, 1995, provided the
majority of the increase. Sales of cold storage services increased due to
added plant capacity brought on line during 1995, waste to energy services
increased due to increased market penetration, specialty metals increased due
to new product lines, and electronics distribution increased due to increased
market penetration.
Operating income for the group increased $2,310,000 or 61%. The
inclusion of GC Thorsen was a major factor in the increase, along with
sharply improved margins for waste to energy services and cold storage
services. Specialty metals and electronics distribution also posted slightly
higher margins for the year, primarily due to higher volume.
Capital expenditures for the group increased due primarily to a plant
expansion at the cold storage facility and a major machinery addition at the
specialty metals manufacturer.
The Industrial and Consumer Manufacturing Group's sales for the year
increased 6% for the year or $2,738,000. The addition of sales from
Gemtex effective August, 1995, along with increased sales of stains, offset
decreases in the filters business, which was disposed of at year end.
Increased marketing and penetration into new sales territories were the
primary factors in the increase in stain sales.
Operating income for the group decreased $423,000 or 10%, primarily
due to lower margins on filter products. Income in all other product lines
was relatively comparable to the prior year. Pricing pressures from
competitors were the main reasons for the lack of income growth.
Sales for the Machinery Manufacturing Group decreased $29,303,000 or
36%. The dispositions of Panhandle, a remanufacturer of machinery for the
oil, gas and petrochemical industries, and the Schon Group resulted in most
of this sales decrease. A decrease in sales of food packaging machinery
was offset by increased sales of food processing machinery, wood
processing machinery and gauging and control systems. These sales
increases resulted from new products and increased market penetration.
Operating income for the group increased $3,716,000 from a loss last
year. Inventory write downs of $4,330,000 in 1994 which did not recur
in 1995 were the primary factor in the increase. The lower volume in food
packaging machinery caused a 52% decline in operating income for the
product line. Most other products showed modest increases in income.
Corporate expenses in 1995 decreased $5,954,000 due primarily to lower
environmental, insurance and legal costs.
Although the results of these operating groups are significantly affected
by the strength of the general economy, the Company believes that it has
positioned itself well in segments which can be expanded both externally
through acquisitions and internally through new products, operational
improvements and increased market penetration.
Following is a discussion concerning other factors which affected the
Company's net income.
Gross profit increased $9,257,000 as margins improved to 30% from
26% a year ago, while selling, general and administrative expenses decreased
$2,299,000 or 5% due in large part to lower corporate expenses.
Other, net in 1995 was $3,591,000 of income versus expense of
$1,265,000 in 1994. 1995 was favorably impacted by the gain realized
on the sale of WSC Liquidating and Katy's holdings of Syratech stock of
$793,000. In addition, in 1995, the Company received settlements from
various insurance companies in the amount of $2,846,000 in settlement of
claims associated with environmental issues. 1994 was impacted by
$2,500,000 of special charges for environmental costs, moving the corporate
headquarters and cessation of production at Walsh Press.
Interest expense increased $837,000 due to borrowings in connection
with the purchase of GC Thorsen, while interest income declined $2,427,000
due to the special dividend paid in 1994 which significantly reduced the
Company's interest bearing cash and cash equivalent balance.
During the year the Company sold 248,566 shares of Union Pacific
stock, resulting in a gain of $7,675,000. The Company also sold one-half
of its 75% interest in Schon & Cie, AG. In connection with the sale, the
Company recorded a gain of $4,920,000 reflecting the reversal of previously
recorded losses of Schon.
Income from continuing consolidated operations before income taxes and
minority interest amounted to $18,149,000 in 1995 versus a loss of
$16,048,000 in 1994. An $11,566,000 increase in income from operating
units was augmented by the gains described above. In addition, 1994 was
adversely impacted by $9,288,000 for the write-off of various assets.
Income taxes of $3,771,000, or an effective rate of 21%, reflect the
fact that the gains on the Schon sale were not tax effected, since the
losses had not previously provided a tax benefit. The tax benefit in 1994
was adversely impacted by the fact that losses from Schon provided no tax
benefit.
Equity in income of unconsolidated subsidiaries increased by $10,914,000
due to a gain recognized on the sale of Syroco, Inc. by Syratech, and the
tax benefit realized from the reversal of taxes previously provided on Katy's
share of Syratech's income, which is no longer required because of the sale
of WSC Liquidating and Katy's holdings of Syratech stock.
1994 Compared to 1993
Distribution and Service Group sales were up $6,308,000 or 24%.
Approximately one-half of this increase was due to the inclusion of C.E.G.F.
(USA) since its acquisition in March 1994. Electronic distribution sales
increased and sales of specialty metals increased, both due to new
products and increased market penetration.
Operating income for the group increased $1,312,000 or 53% due to
the inclusion of C.E.G.F. and improved margins in both electronic distribution
and specialty metals.
The Industrial and Consumer Manufacturing Group's sales increased
$1,913,000 or 4% primarily due to a sales increase in stains. This strong
sales performance was due to continued efforts to find new markets and
applications for this product line. A decrease in filters was offset by sales
increases in abrasive product lines.
Operating income for the group increased $1,535,000 or 57% in large
part as a result of 1993 being impacted by the operating loss and asset
write-downs of $2,300,000 following discontinuance of the IAQ-2000 product
line. Higher operating income and margins in stains were offset by lower
margins due to competitive pressures in the abrasives product lines.
Sales for the Machinery Manufacturing Group decreased $17,363,000 or
18%. Double digit sales increases in food packaging machinery, food
processing machinery, wood processing machinery and test and monitoring
equipment were more than offset by the divestitures of certain group
companies in 1994 and 1993. Included in 1993 were sales of $19,031,000
from the Company's pump manufacturing business which was sold in
November, 1993. Additionally, the Company's business that refitted machinery
for the oil, gas and petrochemical industries was sold effective October,
1994. Included in 1994 and 1993 are sales of $7,690,000 and $9,767,000,
respectively, for this business. Further contributing to the decline was a 9%
decrease in sales at Schon which, again in 1994, experienced a further
decline in sales of shoe-making machinery reflecting the continuing economic
uncertainty in Eastern Europe and Russia, its principal markets.
Operating losses for the group decreased $5,464,000 due to a number
of factors. The divestiture of the pump manufacturing companies, which had
reported an operating loss of $2,055,000 in 1993 was a significant factor.
Another factor favorably impacting the group's operating results was the
decrease in the operating losses of Schon, as margins improved on decreased
volume, the result of charges incurred in previous years to restructure and
streamline the operation. Additional severance charges of $1,000,000 were
incurred in 1994 which were offset by a partial recovery of trade
receivables, owed by customers in the former Soviet Union, which had been
written off in prior years, of approximately $1,710,000. The strong sales
performances and improved margins in other product lines contributed to the
decrease in losses for the group also.
Corporate expenses decreased $3,332,000 primarily due to lower
retirement plan expenses.
Following is a discussion concerning other factors which affected the
Company's net income.
Gross profit increased $7,512,000 as margins improved to 26% from
20% in 1993. As noted above, all three operating groups contributed to
the improvements. Selling, general and administrative expenses decreased
$4,131,000 or 8% due in part to the divestitures during 1993 and 1994,
and lower corporate expenses.
Other, net in 1994 was $1,265,000. This expense primarily represents
charges of $1,250,000 in the fourth quarter relating to additional provisions
for costs associated with environmental remediation at certain sites where the
Company previously conducted operations. Additionally in June, 1994,
charges of $650,000 were incurred relating to the cost of moving the
Company's corporate office to Englewood, Colorado, including severance
compensation for those employees not relocating, and $600,000 for the costs
associated with the cessation of production and rebuild activities at the
manufacturer of presses. These charges were offset by dividend income on
the Union Pacific common stock of $829,000.
Interest expense remained generally the same as in 1993, however,
interest income decreased by $1,782,000 due to the payment of the special
dividend in August, 1994, which significantly reduced the Company's interest
bearing cash and cash equivalents balances.
In 1994, management of Katy met with Katy's oil exploration joint
venture partners and, based on then current facts and circumstances, Katy
decided not to commit further funds to the oil exploration project, and not
to participate in any further activities on the site. Accordingly, in 1994,
the
Company wrote-off its investment ($6,580,000) in the oil exploration joint
venture.
Katy-Seghers, Inc., a wholly-owned subsidiary of the Company, has been
the vehicle used to commercialize and bid on new projects in the waste-to-
energy industry utilizing the Seghers technology. The Company currently
owns and operates a waste-to-energy facility utilizing this technology in
Savannah, Georgia. In 1994, the Supreme Court of the United States of
America ruled that the ash generated by such waste-to-energy facilities is
hazardous waste. This ruling has resulted in higher operating costs for
waste-to-energy facilities. Based on the developments within the waste-to-
energy industry in recent years and the ruling discussed above, management
concluded that further commercialization of the Seghers technology is unlikely,
that the value of the technology was significantly impaired and, accordingly,
wrote down its investment in this technology ($2,708,000) to zero in 1994.
The loss from continuing consolidated operations before income taxes and
minority interest in 1994 of $16,048,000 compares to income of $2,259,000
in 1993. The $11,643,000 decrease in loss from operations was offset
by the asset write-offs and reduction in interest income described above.
Additionally, 1993 income includes $14,668,000 in gains on the sale of stock
investments. Minority interest in 1994 relates to the 95% owned subsidiary
which operates cold storage facilities in the United States.
The income tax benefit of $3,923,000, or an effective rate of 24%,
reflects the fact that the Company did not benefit from approximately
$2,150,000 (tax effect) of losses from its German subsidiary. In 1993 the
effective income tax rate was similarly affected by not recognizing a tax
benefit from such losses.
