<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File No. 0-1402
THE LINCOLN ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
Ohio 34-0359955
(State of incorporation) (I.R.S. Employer Identification No.)
22801 St. Clair Avenue, Cleveland, Ohio 44117
(Address of principal executive offices) (Zip Code)
(216) 481-8100
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Shares, without par value
Class A Common Shares, without par value
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. [X]
The aggregate market value of the voting common stock held by non-affiliates as
of February 28, 1997 was $274,220,260 (affiliates, for this purpose, have been
deemed to be Directors of the Company, and certain significant shareholders).
The number of shares outstanding of the registrant's classes of common stock as
of February 28, 1997 were as follows:
Common Shares..............................10,488,212
Class A Common Shares......................13,837,697
Class B Common Shares...................... 486,772
----------
Total outstanding shares...........24,812,681
==========
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement for the annual meeting of
shareholders to be held on May 27, 1997 are hereby incorporated by reference
into Part III.
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PART I
Item 1. Business
--------
As used in Item 1 of this report, the term "Company", except as otherwise
indicated by the context, means The Lincoln Electric Company and its
subsidiaries. The Lincoln Electric Company began operations in 1895 and was
incorporated under the laws of the State of Ohio in 1906. The Company is a
full-line manufacturer of welding and cutting products and integral horsepower
industrial electric motors. Welding products include arc welding power sources,
wire feeding systems, robotic welding packages, fume extraction equipment,
consumable electrodes and fluxes. The Company's welding product offering also
includes regulators and torches used in oxy-fuel welding and cutting. Sales of
welding products accounted for 93% of the Company's net sales in 1996.
The arc welding power sources and wire feeding systems manufactured by the
Company range in technology from basic units used for light manufacturing and
maintenance to highly sophisticated machines for robotic applications, high
production welding and fabrication. Three primary types of arc welding
electrodes are produced: (1) coated manual or stick electrodes, (2) solid
electrodes produced in coil form for continuous feeding in mechanized welding,
and (3) cored electrodes produced in coil form for continuous feeding in
mechanized welding. The integral horsepower electric motors manufactured by the
Company range in size from 1/3 to 1,250 horsepower.
The Company's products are sold in both domestic and international markets. In
the domestic market, they are sold directly by the Company's own sales
organization as well as by distributors. In the international markets, the
Company's products are sold principally by foreign subsidiary companies. The
Company also has an international sales organization comprised of Company
employees and agents who sell products from the Company's various manufacturing
sites to distributors, agents, dealers and product users that operate in more
than eighty-six countries. The Company has manufacturing facilities located in
the United States, Australia, Canada, Mexico, England, France, Ireland, Italy,
the Netherlands, Norway and Spain. In addition, the Company is adding
manufacturing capacity in the Asia Pacific region. See Note G to the
consolidated financial statements with respect to geographic area information.
The Company is not dependent on a single customer or a few customers. The loss
of any one customer would not have a material adverse effect on its business.
The Company's business is not seasonal.
Conditions in the arc welding industry are highly competitive. The Company
believes that it is one of the largest manufacturers of consumables and
equipment in a field of three or four major domestic competitors and numerous
smaller competitors. The Company continues to pursue strategies to heighten its
competitiveness in international markets. Competition in the electric arc
welding industry is on the basis of price, brand preference, product quality and
performance, warranty, delivery, service and technical support. All of these
factors have contributed to the Company's position as one of the leaders in the
industry.
Virtually all of the Company's products may be classified as standard commercial
articles and are manufactured for stock. The Company believes its products are
unique because of its highly trained technical sales force and the support of
its welding research and development staff which allow it to uniquely assist the
consumers of its products in optimizing their welding applications. The Company
utilizes this technical expertise to present its Guaranteed Cost Reduction
Program to end users in which the Company guarantees that the user will save
money in its manufacturing process when it utilizes the Company's products. This
allows the Company to
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introduce its products to new users and to establish and maintain very close
relationships with its consumers. This close relationship between the technical
sales force and the direct consumers, together with its supportive relationship
with its distributors, who are particularly interested in handling the broad
range of the Company's products, is an important element of the Company's market
success and a valuable asset of the Company.
The principal raw materials essential to the Company's business are various
chemicals, steel, copper and aluminum, all of which are normally available for
purchase in the open market.
The Company's operations are not materially dependent upon patents, licenses,
franchises or concessions.
The Company's facilities are subject to environmental control regulations. To
date, compliance with these environmental regulations has not had a material
effect on the Company's earnings.