Equity in income of unconsolidated subsidiaries increased by $415,000
to $3,295,000 as increased sales and earnings at Syratech Corporation and
Bee Gee Holding Company, Inc. more than offset the exclusion of nine
months of operations from C.E.G.F. (USA), which Katy now includes in its
consolidated operations due to its purchase of an additional 50% of the
outstanding common stock of C.E.G.F. (USA) in March, 1994. For additional
information on unconsolidated subsidiaries and the acquisition of additional
shares of C.E.G.F. (USA) see Notes 2 and 3 of Notes to Consolidated
Financial Statements.
New Accounting Pronouncements
Katy has not adopted Statement of Financial Accounting Standards No.
123 "Accounting for Stock Based Compensation" at this time. This
pronouncement is effective for years beginning after December 15, 1995, and
will be adopted by the Company for the year ending December 31, 1996.
Management does not believe that the adoption of this pronouncement will
have a significant effect on the results of operations or financial position of
the Company.
During 1995 the Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of". This pronouncement calls for the
recognition of a loss whenever the carrying value of assets is impaired.
Management continuously reviews the value of the Company's assets and
records necessary adjustments when an asset becomes impaired. The
adoption of this pronouncement had no material impact on the Company's
results of operations or financial position.
Financial Position and Cash Flow
Combined cash, cash equivalents and marketable securities
increased $28,123,000 to $60,354,000 on December 31, 1995,
from $32,231,000 on December 31, 1994. Current ratios were
2.81 to 1.00 and 2.00 to 1.00 at December 31, 1995 and
1994, respectively. Working capital increased $46,384,000
in 1995. The increase in working capital and in the
current ratio in 1995, primarily resulted from the sale
of Katy's wholly owned subsidiary, WSC Liquidating, Inc.,
and Katy's holdings of Syratech Corporation stock on
December 29, 1995, for net proceeds of $50,800,000.
Additionally, in 1995, Katy sold 248,566 shares of Union
Pacific common stock for proceeds of $15,550,000, resulting
in a pre-tax gain of $7,675,000. Katy retains certain
investments in marketable securities and will periodically
evaluate such investments.
In August, 1995, Katy's Board of Directors authorized
the Company to repurchase up to 400,000 shares of its
common stock over the subsequent twelve months in open
market transactions. On January 2, 1996, Katy's board
authorized the Company to repurchase an additional 500,000
shares, bringing the total authorization to 900,000 shares.
In connection therewith, Katy repurchased 352,200 of its
common shares in the year ended December 31, 1995, at
a total cost of $3,341,000. Additionally, during the
first quarter of 1996, the Company repurchased 316,200
shares, at a cost of $3,636,000, bringing the total
shares repurchased to 668,400.
Katy has authorized and expects to commit approximately
$7,000,000 for capital projects in 1996, exclusive of
acquisitions, if any, and expects to meet its capital
expenditure requirements through the use of available cash
and internally generated funds. Katy believes that it will generate
sufficient cash flow from operations to meet its operating requirements and
planned capital expenditures. The Company also continues to search for
appropriate acquisition candidates, and may obtain all or a portion of the
financing for future acquisitions through the incurrence of additional debt,
which the Company believes it can obtain at reasonable terms and pricing.
At December 31, 1995, Katy had short and long-term
indebtedness of $24,452,000. On January 2, 1996, the Company
received the remaining proceeds of the transaction with Syratech and fully
paid the short-term indebtedness outstanding at December 31, 1995 referred
to below. Total debt was 16% of total debt and equity at
December 31, 1995. Katy has a commitment for a secured
short-term line of credit with The Northern Trust Company
in the amount of $20,000,000 which it expects to use
principally for letters of credit.
Management continuously reviews each of its businesses.
As a result of these ongoing reviews, management may
determine to sell certain companies and may augment its
remaining businesses with acquisitions. When sales do
occur, management anticipates that funds from these sales
will be used for general corporate purposes or to fund
acquisitions. Acquisitions may also be funded through cash
balances, available lines of credit and future borrowings.
See Note 2 to the Consolidated Financial Statements for
a discussion of acquisitions and dispositions.
Environmental and Other Contingencies
The Company and certain of its current and former
direct and indirect corporate predecessors, subsidiaries and
divisions have been identified by the U.S. Environmental
Protection Agency and certain state environmental agencies
and private parties as potentially responsible parties
("PRPs") at a number of hazardous waste disposal sites
under the Comprehensive Environmental Response, Compensation
and Liability Act ("Superfund") and equivalent state laws
and, as such, may be liable for the cost of cleanup and
other remedial activities at these sites. Responsibility
for cleanup and other remedial activities at a Superfund
site is typically shared among PRPs based on an
allocation formula. The means of determining allocation
among PRPs is generally set forth in a written agreement
entered into by the PRPs at a particular site. An
allocation share assigned to a PRP is often based on the
PRP's volumetric contribution of waste to a site. Under
the federal Superfund statute, parties are held to be
jointly and severally liable, thus subjecting them to
potential individual liability for the entire cost of
cleanup at the site. The Company is also involved in
remedial response and voluntary environmental cleanup at a
number of other sites which are not currently the subject
of any legal proceedings under Superfund, including certain
of its current and formerly owned manufacturing facilities.
Based on its estimate of allocation of liability among
PRPs, the probability that other PRPs, many of whom are
large, solvent, public companies, will fully pay the costs
apportioned to them, currently available information
concerning the scope of contamination, estimated remediation
costs, estimated legal fees and other factors, the Company
believes that it has an adequate accrual for all known
liabilities at December 31, 1995.
The United States had alleged violations of the Resource Conservation
and Recovery Act ("RCRA") based upon the alleged status of sludge drying
beds of W.J. Smith Wood Preserving Company, a Company subsidiary, as
a hazardous waste management unit. Since 1990, the Company has spent
in excess of $4,000,000 in undertaking cleanup and compliance activities in
connection with this matter and has established reserves for future
remediation activities. An Administrative Order on Consent was entered
effective December 29, 1995, with estimated additional remediation costs of
$1,200,000.
During 1995, the Company reached agreement with the
Oregon Department of Environmental Quality (ODEQ) as to a clean
up plan for PCB contamination at the Medford, Oregon
facility of the former Standard Transformer division of
American Gage. The plan calls for the Company to
provide a trust fund of $1,300,000 to fund clean up
costs at the site. The plan also calls for the present
occupants of the site, Balteau Standard, Inc., to provide
the next $450,000 of cost, with any additional costs to
be shared equally between the two parties. The Company
has requested that the ODEQ inspect the property and
approve the remediation work to release the Company from
any future liability.
In September of 1993, Katy received a letter from counsel to Allard
Industries, Inc. ("Allard") requesting that Katy and its subsidiaries,
American Gage and JEI Liquidating, Inc., indemnify Allard for any liability
incurred by it in connection with a case captioned Town of
Londonderry v. Exxon Corporation, et al., Case No. C-93-95-L (United States
District Court, District
of New Hampshire). Such request stems from certain agreements among
Katy, Allard and other parties. The case at issue concerns the disposal and
treatment of hazardous wastes and substances at a landfill site in
Londonderry, New Hampshire (the "Londonderry Site"), states claims under
CERCLA and state law, and seeks, inter alia recovery of response costs with
respect to the Londonderry Site, declaratory judgment with respect to the
defendants' liability for future response costs and unspecified monetary
damages. Katy has agreed to defend and indemnify Allard in this matter.
Katy and its counsel have not yet fully evaluated the underlying claims and
the liability of Katy and its subsidiaries with respect to this matter,
if any, cannot be determined at this time.
Although management believes that environmental actions individually, and
in the aggregate, are not likely to have a material adverse effect on Katy
over and above amounts previously accrued, further costs could be significant
and will be recorded as a charge to operations when such costs become
probable and reasonably estimable.
Katy also has a number of product liability and workers' compensation
claims pending against it and its subsidiaries. Many of these claims are
proceeding through the litigation process and the final outcome will not be
known until a settlement is reached with the claimant or the case is
adjudicated. It can take up to 10 years from the date of the injury to
reach a final outcome for such claims. With respect to the product liability
and workers' compensation claims, Katy has provided for its share of
expected losses beyond the applicable insurance coverage, including those
incurred but not reported, which are developed using actuarial techniques.
Such accruals are developed using currently available claim information, and
represent management's best estimates. The ultimate cost of any individual
claim can vary based upon, among other factors, the nature of the injury,
the duration of the disability period, the length of the claim period, the
jurisdiction of the claim and the nature of the final outcome.
MANAGEMENT REPORT
Katy Industries, Inc. management is responsible for the fair presentation and
consistency of all financial data included in this Annual Report in accordance
with generally accepted accounting principles. Where necessary, the data
reflect management's best estimates and judgements.
Management also is responsible for maintaining an internal control structure
with the objective of providing reasonable assurance that Katy's assets are
safeguarded against material loss from unauthorized use or disposition and
that authorized transactions are properly recorded to permit the preparation
of accurate financial data. Cost-benefit judgements are an important
consideration in this regard. The effectiveness of internal controls is
maintained by: (1) personnel selection and training; (2) division of
responsibilities; (3) establishment and communication of policies; and (4)
ongoing internal review programs and audits. Management believes that
Katy's system of internal controls is effective and adequate to accomplish the
above described objectives.
John R. Prann, Jr.
President, Chief Executive Officer and Chief Operating Officer
Stephen P. Nicholson
Treasurer, Chief Financial Officer
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
KATY INDUSTRIES, INC.
Englewood, Colorado
We have audited the accompanying consolidated balance sheets of Katy
Industries, Inc. and subsidiaries (the "Company") as of December 31, 1995
and 1994, and the related statements of consolidated operations, shareholders'
equity and cash flows for each of the three years in the period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Katy Industries, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Notes 5 and 8, respectively, to the consolidated financial
statements, in 1993, the Company changed its methods of accounting for
post retirement benefits other than pensions, and income taxes.
DELOITTE & TOUCHE LLP
Chicago, Illinois
February 29, 1996
<TABLE>
<CAPTION>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
As of December 31, 1995 1994
(Thousands of Dollars)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents - Note 1 $ 43,701 $ 8,475
Marketable securities - available for sale - Note 1 16,653 23,756
Accounts receivable, trade, net of
allowance for doubtful accounts of
$886 and $3,183 22,399 20,423
Receivable from sale of business - Note 3 12,444 -
Notes and other receivables, net of
allowance for doubtful notes of $966 and $854 3,201 2,112
Inventories - Note 1 35,902 31,312
Deferred income taxes - Note 8 12,170 10,441
Other current assets 3,127 3,343
Total current assets 149,597 99,862
OTHER ASSETS:
Investments, at equity, in unconsolidated
subsidiaries - Note 3 7,328 45,310
Investment in waste-to-energy facility - Note 7 11,360 11,759
Notes receivable, net of allowance for
doubtful notes of $2,500 and $2,500 1,566 2,283
Cost in excess of net assets of
businesses acquired - Note 2 7,249 3,318
Miscellaneous - Notes 2, 5, 7 and 12 5,664 2,070
Total other assets 33,167 64,740
PROPERTIES - Note 1:
Land and improvements 4,308 4,868
Buildings and improvements 32,464 25,152
Machinery and equipment 38,723 56,743
75,495 86,763
Accumulated depreciation ( 32,847) ( 48,223)
Net properties 42,648 38,540
$225,412 $203,142
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
KATY INDUSTRIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES
As of December 31, 1995 1994
(Thousands of Dollars except shares)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable - Note 4 $ 14,193 $ 7,948
Accounts payable 8,361 6,807
Accrued compensation 3,792 6,180
Accrued expenses - Note 1 23,947 25,060
Accrued interest and taxes 1,342 773
Current maturities, long-term debt - Note 4 913 2,407
Dividends payable 624 646
Total current liabilities 53,172 49,821
LONG-TERM DEBT, less current maturities - Note 4 9,346 10,572
OTHER LIABILITIES - Note 5 7,738 10,183
DEFERRED INCOME TAXES - Note 8 24,598 21,576
MINORITY INTEREST 228 212
SHAREHOLDERS' EQUITY - Note 6:
Common stock, $1 par value; authorized
25,000,000 shares, issued - 9,821,329
shares 9,821 9,821
Additional paid-in capital 51,111 51,111
Foreign currency translation and other
adjustments ( 1,640) 2,676
Unrealized holding gains 5,297 4,426
Retained earnings 81,925 55,587
Treasury stock, at cost, 1,097,142 and
744,942 shares ( 16,184) ( 12,843)
Total shareholders' equity 130,330 110,778
$225,412 $203,142
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
For the years ended December 31, 1995 1994 1993
(Thousands of Dollars except per share amounts)
<S> <C> <C> <C>
Net sales............................. $171,269 $159,581 $168,723
Cost of goods sold.................... 120,437 118,006 134,660
Gross profit 50,832 41,575 34,063
Selling, general and administrative expenses 46,293 48,592 52,723
Income (loss) from operations 4,539 ( 7,017) ( 18,660)
Other, net............................ 3,591 ( 1,265) 2,811
Interest expense...................... ( 2,753) ( 1,916) ( 1,780)
Interest income....................... 1,011 3,438 5,220
Gain on sales of stock - Notes 1 and 12 6,841 - 14,668
Reversal of previously recorded losses - Note 2 4,920 - -
Write-off of assets - Note 12......... - ( 9,288) -
Income (loss) from continuing consolidated
operations before income taxes, minority
interest and cumulative effect of change in
accounting principle............... 18,149 ( 16,048) 2,259
Provision (benefit) for income taxes - Note 8 3,771 ( 3,923) 1,939
Minority shareholders' share of income (loss) 16 13 ( 1,461)
Income (loss) from continuing
consolidated operations before cumulative
effect of change in accounting principle 14,362 ( 12,138) 1,781
Equity in income of unconsolidated
subsidiaries (net of tax) - Note 3
Income from continuing operations 1,920 1,364 1,136
Income from discontinued operations 678 1,931 1,744
Gain on sale of Syroco, Inc. 4,904 - -
Tax benefit from sale of investment
in Syratech - Note 3 6,707 - -
Total 14,209 3,295 2,880
Gain as a result of an initial public offering
by an unconsolidated subsidiary (net of tax)-
Note 3...................................... - - 835
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle................... 28,571 ( 8,843) 5,496
Loss from discontinued operations (net of tax)
Note 2...................................... - - ( 5,618)
Income (loss) before cumulative effect
of change in accounting principle......... 28,571 ( 8,843) ( 122)
Cumulative effect of change in
accounting principle (net of tax) - Note 5.. - - ( 1,418)
Net income (loss)........................... $ 28,571 ($ 8,843) ($ 1,540)
Earnings (loss) per share of common stock -
Note 1:
Income (loss) from continuing operations.....$ 3.18 ($ .98) $ .60
Discontinued operations...................... - - ( .62)
Cumulative effect of change in
accounting principle...................... - - ( .15)
Net income (loss)......................... $ 3.18 ($ .98) ($ .17)
Dividends paid per share-
Common Stock................................. $ .25 $ 14.1875 $ .25
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
Foreign
Common Stock Additional Currency Unrealized
Number Par Paid-in and Other Holding Retained Treasury
of Shares Value Capital Adjustments Gains Earnings Stock
(Thousands of Dollars, Except Number of Shares)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 9,821,329 $ 9,821 $ 51,723 $ 2,908 $ - $196,608 ($ 13,860)
Net loss - - - - - ( 1,540) -
Common stock dividends - - - - - ( 2,254) -
Foreign currency translation
adjustments - - - 972 - - -
Purchase of stock warrants
by an investee company - - ( 612) - - - -
Balance, December 31, 1993 9,821,329 9,821 51,111 3,880 - 192,814 ( 13,860)
Net loss - - - - - ( 8,843) -
Common stock dividends - - - - - ( 127,942) -
Foreign currency translation
adjustments - Note 6 - - - ( 822) - - -
Issuance of shares under the Stock
Purchase Plan - Note 6 - - - ( 382) - ( 442) 1,017
Unrealized holding gains
adjustment - Note 1 - - - - 4,426 - -
Balance, December 31, 1994 9,821,329 9,821 51,111 2,676 4,426 55,587 ( 12,843)
Net income - - - - - 28,571 -
Common stock dividends - - - - - ( 2,233) -
Foreign currency translation
and other adjustments - Note 6 - - - ( 4,316) - - -
Purchase of Treasury Shares - Note 6 - - - - - - ( 3,341)
Unrealized holding gains adjustment
- Note 1 - - - - 871 - ( 16,184)
Balance, December 31, 1995 9,821,329 $ 9,821 $ 51,111 ($ 1,640) $ 5,297 $ 81,925 ($ 16,184)
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
KATY INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the years ended December 31, 1995 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ 28,571 ( $ 8,843) ($ 1,540)
Depreciation and amortization............... 5,949 6,049 5,716
Gain on sale of assets...................... ( 150) ( 266) ( 16,382)
Disposition of portion of investment
in subsidiary............................ ( 7,920) - -
Write-off of assets......................... - 9,288 -
Gain on marketable security transactions ( 6,841) - -
Equity in income of unconsolidated
subsidiaries.............................. ( 14,209) ( 3,295) ( 3,715)
Deferred income taxes....................... ( 819) ( 2,182) 1,604
Change in accounting principle.............. - - 1,418
Loss from discontinued operations........... - - 5,618
Changes in assets and liabilities, net of
acquisition/disposition of subsidiaries:
Receivables............................... ( 13,919) 1,884 2,768
Inventories............................... 1,191 6,107 3,725
Other current assets...................... 10,819 451 222
Accounts payable and accrued liabilities.. 5,280 ( 1,930) ( 2,985)
Other, net................................ ( 332) 1,155 1,707
Net cash flows from operating activities 7,620 8,418 ( 1,844)
Cash flows from investing activities:
Proceeds from sale of assets................ 43,032 5,782 38,891
Collections of notes receivable............. 1,168 1,455 535
Time deposits and marketable securities
activity, net............................. 15,550 - 62,630
Payments for purchase of subsidiaries,
net of cash acquired...................... ( 30,416) ( 3,241) ( 417)
Capital expenditures........................ ( 9,163) ( 4,105) ( 4,278)
Other, net.................................. - - 617
Net cash flows from investing activities.. 20,171 ( 109) 97,978
Cash flows from financing activities:
Notes payable activity, net................. 12,529 ( 2,214) 2,009
Proceeds from issuance of long-term debt.... 2,852 4,830 165
Principal payments on long-term debt........ ( 2,403) ( 4,992) ( 1,428)
Payments of dividends....................... ( 2,233) ( 127,939) ( 2,254)
Purchase of treasury shares.................. ( 3,341) - -
Net cash flows from financing activities.. 7,404 ( 130,315) ( 1,508)
Effect of exchange rate changes on cash....... 31 192 862
Net increase (decrease) in cash and cash
equivalents................................ 35,226 ( 121,814) 95,488
Cash and cash equivalents at beginning of year 8,475 130,289 34,801
Cash and cash equivalents at end of year...... $ 43,701 $ 8,475 $ 130,289
</TABLE>
See Notes to Consolidated Financial Statements.
Note 1. SIGNIFICANT ACCOUNTING POLICIES:
Consolidation Policy - The financial statements include, on a consolidated
basis, the accounts of Katy Industries, Inc. and subsidiaries (Katy) in which
it has a greater than 50% interest. All intercompany accounts, profits and
transactions have been eliminated in consolidation. The financial statements
of Schon & Cie, AG, and its subsidiaries, included in Katy's consolidated
financial statements are as of October 31, 1994 and for each of the two years
in the period ended October 31, 1994 and the six months ended April 30, 1995
(the effective date of Katy's disposition of Schon stock - see Note 2).