The Company conducts a significant amount of its business and has a number of
operating facilities in countries outside the United States. As a result, the
Company is subject to business risks inherent in non-U.S. activities, including
political uncertainty, import and export limitations, exchange controls and
currency fluctuations. The Company believes risks related to its foreign
operations are mitigated due to the political and economic stability of the
countries in which its largest foreign operations are located.
Research activities relating to the development of new products and the
improvement of existing products in 1996 were all Company-sponsored. These
activities were primarily related to the development of new products. The number
of professional employees engaged full-time in these research activities was
263. Refer to Note A to the consolidated financial statements with respect to
total costs of research and development.
The number of persons employed by the Company worldwide at December 31, 1996 was
5,971.
The table below sets forth consolidated net sales by product line for the most
recent three years:
<TABLE>
<CAPTION>
(IN THOUSANDS OF DOLLARS) 1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Arc Welding and Other Welding Products $1,031,271 $ 956,642 $843,643
93% 93% 93%
All Other 77,873 75,756 62,961
7% 7% 7%
---------- ---------- --------
$1,109,144 $1,032,398 $906,604
========== ========== ========
</TABLE>
Item 2. Properties
----------
The Company's corporate headquarters and principal United States manufacturing
facilities are located in the Cleveland, Ohio area. Total Cleveland area
property consists of 223 acres, of which present manufacturing facilities
comprise an area of approximately 2,587,000 square feet. Current utilization of
existing facilities is high and the Company is adding capacity as necessary.
In addition to the principal facilities in Ohio, the Company operates two other
manufacturing locations in the United States and 14 manufacturing locations in
10 foreign countries, the locations of which are as follows:
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Unites States: Gainesville, Georgia; Monterey Park, California.
Australia: Sydney.
Canada: Toronto.
England: Sheffield. (2)
France: Grand-Quevilly.
Ireland: Rathnew.
Italy: Pianoro; Milano; Celle Ligure.
Mexico: Mexico City.
Netherlands: Nijmegen.
Norway: Andebu; Stavern.
Spain: Barcelona.
In addition, a plant is under construction in Cikarang, Indonesia. Manufacturing
facilities located in Germany, Venezuela, Japan and Brazil were closed in early
1994 under the Company's restructuring program.
All property relating to the Company's Cleveland, Ohio headquarters and
manufacturing facilities is owned outright by the Company. In addition, the
Company maintains operating leases for its distribution centers and many sales
offices throughout the world. See Note J to the consolidated financial
statements with respect to leases. Most of the Company's foreign subsidiaries
own manufacturing facilities in the foreign country where they are located. At
December 31, 1996, $5.5 million of indebtedness was secured by property, plant
and equipment.
Item 3. Legal Proceedings
-----------------
The Company is subject, from time to time, to a variety of civil and
administrative proceedings arising out of its normal operations, including,
without limitation, product liability claims, health, safety and environmental
claims and employment-related actions. Among such proceedings are the cases
described below.
The Company has been named a defendant, along with a large number of
unidentified "John Doe" defendants, in a class action complaint filed on January
16, 1997 in Superior Court, Los Angeles County, California, captioned PACIFIC
DESIGN CENTER AND AUTOMOBILE CLUB OF CALIFORNIA V. THE LINCOLN ELECTRIC COMPANY.
Two building owners, purportedly on behalf of themselves and other building
owners in Los Angeles County, allege that the E70T-4 category of welding
electrodes manufactured by the Company and other defendants was defective for
use in "moment resisting" steel frame buildings constructed in seismically
sensitive areas. According to the amended complaint, which was filed on January
22, 1997, there may be 1,500 such buildings in Los Angeles County, and damages
claimed to have been discovered after the Northridge earthquake of January 1994,
including the cost of inspection, retrofitting and repair, loss of income and
diminution in value of the buildings, exceed $1 billion. The plaintiffs also
seek punitive damages in an unspecified amount. The Company has removed the case
to the Federal District Court of California, Central District.
In addition to the PACIFIC DESIGN CENTER class action lawsuit, the Company has
been named, in filings made on or after May 1996 in the Superior Court of
California, as a defendant or co-defendant in eight additional lawsuits filed by
building owners in Los Angeles County arising from alleged property damage
claimed to have been discovered after the Northridge earthquake of January 1994.
These cases, all of which are in very preliminary stages and two of which have
been removed to the Federal District Court of California, Central District,
include claims for compensatory damages and in some instances punitive damages,
in some instances without specification of amount, relating to the sale and use
of the E70T-4 category of welding electrode.
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The Company intends to contest the litigation vigorously.
The Company is co-defendant in fifteen cases involving twenty-eight plaintiffs
alleging that exposure to manganese contained in arc welding electrode products
caused the plaintiffs to develop a neurological condition known as manganism.