The financial statements of these subsidiaries are as of a different date
because of the time required to prepare and translate such financial
statements under United States generally accepted accounting principles.
As part of the continuous evaluation of its operations, Katy has acquired
and disposed of a number of its operating units in recent years. Those which
affected the consolidated financial statements for each of the three years
in the period ended December 31, 1995 are described in Note 2.
There are no restrictions on the payment of dividends by consolidated
subsidiaries to Katy. Katy's consolidated retained earnings as of December 31,
1995 include $5,708,000 of undistributed earnings of 50% or less owned
investments accounted for by the equity method. No dividends have been paid
by any of these unconsolidated subsidiaries to Katy.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates used by management in the preparation of these
financial statements include the valuation of accounts receivable, the
carrying value of inventories, the useful lives and recoverability of
property, plant and equipment and cost in excess of net assets of businesses
acquired, potential product liability and workers compensation claims, and
environmental claims as discussed in Note 11.
Cash and Cash Equivalents - Cash equivalents consist of highly liquid
investments with original maturities of three months or less and total
$40,140,000 and $4,705,000, as of December 31, 1995 and 1994, respectively,
which approximates their fair value.
Supplemental Disclosure of Noncash Investing and Financing Activities -
Details regarding noncash investing and financing activities are disclosed in
Notes 1, 2, 3 and 6 to the Consolidated Financial Statements. Cash paid
during the year for interest and income taxes is as follows:
1995 1994 1993
Interest......................... $ 2,231 $ 2,021 $ 1,759
Income taxes........................ $ 2,646 $ 3,759 $ 5,719
Marketable Securities - available for sale - Marketable equity securities
are stated at their fair value based on quoted market prices. The cost basis
of these securities was $8,073,000 and $16,588,000 at December 31, 1995 and
1994, respectively. During 1995 and 1994, unrealized holding gains, net of
income taxes, included in shareholders' equity increased $871,000 and
$4,426,000 respectively.
Marketable securities available for sale decreased during 1995 when Katy
sold 248,566 shares of Union Pacific Corporation common stock for proceeds
of $15,550,000, resulting in a pre-tax gain of $7,675,000.
Notes and Other Receivables - The carrying value of notes and other
receivables approximates their fair value.
Inventories - Inventories are stated at the lower of cost, determined by
the first-in, first-out method, or market. The components of inventories
are:
December 31,
1995 1994
(Thousands of Dollars)
Raw materials....................... $ 14,471 $ 11,304
Work in process..................... 7,132 7,137
Finished goods...................... 14,299 12,871
$ 35,902 $ 31,312
Properties - Properties are stated at cost and depreciated over their
estimated useful lives - buildings (10-40 years) generally using the
straight-line method; machinery and equipment (3-20 years) and leased
machines (lease period) using straight-line, accelerated or composite
methods; and leasehold improvements using the straight-line method over the
remaining lease period. Management annually reviews the carrying value of
its long-lived assets for impairment and adjusts the carrying value and/or
amortization period of such assets whenever events or changes in
circumstances warrant.
Note 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Accrued Expenses - The components of accrued expenses are:
December 31,
1995 1994
(Thousands of Dollars)
Accrued insurance $ 8,541 $10,465
Accrued EPA costs 6,351 7,327
Other accrued expenses 9,055 7,268
$23,947 $25,060
Fair Value of Financial Instruments - Where the fair values of Katy's
financial instrument assets and liabilities differ from their carrying value
or Katy is unable to establish the fair value without incurring excessive
costs, appropriate disclosures have been given in the Notes to Consolidated
Financial Statements. All other financial instrument assets and liabilities
not specifically addressed are believed to be carried at their fair value in
the accompanying Consolidated Balance Sheets.
Earnings Per Share - Earnings per share are based on the weighted average
number of shares of common stock outstanding during the year (8,985,921 in
1995, 9,031,541 in 1994 and 9,017,387 in 1993).
New Accounting Pronouncements - Katy has not adopted Statement of Financial
Accounting Standards No. 123 "Accounting for Stock Based Compensation" at this
time. This pronouncement is effective for years beginning after December 15,
1995, and will be adopted by the Company for the year ending December 31,
1996. Management does not believe that the adoption of this pronouncement will
have a significant effect on the results of operations or financial position
of the Company. During 1995, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". This pronouncement
calls for the recognition of a loss whenever the carrying value of assets is
impaired. Management continuously reviews the value of the Company's assets
and records necessary adjustments when an asset becomes impaired. The
adoption of this pronouncement had no material impact on the Company's
results of operations or financial position.
Reclassifications - Certain amounts from prior years have been
reclassified to conform with the 1995 financial statement presentation.
Note 2. ACQUISITIONS, DISPOSITIONS AND DISCONTINUED OPERATIONS
Acquisitions
On August 10, 1995, the Company purchased the assets of Gemtex Company
Limited and its United States affiliate, Gemtex Abrasives, Inc.("Gemtex").
Gemtex is a manufacturer and distributor of coated abrasives for the
automotive, industrial and retail markets. The purchase price approximated
net book value. The acquisition has been accounted for under the purchase
method. The accounts of Gemtex have been included in the Company's
Consolidated Financial Statements from the acquisition date. This
acquisition does not materially impact the Company's results of operations
or financial position.
Effective March 31, 1995, the Company purchased all of the outstanding
shares of common stock of GC Thorsen, Inc., ("GC Thorsen"), a value added
distributor of electronic and electrical parts and accessories, and nonpowered
hand tools. The purchase price, including acquisition costs, was $24,076,000
in cash, of which $19,500,000 was financed through the Company's bank line of
credit. The acquisition has been accounted for under the purchase method, and
accordingly, the excess of the purchase price over the fair value of the net
assets acquired of approximately $3,553,000, is being amortized over 20 years.
The accounts of GC Thorsen have been included in the Company's Consolidated
Financial Statements from the acquisition date.
In March, 1994, the Company purchased an additional 50% of the outstanding
common stock of C.E.G.F. (USA), an operator of cold storage facilities in the
United States, for $2,750,000 in cash, which purchase resulted in the Company
owning 95% of C.E.G.F. The excess of the purchase price over the net book
value of assets purchased has been allocated to properties and is being
depreciated over the remaining lives of the assets. The accounts of
C.E.G.F. have been included in the Company's Consolidated Financial
Statements from the acquisition date. This acquisition of this former equity
investee did not materially impact the Company's results of operations or
financial position.
As part of its 1991 purchase of substantially all of the net operating
assets of the paint and stain business of Sinecure Financial Corp.
(formerly Duckback Industries, Inc.), the Company was obligated to pay to
the seller additional purchase price amounts which were contingent upon the
attainment of certain earnings levels during the period from the date of
acquisition to September 30, 1994. The Company provided $1,496,000 and
$1,723,000 in 1994 and 1993, respectively, for such additional payments
and recorded these amounts as goodwill, included in "Cost in Excess of
Assets of Businesses Acquired" in the Consolidated Balance Sheets. The
accrual of these future cash payments is a noncash investing transaction.
During 1995 and 1994, the Company paid $1,787,000 and $1,015,000, respectively,
to Sinecure, to complete the Company's obligation under the earnout
provision of the purchase agreement. Goodwill relating to this acquisition
is being amortized over 10 years.
Dispositions
In December, 1995, the Company concluded the sale of its Moldan Filters
operation for net proceeds of $2,808,000 which included net cash of $1,350,000
and accounts and notes receivable of $1,458,000, resulting in a nominal gain.
The notes receivable portion of the consideration is a noncash investing
transaction. The effective date of sale was December 28, 1995, therefore, the
consolidated financial statements include results of operations through that
date. Sales of this unit were $4,592,000, $6,066,000 and $6,390,000 and
operating income (loss) was ($892,000), ($610,000) and $11,000 in 1995, 1994
and 1993, respectively.
On August 25, 1995, the Company sold the assets and business of the
Laboratory Equipment Division of its Bach Simpson Limited operation for net
proceeds of $900,000 in cash, resulting in a nominal loss. This operation was
not material to Katy and, accordingly, its sale does not significantly affect
Katy's consolidated financial position or results of operations.
On June 30, 1995, the Company concluded the irrevocable sale of one-half
of its 75% interest (90,000 shares) in Schon & Cie, AG (Schon). The sale was
made on the basis of a contingent price, whereby the Company will receive two
thirds of the amount ultimately realized by the purchasers in any future sale of
such shares or, under some circumstances, the Company will be entitled to find
a buyer for two-thirds of such shares and receive the proceeds of the sale
thereof. The Company continues to hold 90,000 shares, or a 37.5% interest in
Schon. With the reduction in its ownership interest and influence, the Company
began reporting its continuing investment in Schon using the equity method of
accounting for this minority owned subsidiary effective June 30, 1995. With
the
change to the equity method the Company will not record future losses of
Schon,
and will only record income when the Company's equity becomes positive. In
connection with the sale, in the second quarter of 1995, the Company recorded
a gain of $4,920,000 reflecting the reversal of previously recorded losses of
Schon and a deferred tax asset of $3,000,000. The Company's investment in
Schon is recorded at zero as of December 31, 1995.
On June 14, 1995, the Company sold its B.M. Root operation for net
proceeds of $700,000 in cash, resulting in a nominal gain. The consolidated
financial statements include results of operations through that date. Sales
of this unit were $1,416,000, $2,781,000 and $3,003,000 and operating income
was $103,000, $168,000 and $134,000 in 1995, 1994 and 1993, respectively.
Effective October 28, 1994, the Company concluded the sale of its
Panhandle
Industrial operation for net proceeds of $7,378,000, which included net
cash of
$4,878,000 and notes receivable of $2,500,000 resulting in a nominal gain.
The
notes receivable portion of the consideration is a noncash investing
transaction. Sales of this unit were $7,690,000 and $9,767,000 and
operating income was $814,000 and $243,000 in 1994 and 1993, respectively.
In June, 1994, the Company sold, for a nominal loss, its Bach Simpson,
U.K. operation. This operation was not material to Katy and, accordingly,
its sale does not significantly affect Katy's consolidated financial
position or results of operations.
In November, 1993, the Company sold its La Bour Pump operation for net
proceeds of $9,937,000, resulting in a nominal gain. Sales of this operation
were $19,031,000, and the operating loss was $2,055,000 in 1993.
Discontinued Operations
In 1993, the Company provided $5,618,000, net of income tax benefits of
$3,064,000, for additional environmental cleanup costs at plant sites of units
discontinued in prior years and to record the loss on disposal of assets of a
unit discontinued in a prior year.
Note 3. INVESTMENTS, AT EQUITY, IN UNCONSOLIDATED SUBSIDIARIES:
The Company's investments in unconsolidated subsidiaries are comprised
of the following:
1995 1994
(Thousands of Dollars)
Schon & Cie, AG $ - $ -
Bee Gee Holding Company, Inc. 7,328 6,985
Syratech Corporation - 38,325
$7,328 $45,310
Syratech Corporation ("Syratech")
On December 29, 1995, the Company sold its wholly owned subsidiary, WSC
Liquidating Co., whose sole asset consisted of 2,555,500 common shares of
Syratech to Syratech. The Company also sold to Syratech the remaining 509,251
shares of Syratech stock held directly by Katy. None of these shares had been
previously registered and could not have been sold without Katy bearing the
costs of registration. In addition, because of the nature of the shares, the
Company was restricted as to the number of shares which could be sold at any
one time. The net proceeds from both transactions was approximately
$50,800,000. The transactions reflected a per share price of $17, which
represented a discount of 15% to the closing price of Syratech's shares on
the New York Stock Exchange on the day of the transaction. The transactions
resulted in a total after-tax gain of $7,500,000 which is comprised of a gain
of $793,000 and the reversal of $6,707,000 of deferred income taxes
previously provided on Katy's share of Syratech's income, which has been
determined to not be required as a result of these transactions. In
connection with the sale, Katy recorded a receivable in the amount of
$12,444,000 from Syratech which was subsequently paid on January 2, 1996.
On March 28, 1995, Syratech sold its subsidiary, Syroco, Inc. for
$160,000,000 resulting in a gain of $30,451,000. Katy's share of the gain
($4,904,000, net of tax) is reflected in Katy's Consolidated Statement of
Operations as gain on sale of Syroco. Syroco's results from operations are
shown below in the results of operations of unconsolidated subsidiaries and
in Katy's Consolidated Statements of Operations as income from discontinued
operations in the "Equity in Income of Unconsolidated Subsidiaries" section.
In November, 1992, Syratech completed an initial public offering at $16.50 a
share, the effect of which diluted the Company's ownership percentage and
resulted in a credit in 1993 of $835,000, net of income taxes of $534,000, to
the Company's Statement of Consolidated Operations, for Katy's share of
Syratech's increased shareholder equity accounts.
Bee Gee Holding Company, Inc. ("Bee Gee")
The Company owns 30,000 shares of common stock, a 39% interest, of Bee
Gee, which consists of several subsidiaries engaged in the business of
harvesting shrimp off the coast of South America and processing shrimp and
other seafoods for domestic and foreign markets.
Schon & Cie, AG (Schon)
The Company owns 90,000 shares of common stock, a 37.5% interest, of
Schon, which consists of three operating companies engaged in the business of
manufacturing a wide range of mechanical and programmable four post, web and
flat bed die-cutting equipment and shoe manufacturing machinery. Schon's
assets and liabilities and sales and costs and expenses are included in the
following table subsequent to June 30, 1995, but there is no effect on the
Company's investment or equity in income of unconsolidated subsidiaries.
Goodwill
Goodwill related to the Bee Gee investment is being amortized over ten years.
Financial Information
The condensed financial information which follows reflects the Company's
proportionate share in the financial position and results of operations of its
unconsolidated subsidiaries:
1995 1994
(Thousands of Dollars)
Current assets $ 15,968 $ 40,474
Current liabilities ( 15,105) ( 16,196)
Working capital 863 24,278
Properties, net 9,112 27,590
Other assets 3,785 836
Long-term debt ( 3,998) ( 4,894)
Other liabilities ( 1,514) ( 3,086)
Shareholders' equity 8,248 44,724
Shareholders' equity of Schon ( 1,604) -
Unamortized excess of cost over
net assets acquired 684 586
Investments, at equity, in
unconsolidated subsidiaries $ 7,328 $ 45,310
<TABLE>
<CAPTION>
1995 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C>
Sales $81,892 $ 65,376 $ 64,912
Costs and expenses ( 79,451) ( 62,505) ( 62,292)
Net income, from continuing operations 2,441 2,871 2,620
Unrecorded losses of Schon 1,336 - -
Amortization of excess of
cost over net assets acquired ( 384) ( 305) ( 774)
Provision for income taxes ( 1,473) ( 1,202) ( 710)
Equity in net income of continuing
unconsolidated subsidiaries 1,920 1,364 1,136
Discontinued operation:
Gain on sale of Syroco,
Inc. - net of tax 4,904 - -
Income from discontinued
operations - net of tax 678 1,931 1,744
Equity in net income of
unconsolidated subsidiaries $7,50 $ 3,295 $2,880
</TABLE>
Note 4. INDEBTEDNESS:
Notes Payable
Notes payable at December 31, 1995 are comprised of short-term borrowings
under the Company's short-term line of credit and cash overdrafts. The maximum
short-term borrowings outstanding at any month-end were $27,140,000 in 1995 and
$14,488,000 in 1994. Interest rates on such short-term borrowings
averaged 8.5%
at December 31, 1995 and 8.3% at December 31, 1994. The average short-term
borrowings were $17,283,000 during 1995 and $11,135,000 in 1994. The weighted
average interest rates on short-term borrowings from banks averaged
approximately 8.9% and 11.7% during 1995 and 1994.
Credit Agreement
In August, 1994, the Company entered into a credit agreement with a bank
providing for a secured revolving credit facility not to exceed $20,000,000.
The credit agreement is secured by 250,000 shares of Union Pacific
Corporation common stock and other marketable securities and expires
March 31, 1997. Interest on the revolving
credit facility is, at the Company's option, either the bank's prime
interest rate, 8.5% at December 31, 1995, or 1% above the LIBOR interest
rate in effect at the time funds are borrowed.
The Company had $13,855,000 outstanding under this agreement at
December 31,
1995 which is included in Notes Payable on the Consolidated Balance Sheet.
This
facility is used for working capital and letters of credit. Letters of credit
totaling $2,663,000 are outstanding at December 31, 1995.
Long Term Debt
Long-term debt at December 31 includes:
1995 1994
(Thousands of Dollars)
Real estate and chattel mortgages, with interest
at various rates, due through 2008.......... $ 9,995 $ 8,657
Other notes payable........................... 264 4,322
10,259 12,979
Less current maturities................... ( 913) ( 2,407)
$ 9,346 $ 10,572
Aggregate maturities of long-term debt during the five years ending
December 31, 2000 are as follows:
(Thousands of Dollars)
1996............ $ 913
1997............ 766
1998............ 693
1999............ 651
2000............ 621
Later years 6,615
Total $10,259
Other
As of December 31, 1995, the Company is contingently liable for $8,000,000
of 8-1/8% Subordinated Industrial Development Bonds issued by Bee Gee.
The carrying amounts of the Company's long and short-term debt agreements
approximate their fair market values.
Note 5. RETIREMENT BENEFIT PLANS:
Pension Plans
Several domestic and foreign subsidiaries have pension plans covering
substantially all of their employees. These plans are noncontributory,
defined
benefit pension plans. The benefits to be paid under these plans are
generally
based on employees' retirement age and years of service. The companies'
funding
policies, subject to the minimum funding requirements of the applicable U.S.
or
foreign employee benefit and tax laws, are to contribute such amounts as are
determined on an actuarial basis to provide the plans with assets
sufficient to
meet the benefit obligations. Plan assets consist primarily of fixed income
investments, corporate equities and government securities. Schon's pension
plan, which is funded by a note receivable from Schon, is not included in the
following data subsequent to June 30, 1995, the date on which the Company
sold one-half of its 75% ownership interest.
Net pension expense includes the following components:
1995 1994 1993
(Thousands of Dollars)
Service cost $ 117 $ 161 $ 173
Interest cost 331 478 482
Actual return on plan assets ( 359) ( 336) ( 377)
Net amortization and deferral 178 92 103
Net pension expense $ 267 $ 395 $ 381
Major assumptions used to determine pension obligations:
Discount rates for obligations 7-8.5% 7-8.5% 6- 8.5%
Discount rates for expenses 7-8.5% 7-8.5% 6- 8.5%
Expected long-term
rates of return 7-8.5% 7-8.5% 6- 8.5%
Assumed rates of compensation
increases 5% 2-5% 2-5%
U.S. plans have been valued using a discount rate of 7%. Foreign plans
have been valued using discount rates ranging from 7.0 - 8.5% which
approximate
rates for obligations of similar duration in those countries to which the
plans
apply.