The plaintiffs seek compensatory and, in most instances, punitive damages,
usually for unspecified sums. Four similar cases have been tried, all resulting
in defense verdicts.
The Company is also one of several co-defendants in a case alleging that
exposure to welding fumes generally impaired the respiratory system of seven
plaintiffs. The plaintiffs seek compensatory and punitive damages for
unspecified sums. Since 1990, fifty-two similar cases have resulted in
twenty-two voluntary dismissals, eight defense verdicts or summary judgments and
twenty-two settlements for immaterial amounts.
Claims pending against the Company alleging asbestos induced illness total
approximately 18,500; in each instance, the Company is one of a large number of
defendants. The asbestos claimants seek compensatory and punitive damages, in
most cases for unspecified sums. Twenty-three cases have been tried to defense
verdicts. Voluntary dismissals on such claims total approximately 15,000;
summary judgments for the defense total 81.
Included within the foregoing asbestos claims are approximately 930 claims
pending in the Circuit Court of Kanawha County, West Virginia. In September
1995, a jury returned a special interrogatory finding that products manufactured
and/or sold by the Company and three other welding companies were defective in
certain respects at the time of manufacture and/or sale. Issues relating to
whether or not the claimants were exposed to Company products and, if so,
whether Company products caused any injury, have not been addressed. Nor has
there been any discovery relating to the claimants and their potential
compensatory damage claims. The Court has dismissed punitive damage claims.
The Company, together with hundreds of other co-defendants, is a defendant in
state court in Morris County, Texas, in litigation on behalf of 3,025 claimants,
all prior employees of a local pipe fabricator, alleging that occupational
exposures caused a wide variety of illnesses. The plaintiffs seek compensatory
and punitive damages of unspecified sums.
The Company bears the cost of defending its product liability cases arising
under current policies and filed after 1990, with some contribution by its
lead insurance carrier if an aggregate threshold is reached. In many welding
fume cases where there are multiple defendants, cost sharing efficiencies are
arranged.
Defense and indemnity costs of the Company in product liability cases involving
injuries allegedly resulting from exposure to fumes and gases in the welding
environment may be affected by the outcome of pending litigation with the St.
Paul Fire and Marine Insurance Company, in which St. Paul Fire and Marine
Insurance Company and the Company disagree about the allocation among various
liability insurance policies of defense and indemnity costs of welding fume
cases. The dispute, LINCOLN ELECTRIC V. ST. PAUL FIRE AND MARINE INSURANCE
COMPANY, ET. AL., is proceeding in U.S. District Court for the Northern
District of Ohio.
Whether the Company or its insurer bears certain defense costs relating to the
Los Angeles steel frame building litigation, referenced above, may also be
subject to judicial determination. On March 13, 1997, the Company filed
complaints for declaratory relief against St. Paul Fire and Marine Insurance
Company in the United States District Court for the Central District, and in
Superior Court, Los Angeles County, seeking among other things a declaration
that, where complaints allege at least the potential of property damage
occurring at least in part before August 1, 1985, St. Paul has a duty to pay
the Company's defense costs.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1996.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder
----------------------------------------------------------------
Matters
-------
The Company's Common Shares (LECO) and Class A Common Shares (LECOA) are traded
on the NASDAQ market. The number of record holders of Common Shares and Class A
Common Shares at December 31, 1996 was 2,448 and 2,497, respectively.
There is no public trading market for Class B Common Shares, which are only
issued to the Company's Employee Stock Ownership Plan.
Quarterly high and low stock prices and dividends declared for the last two
years were:
<TABLE>
<CAPTION>
1996 1995**
---------------------------------------------------- ----------------------------------------------------
LECO* LECOA* Dividends LECO* LECOA* Dividends
High Low High Low Declared High Low High Low Declared
---- --- ---- --- -------- ---- --- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 31 $27.00 $23.25 $27.50 $22.25 $0.12 $25.00 $17.00 $0.10
June 30 35.75 26.00 30.50 26.75 0.12 38.00 24.25 $37.25 $29.50 0.10
September 30 35.25 29.25 31.25 24.50 0.12 34.00 26.50 31.00 27.38 0.10
December 31 33.50 27.50 31.25 26.25 0.12 27.50 21.00 28.25 21.50 0.12
- -------------
<FN>
*Source: NASDAQ; Ohio Dealers' Data Service prior to NASDAQ registration in
June 1995.
**On June 12, 1995, holders of record of the Company's outstanding voting common
shares as of June 5, 1995, received a dividend of one Class A Common Share for
each outstanding share of the Company's voting common shares. Retroactive
effect has been given to the stock dividend in the above per share data.