The funded status of all plans at December 31 follows:
<TABLE>
<CAPTION>
1995 1994
Assets Accumulated Assets Accumulated
Exceed Benefit Exceed Benefit
Accumulated Obligations Accumulated Obligations
Benefit Exceed Benefit Exceed
Obligations Assets Obligations Assets
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Vested benefits ($ 1,834) ($ 374) ($2,031) ($4,267)
Nonvested benefits ( 180) ( - ) ( 42) ( 117)
Accumulated benefit obligation ( 2,014) ( 374) ( 2,073) ( 4,384)
Effect of future compensation
increases ( - ) ( - ) ( 41) ( 192)
Projected benefit obligation ( 2,014) ( 374) ( 2,114) ( 4,576)
Plan assets at fair value 2,659 307 2,799 1,810
Projected benefit obligation
less than (in excess of)
plan assets 645 ( 67) 685 ( 2,766)
Unrecognized net loss (gain) 14 93 68 ( 437)
Unrecognized net transition
obligation (asset) ( 528) 89 ( 592) 1,390
Unrecognized prior service cost 89 - 103 -
Additional minimum liability - ( 182) - ( 784)
Prepaid (accrued) pension
cost $ 220 ($ 67) $ 264 ($2,597)
</TABLE>
In addition to the plans described above, in 1993 the Company's Board of
Directors approved a retirement compensation program for certain officers and
employees of the Company and a retirement compensation arrangement for the
Company's then Chairman and Chief Executive Officer.The Board approved a total
of $3,500,000 to fund such plans. This amount represents the best estimate of
the obligation which vested immediately upon Board approval and is to be paid
for services rendered to date. This amount was included in selling, general
and administrative expenses in the accompanying 1993 Statement of Consolidated
Operations.
Postretirement Benefits Other than Pensions
The Company provides certain health care and life insurance benefits for
some of its retired employees. Effective January 1, 1993, Katy adopted SFAS
No. 106, "Employer's Accounting for Postretirement Benefits Other Than
Pensions," which requires Katy to accrue the estimated cost of retiree
benefit payments for health and life insurance benefits during the years the
employee provides services. Katy previously expensed the cost of these
benefits, which are principally for health care, as claims were incurred.
Katy elected to recognize the cumulative effect of this obligation on the
immediate recognition basis as of January 1, 1993, and the cumulative effect
was an increase in accrued postretirement benefit cost $2,343,000 and a
decrease in net income for the year ended December 31, 1993 of $1,418,000
($.15 per share), net of income tax benefits of $925,000. This charge has
been reported in the Statement of Consolidated Operations under caption
"Cumulative effect of change in accounting principle." The postretirement
benefit plans currently are not funded.
The accumulated postretirement benefit obligation at December 31, 1995 and
1994 is as follows:
1995 1994
(Thousands of Dollars)
Retirees $1,663 $2,163
Fully eligible active plan participants 213 199
Other active plan participants 303 264
Unrecognized net gain 644 928
Prior service cost ( 44) ( 48)
$2,779 $3,506
Net postretirement benefit costs for 1995, 1994 and 1993 include the
following:
1995 1994 1993
(Thousands of Dollars)
Service cost - benefits earned
during the year $ 20 $ 27 $ 103
Interest cost on accumulated
postretirement benefit obligation 162 183 233
Amortization of unrecognized gain ( 56) ( 44) -
Total cost $ 126 $ 166 $ 336
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1995 was 10% for 1995
decreasing linearly each successive year until it reaches 4.5% in 2001, after
which it remains constant. A one-percentage-point increase in the assumed
health care cost trend rate for each year would increase the accumulated
postretirement benefit obligation as of December 31, 1995 and net
postretirement health care cost by approximately 11%. The assumed discount
rates used in determining the accumulated postretirement benefit obligation
at December 31, 1995 and 1994, were 7.0% and 7.25%, compounded annually,
respectively.
401(k) Plans
The Company offers its employees the opportunity to participate in one of
nine 401(k) plans administered by the Company or one of its subsidiaries.
Participation by employees in any of the 401(k) plans is voluntary. The
Company is not required to make contributions to these plans, however,
historically, the Company, at its discretion, has made annual contributions of
$227,000, $258,000 and $350,000 in 1995, 1994 and 1993, respectively, which,
on average, have approximated 20% in 1995 and 1994, and 10% in 1993 of the
employees' annual contributions.
Note 6. SHAREHOLDERS' EQUITY:
Share Repurchase
In August, 1995, Katy's Board of Directors authorized the Company to
repurchase up to 400,000 shares of its common stock over the subsequent twelve
months in open market transactions.On January 2, 1996, Katy's Board authorized
the Company to repurchase an additional 500,000 shares, bringing the total
authorization to 900,000 shares. In connection therewith, Katy repurchased
352,200 of its common shares in the period ended December 31, 1995, at a
total cost of $3,341,000. Additionally, during the first quarter of 1996, the
Company repurchased 316,200 shares, at a cost of $3,636,000, bringing the
total shares repurchased to 668,400.
Stockholder Rights Plan
In January, 1995, the Board of Directors adopted a Stockholder Rights
Plan and distributed one right for each outstanding share of the Company's
common stock. Each right entitles the shareholder to acquire one share of
the Company's common stock at an exercise price of $35, subject to adjustment.
The rights are not and will not become exercisable unless certain change of
control events occur. None of the rights are exercisable as of December 31,
1995.
Special Cash Dividend
On June 29, 1994, the Company's Board of Directors declared a special cash
dividend payable on August 19, 1994 to shareholders of record on July 22, 1994.
The dividend amounted to $126,243,000.
1994 Key Employee and Director Stock Purchase Plan
In 1994, the Board of Directors approved the Stock Purchase Plan for Key
Employees and Directors. Under the Plan, 75,000 shares of the Company's
common stock, held in the treasury, were reserved for issuance at a purchase
price equal to 65% of the market value of the shares as determined based upon
the offering period established by the Compensation Committee of the Company's
Board of Directors. As of December 31, 1995, 59,000 shares have been issued
at a purchase price of $6.47 per share. The issuance of these shares, in 1994,
for total notes receivable of $382,000 was a noncash financing transaction.
Proceeds from the sale of these shares consisted of notes receivable due on
demand but no later than sixty months from date of purchase with an interest
rate equal to the Federal Short-Term Funds Rate. The Company is holding the
shares as collateral for all notes receivable. Further, these shares cannot
be sold until twenty-four months from the date of purchase provided the notes
have been repaid. Notes receivable from plan participants are included in
the Consolidated Balance Sheets under the caption "Foreign currency
translation and other adjustments". The excess of the cost of the treasury
shares over the market value of the shares at the date of purchase
($442,000) was charged to retained earnings in 1994. The excess of the
market value of the shares over the purchase price, ($194,00) was
charged to compensation expense in 1994.
Stock Option Plans
During 1995 the Company established stock option plans providing for the
grant of options to purchase common shares to outside directors, executives
and certain key employees. The Compensation Committee of the Board of
Directors administers the plans and approves stock option grants. Stock
options granted under the plans are excercisable at a price equal to the
market value of the stock at the date of grant. The options, in the case of
non-employee directors are immediately exercisable, and in the case of
executives and key employees, become exercisable from one to five years
from the date of grant and generally expire 10 years from the date of grant.
The following table summarizes option activity under the plans:
Number Option Price
Of Options Per Share
Outstanding at December 31, 1994..... - -
Granted.......................... 197,000 $8.50-9.25
Outstanding at December 31, 1995..... 197,000 $8.50-9.25
Excercisable at December 31, 1995.... 17,000 $8.50
Available for grant at December 31, 1995 503,000 -
Foreign Currency Translation and Other Adjustments
The components of the foreign currency translation and other adjustments
section of shareholders' equity are as follows:
December 31, 1995 1994
(Thousands of Dollars)
Foreign currency translation adjustments ($ 1,290) $ 3,058
Notes receivable from key employees and
directors under the Stock Purchase Plan ( 350)( 382)
($ 1,640) $ 2,676
Note 7. WASTE-TO-ENERGY FACILITY:
A Katy limited partnership has a contract to operate a waste-to-energy
facility in Savannah, Georgia through the year 2007. This facility is owned
by a limited partnership, all the partners of which are the Company's
subsidiaries. The limited partnership is under contract with the Resource
Recovery Development Authority of the City of Savannah (the City) to receive
and dispose of the City of Savannah's solid waste through 2007. The
contract provides for minimum levels of the limited partnership's disposal
fee income to be used to retire the $50,700,000 of industrial revenue bonds
issued by an Authority of the City to finance construction of the plant.
Under certain circumstances, the Company is contingently liable to the
extent of its investment in the limited partnership.
In substance, the City desired a solid waste disposal and resource recovery
facility, issued bonds to finance construction of the facility, and
contracted the Company (inclusive of its subsidiaries and their partnership
interests) to construct, operate and maintain the facility. In return for its
services, it was intended that the Company would receive a reasonable profit
and the facility upon the termination of the various agreements. The
Company is obligated to perform under the various agreements. The Company
is therefore merely the operator of the facility and has not recorded the cost
of the facility or the obligations related to its construction in its
consolidated financial statements since a right of offset exists.
Under terms of the contract, the Company has made contributions to the
trust fund totaling $9,200,000. In consideration for these contributions,
the waste-to-energy facility will revert to the Company, subject to
collateral agreements under
the bond indentures, when the service agreement expires. The Company is not
required to make any additional payments to the trust fund. The Company's
subsidiary has made capital expenditures to improve the operating facility,
and these expenditures have been accounted for as deferred expenses and are
being amortized through 2007, the period during which the Company expects to
realize the economic benefits associated with such expenditures. At December
31, 1995 and 1994, expenditures of $2,160,000 and $2,559,000, net of
accumulated amortization of $5,539,000 and $5,078,000, respectively, and
the contributions to the trust fund are included in "Investment in
Waste-To-Energy Facility" in the Consolidated Balance Sheets.
Note 8. INCOME TAXES:
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".The effect of this
adoption on 1993 operations was not material. Separate provisions for income
taxes are calculated for continuing operations, for all operations and for net
income. The provision (benefit) allocated to discontinued operations and
accounting changes represents the incremental effect on The Company's total
income tax provision of income (loss) as a result of each such item. Federal
current and deferred income tax provisions for 1995, 1994 and 1993 have been
reduced due to the recognition of net operating loss and tax credit
carryforwards.
The domestic and foreign components of income (loss) before income taxes,
exclusive of equity in income of unconsolidated subsidiaries, are:
<TABLE>
<CAPTION>
1995 1994 1993
(Thousands of Dollars)
<S> <C> <C> <C>
Domestic:
Continuing operations................. $17,237 ($ 10,115) $ 9,723
Discontinued operations............... - - ( 8,682)
Change in accounting principle........ - - ( 2,343)
Total domestic...................... 17,237 ( 10,115) ( 1,302)
Foreign:
Continuing operations................. 912 ( 5,946) ( 6,003)
Total worldwide..................... $18,149 ($ 16,061) ($ 7,305)
The components of the net provision (benefit) for income taxes are:
1995 1994 1993
Continuing operations: (Thousands of Dollars)
Current:
Federal............................. $ 3,413 $ 197 $ 1,980
State............................... ( 512) 428 1,020
Foreign............................. 25 450 ( 31)
Total............................. 2,926 1,075 2,969
Deferred:
Federal............................. 980 ( 2,948) 1,770
State............................... ( 1,915) 1,100 ( 197)
Foreign............................. 116 ( 334) 31
Total............................. ( 819) ( 2,182) 1,604
Total continuing operations.... 2,107 ( 1,107) 4,573
Discontinued operations:
Federal............................. - - ( 2,842)
State............................... - - ( 222)
Total............................. - - ( 3,064)
Change in accounting principle............ - - ( 925)
Net provision (benefit) for
income taxes $ 2,107 ($ 1,107) $ 584
</TABLE>
The total income tax provision differed from the amount computed by
applying the statutory federal income tax rate to pretax income from
continuing
operations. The computed amount and the differences for the years ended
December 31, 1995, 1994 and 1993 were as follows:
1995 1994 1993
(Thousands of Dollars)
Provision (benefit) for income taxes
at statutory rate...................... $ 6,352 ($ 5,621) $ 1,265
State income taxes, net of federal
benefit................................ 1,080 993 630
Foreign tax rate differential............ ( 14) 549 178
Foreign losses for which no tax benefit is
available............................... - 2,311 3,181
Tax Benefit from Schon Sale - Note 2..... ( 3,000) - -
Alternative minimum tax.................. - - 1,289
Benefit of net operating loss carryforwards ( 49) ( 336) ( 4,091)
Benefit of tax credit carryforwards...... - ( 2,450) ( 764)
Other, net............................... ( 598) 631 251
Provision (benefit) for income taxes from
consolidated operations.............. $ 3,771 ($ 3,923) $ 1,939
Undistributed earnings of equity investees ( 1,664) 2,816 2,634
Net provision (benefit) for income taxes $ 2,107 ($ 1,107) $ 4,573
The tax effects of significant items comprising the Company's net deferred tax
liability as of December 31, 1995 and 1994 are as follows:
1995 1994
Deferred tax liabilities: (Thousands of Dollars)
Difference between book and tax
basis of property $ 1,954 $ 1,490
Waste-to-energy facility 17,303 17,450
Undistributed earnings of equity
investees 7,695 13,784
Unrealized holding gain - marketable
securities - available for sale 3,282 2,742
30,234 35,466
Deferred tax assets:
Allowance for doubtful receivables 1,673 1,604
Inventory costs 1,871 3,507
Accrued expenses and other items 10,131 11,529
Operating loss carryforwards - domestic 3,234 4,126
Operating loss carryforwards - foreign - 12,717
Tax credit carryforwards 2,390 7,978
19,299 41,461
Less valuation allowance (1,493) ( 17,130)
17,806 24,331
Net deferred tax liability $12,428 $ 11,135
The valuation allowance primarily relates to domestic net operating loss
carryforwards (foreign in 1994) and foreign tax credit carryforwards that may
not be realized due to uncertainties as to certain subsidiaries realization of
future income and to past losses from foreign operations. The valuation
allowance decreased $15,637,000 during the year ended December 31, 1995,
primarily due to the partial disposition of the Company's interest in Schon.
The domestic net operating loss carryforwards primarily relate to the waste
to energy facility and the business that operates cold storage facilities
and can only be used to offset income from those
operations. Domestic net operating loss carryforwards have expiration dates
ranging from 1996 to 2007.
At December 31, 1995, foreign tax credit carryforwards of $622,000 (with an
expiration date in 1998) and alternative minimum tax carryforwards of $1,768,000
(with no expiration date), are available.
Note 9. LEASE OBLIGATIONS:
The Company has entered into noncancelable leases for manufacturing and data
processing equipment and real property with lease terms of up to 5 years. The
Company is generally obligated for the cost of property taxes, insurance and
maintenance. Future minimum lease payments as of December 31, 1995 are as
follows:
(Thousands of Dollars)
1996......................................... $ 883
1997......................................... 811
1998......................................... 568
1999......................................... 406
2000......................................... 6
Later years.................................. 3
Total minimum payments..................... $2,677
Rental expense for 1995, 1994 and 1993 for operating leases was
$1,458,000, $1,567,000 and $2,005,000, respectively.
Note 10. INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION:
The Company is a manufacturer and distributor of a variety of industrial and
consumer products, including sanitary maintenance supplies, coated abrasives,
paints, stains, electronic components, nonpowered hand tools, specialty metal
products, testing and measuring instruments, recording devices for the
transportation industry, machinery for the food processing and packaging and
woodworking industries, and
also operates cold storage facilities and a waste-to-energy facility.
Principal markets are in the United States and Canada, and include the
sanitary maintenance, restaurant supply, retail, food processing, millwork,
transportation, electronic, automotive, and computer markets.The diversity of
the Company's products and markets insure that there is not a material impact
on the Company in total from one product or one marketplace. These activities
are grouped into three industry segments: Distribution and Service, Industrial
and Consumer Manufacturing and Machinery Manufacturing.There were no material
sales to any single customer, and the Company is not reliant upon any one
significant vendor or material.
Segment information for the years ended December 31, 1995, 1994 and 1993
is presented under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" on page 8.
Export sales of products, primarily to Central and South America, Western
Europe, the Middle East and the Far East, were $18,870,000, $15,062,000, and
$15,494,000 in 1995, 1994 and 1993, respectively.
The Company operates businesses both in the United States and foreign
countries. The operations for 1995, 1994 and 1993 of businesses within major
geographic areas are summarized as follows:
<TABLE>
<CAPTION>
United Western
States Europe Other Consolidated
(Thousands of Dollars)
1995
<S> <C> <C> <C> <C>
Sales to unaffiliated
customers................. $149,967 $11,072 $ 10,230 $171,269
Operating income (loss)..... $ 13,921 ($ 2,913) $ 201 $ 11,209
Identifiable assets......... $121,481 $ - $ 15,478 $136,959
1994
Sales to unaffiliated
customers................. $128,739 $ 23,453 $ 7,389 $159,581
Operating income (loss)..... $ 8,511 ($ 2,505) ($ 399) $ 5,607
Identifiable assets......... $ 92,625 $ 18,168 $ 4,145 $114,938
1993
Sales to unaffiliated
customers................. $127,157 $ 34,062 $ 7,504 $168,723
Operating income (loss)..... $ 2,557 ($ 5,067) ($ 194) ($ 2,704)
Identifiable assets......... $ 96,078 $ 24,557 $ 5,343 $125,978
</TABLE>
Net sales for each geographic area include sales of products produced in
that area and sold to unaffiliated customers, as reported in the Statements of
Consolidated Operations.
Note 11. CONTINGENT LIABILITIES
The Company and certain of its current and former direct and indirect
corporate predecessors, subsidiaries and divisions have been identified by the
U.S. Environmental Protection Agency and certain state environmental agencies
and private parties as potentially responsible parties ("PRPs") at a number
of hazardous waste disposal sites under the Comprehensive Environmental
Response, Compensation and Liability Act ("Superfund") and equivalent state
laws and, as such, may be liable for the cost of cleanup and other remedial
activities at these sites. Responsibility
for cleanup and other remedial activities at a Superfund site is typically
shared among PRPs based on an allocation formula. The means of determining
allocation among PRPs is generally set forth in a written agreement entered
into by the PRPs at a particular site. An allocation share assigned to a PRP
is often based on the PRP's volumetric contribution of waste to a site.
Under the federal Superfund statute, parties are held to be jointly and
severally liable, thus subjecting them to
potential individual liability for the entire cost of cleanup at the site.
The Company is also involved in remedial response and voluntary environmental
cleanup at a number of other sites which are not currently the subject of any
legal proceedings under Superfund, including certain of its current and
formerly owned manufacturing
facilities. Based on its estimate of allocation of liability among PRPs, the
probability that other PRPs, many of whom are large, solvent, public
companies, will fully pay the costs apportioned to them, currently available
information concerning the scope of contamination, estimated remediation
costs, estimated legal fees and other factors, the Company
has recorded and accrued for indicated environmental liabilities in the
aggregate amount of approximately $6,350,000 at December 31, 1995. The
ultimate cost will depend on a number of factors and the amount currently
accrued represents management's best current estimate of the total cost to be
incurred. The Company
expects this amount to be substantially paid over the next one to four years.
The most significant environmental matters in which the Company is currently
involved are as follows:
1. The United States had alleged violations of the Resource Conservation
and Recovery Act ("RCRA") based upon the alleged status of sludge
drying beds of W.J. Smith Wood Preserving Company, a Company
subsidiary ("W.J. Smith"), as a hazardous waste management unit.
Since 1990, the Company has spent in excess of $4,000,000 in
undertaking cleanup and compliance activities in connection with
this matter and has established
reserves for future remediation activities. An Administrative Order on
Consent was entered effective December 29, 1995, with estimated
additional remediation costs of $1,200,000.
2. During 1995 the Company reached agreement with the Oregon Department
of Environmental Quality ("ODEQ") as to a clean up plan for PCB
contamination at the Medford, Oregon facility of the former Standard
Transformer division of American Gage. The plan called for the Company
to provide a trust fund of $1,300,000 to fund clean up costs at the
site. These funds were expended in 1995. The plan also called for
the present occupants of the site, Balteau Standard, Inc. to provide
the next $450,000 of cost, with any additional costs to be shared
equally between the two parties. The Company believes the clean up
plan has been successful and has
requested that the ODEQ inspect the property and approve the
remediation work to release the Company from any future liability.
3. In September of 1993, Katy received a letter from counsel to Allard
Industries, Inc. ("Allard") requesting that Katy and its subsidiaries,
American Gage and JEI Liquidating, Inc., indemnify Allard for any
liability incurred by it in connection with a case captioned
Town of Londonderry v. Exxon Corporation,
et al., Case No. C-93-95-L (United States District Court, District
of New Hampshire). Such request stems from certain agreements among
Katy, Allard and other parties. The case at issue concerns the
disposal and treatment of hazardous wastes and substances at a
landfill site in Londonderry, New Hampshire (the "Londonderry Site"),
states claims under CERCLA and state law, and seeks, inter alia
recovery of response costs with respect to the Londonderry Site,
declaratory judgment with respect to the
defendants' liability for future response costs and unspecified
monetary damages. Katy has agreed to defend and indemnify Allard
in this matter. Katy and its counsel have not yet fully evaluated the
underlying claims and the liability of Katy and its subsidiaries
with respect to this matter, if any, cannot be determined at this
time.
Although management believes that these actions individually and in the
aggregate are not likely to have a material adverse effect on the Company,
further costs could be significant and will be recorded as a charge to
operations when such costs become probable and reasonably estimable.
Katy also has a number of product liability and workers' compensation claims
pending against it and its subsidiaries. Many of these claims are proceeding
through the litigation process and the final outcome will not be known until a
settlement is reached with the claimant or the case is adjudicated.
It can take
up to 10 years from the date of the injury to reach a final outcome for such
claims. With respect to the product liability and workers' compensation
claims,
Katy has provided for its share of expected losses beyond the applicable
insurance coverage, including those incurred but not reported, which are
developed using actuarial techniques. Such accruals are developed using
currently available claim information, and represent management's best
estimates. The ultimate cost of any individual claim can vary based upon,
among other factors, the nature of the injury, the duration of the disability
period, the length of the claim period, the jurisdiction of the claim and
the nature of the final outcome.
Note 12. UNUSUAL ITEMS:
During 1995, 1994 and 1993, various charges, as follows, were recorded in
the Company's Statements of Consolidated Operations:
1995
During the second quarter of 1995, the Company sold one-half of its 75%
interest in Schon & Cie, AG. With the reduction in its ownership interest,
the
Company began reporting its continuing investment in Schon using the equity
method of accounting. In connection with the sale, the Company recorded a
gain
of $4,920,000 reflecting the reversal of previously recorded losses of
Schon and
a deferred tax asset of $3,000,000.
During the third quarter of 1995, the Company sold a portion of its holdings
of Union Pacific Corporation common stock for proceeds of $15,550,000,
resulting
in a gain of $7,675,000.
During 1995, the Company received settlements from various insurance
companies in the amount of $2,846,000 in settlement of claims associated with
environmental issues.
In the fourth quarter of 1995, the Company sold its wholly owned subsidiary,
WSC Liquidating Co., whose sole asset consisted of common shares of Syratech
Corporation. Katy also sold additional shares which were held directly by
Katy. The net proceeds from these transactions was approximately $50,800,000
and resulted in an after tax gain of $7,500,000, comprised of a gain of
$793,000
and the reversal of $6,707,000 of deferred taxes previously provided on Katy's
share of Syratech's income, which has been determined to not be required as a
result of these transactions.
1994
The Company has a 15% interest in a joint venture which holds exclusive
exploratory and production rights in a specified on-shore area of Indonesia
under a production sharing contract with Pertamina, the Indonesian government
oil and gas enterprise. A 60% interest is held by a major American oil
company,
and 25% is held by a Japanese concern. In April, 1994, management of the
Company
met with the Company's oil exploration joint venture partners and, based on
current facts and circumstances, the Company and its partners decided not to
commit further funds to the oil exploration project, and the Company will not
participate in any further activities on the site. Accordingly, the Company
wrote off its ($6,580,000) investment in the oil exploration joint venture
in March, 1994.
During the second quarter of 1994, the Supreme Court of the United States
of America ruled that the ash generated by waste-to-energy facilities, like
the
Company's subsidiary in Savannah, Georgia, is hazardous waste. This ruling
has
resulted in higher operating costs for waste-to-energy facilities. Based
upon this ruling and developments within the waste-to-energy industry in
recent
years, management concluded that further commercialization of the Seghers
technology, which it owns, is unlikely and that the value of the technology
was significantly impaired. Accordingly, the Company wrote down its
investment ($2,708,000) in this technology to zero.
During the second quarter of 1994, management decided that for consolidated
financial reporting purposes, a consistent methodology for estimating
inventory
valuation reserves should be applied for all subsidiaries, regardless of
their unique business or foreign financial reporting requirements. As a
result consolidated inventory valuation reserves increased for excess and
potentially unsaleable inventories due to price erosion, low sales in recent
years and current low sales order backlogs for certain industrial companies,
primarily foreign operations. An aggregate charge to cost of goods sold of
$5,072,000 was recorded for these items.
During the second quarter of 1994, management decided to cease production
and rebuild of presses at its Walsh Press operation, resulting in a $600,000
charge and also incurred a charge of $650,000 for moving its corporate office to
Englewood, Colorado, including severance compensation for those employees not
relocating. Such charges were included in "Other, net" in the Consolidated
Statements of Operations.
In the fourth quarter of 1994, the Company incurred charges of $1,250,000
relating to additional provisions for costs associated with environmental
remediation at certain sites where the Company used to conduct operations.
This charge is included in other expense rather than discontinued operations,
as the sale or shutdown of those operations in prior years was not classified
as discontinued. Additionally, a charge of $900,000 was included in cost of
sales to reflect adjustments to casualty insurance and product warranty claim
liabilities to reflect information received in the fourth quarter related to
certain claims.
The Company's German subsidiary, Schon & Cie, AG, recorded a charge, during
1994, of $1,000,000 for further severance costs, which was offset by a
partial
recovery of trade receivables, owed by customers in the former Soviet Union,
which had been written off in prior years, of approximately $1,710,000.
1993
A pre-tax charge of $4,000,000 was included in cost of sales to reflect
adjustments to casualty insurance and product warranty claim liabilities to
reflect information received in the fourth quarter related to certain claims
and the bankruptcy of the Company's excess insurance carrier.
A pre-tax charge of $3,500,000 was included in selling, general and
administrative expenses for retirement compensation programs for certain
officers and employees of the Company.
A pre-tax charge of $2,300,000 was included in cost of sales related to the
IAQ-2000 product line of the Company's Moldan unit. This charge reflects the
decision to remove this product from the market and represents IAQ-2000's
operating loss for the year as well as the write-down of the net assets of
this product line in the fourth quarter.
The Company incurred legal and other related costs of approximately
$1,300,000, included in selling, general and administrative expenses, in
1993 associated with proposed merger agreements and a shareholder action
lawsuit. The mergers did not occur and the lawsuit's application for a
mandatory preliminary injunction was denied.
In January, 1993, the Company sold its 8% interest, (78,145 shares of
common stock) in Compagnie des Entrepots et Gares Frigorifigues, a French cold
storage company, for cash proceeds of $10,953,000 resulting in a pre-tax gain
of
$6,081,000.
In the first quarter of 1993, the Company exchanged $24,526,000 of notes
receivable from the Missouri Pacific Railroad Company into 774,166 shares of
Union Pacific Corporation (UP) common stock at an exchange rate of $31.68 per
share. In the third quarter of 1993 the Company sold 300,000 shares of UP
stock for proceeds of $18,001,000, resulting in a pre-tax gain of $8,497,000.
Note 13 QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Quarterly results of operations have been affected by unusual or
infrequently occurring items as discussed in Notes 3 and 12.
1995 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
(Thousands of Dollars, except per share amounts)
Net sales................ $ 38,358 $ 49,609 $ 42,336 $ 40,966
Gross profit............. $ 10,984 $ 14,391 $ 13,789 $ 11,668
Net income (loss)........ ($ 737) $ 8,355 $ 10,689 $ 10,264
Earnings (loss) per share ($ .08) $ .92 $ 1.18 $ 1.16
1994 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
(Thousands of Dollars, except per share amounts)
Net sales................ $ 38,423 $ 42,641 $ 40,561 $ 37,956
Gross profit............. $ 10,492 $ 5,456 $ 13,298 $ 12,328
Net income (loss)........ ($ 3,188) ($ 7,847) $ 2,033 $ 159
Earnings (loss) per share ($ .35) ($ .87) $ 22 $ .02
During the fourth quarter of 1995, the Company sold its subsidiary, WSC
Liquidating Co., and its holdings of Syratech Corporation common shares,
resulting in an after tax gain of $7,500,000 (Note 3).
During the fourth quarter of 1994, the Company provided approximately
$1,300,000
(net of tax) of additional reserves for casualty insurance, product warranty
claim costs and environmental remediation matters and $1,000,000 for further
severance costs at its German subsidiary (Note 12).