</TABLE>
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Item 6. Selected Financial Data
-----------------------
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales $1,109,144 $1,032,398 $ 906,604 $ 845,999 $ 853,007
Income (loss) before cumulative effect
of accounting change 74,253 61,475 48,008 (40,536) (45,800)
Cumulative effect of change in
accounting for income taxes 2,468
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 74,253 $ 61,475 $ 48,008 $ (38,068) $ (45,800)
========== ========== ========== ========== ==========
Per share:
Income (loss) before cumulative effect
of accounting change $ 2.99 $ 2.63 $ 2.19 $ (1.87) $ (2.12)
Cumulative effect of change in
accounting for income taxes .12
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 2.99 $ 2.63 $ 2.19 $ (1.75) $ (2.12)
========== ========== ========== ========== ==========
Cash dividends declared $ 0.48 $ 0.42 $ 0.38 $ 0.36 $ 0.36
========== ========== ========== ========== ==========
Total assets $ 647,199 $ 617,760 $ 556,857 $ 559,543 $ 603,347
========== ========== ========== ========== ==========
Long-term debt $ 64,148 $ 93,582 $ 194,831 $ 216,915 $ 221,470
========== ========== ========== ========== ==========
</TABLE>
Net income for the years ended December 31, 1994, 1993 and 1992 included
after-tax restructuring (income) expenses of $(2.7) million, $40.9 million and
$23.9 million, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
GENERAL
The Company is one of the world's largest designers and manufacturers of arc
welding and cutting products, manufacturing a full line of arc welding
equipment, consumable welding products and other welding products which
represented 93% of the Company's 1996 net sales. The Company also manufactures a
broad line of integral horsepower industrial electric motors.
For the third consecutive year, in 1996, the Company reported its highest net
sales and net income in its history. Consolidated net sales increased to $1.1
billion or 7.4% from 1995. Net income increased 20.8% to $74.3 million or $2.99
per share. The increase in net sales was attributable to strong performance from
both the U.S. and non-U.S. operations. The increased net income was attributable
to increased sales combined with cost-control programs, lower interest expense
and the increased utilization of tax loss carryforwards in certain non-U.S.
subsidiaries generating income in 1996. In the U.S., the increase in sales was
largely due to the introduction of the SourceOne distributor program in 1996.
U.S. exports to the Russia, Africa and Middle East, Asia Pacific and Latin
American regions and increased subsidiary sales in Canada, Europe and Australia
contributed to an overall improvement in international sales.
The Company expects to increase its investments in developing markets by adding
manufacturing capacity in the Asia Pacific and Latin American regions. The
Company believes that the high quality of its products,
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advanced engineering expertise and strong distributor network, coupled with its
large technically trained sales force, has enabled the Company to continue to be
a key participant in the global market place.
The Company is one of only a few worldwide broad line manufacturers of both arc
welding equipment and consumable products. With highly competitive conditions in
the welding industry, the Company will continue to emphasize its status as a
single source supplier, which it believes is most capable of meeting the
broadest range of its customer's welding needs.
Research and development expenditures were $19.8 million in 1996 compared with
$19.7 million in 1995. Included in 1996 expense is a $2.0 million charge for
in-process research and development acquired in the Company's purchase of the
Italian-based Electronic Welding Systems. The remaining expenditures were
primarily related to the development of new products. The Company believes that
over the past three years, expenditures for research and development activities
have been adequate to maintain the Company's leadership position in its product
lines and to introduce new products at an appropriate rate to sustain future
growth.
RESULTS OF OPERATIONS
The following table shows the Company's results of operations for the years
ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Amount % of Sales Amount % of Sales Amount % of Sales
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $1,109.1 100.0% $1,032.4 100.0% $ 906.6 100.0%
Cost of Goods Sold 686.5 61.9% 634.6 61.5% 556.2 61.3%
-------- -------- -------- -------- -------- --------
Gross Profit 422.6 38.1% 397.8 38.5% 350.4 38.7%
Distribution Cost/Selling
General & Adm. Exp 310.3 28.0% 289.8 28.0% 261.7 28.9%
Restructuring (Income) (2.7) (0.3%)
-------- -------- -------- -------- -------- --------
Operating Income 112.3 10.1% 108.0 10.5% 91.4 10.1%
Other Income 10.4 0.9% 2.2 0.2% 3.1 0.3%
Interest Expense, Net 4.8 0.4% 10.6 1.0% 14.3 1.6%
-------- -------- -------- -------- -------- --------
Income Before Income Taxes 117.9 10.6% 99.6 9.7% 80.2 8.8%
Income Taxes 43.6 3.9% 38.1 3.7% 32.2 3.5%
-------- -------- -------- -------- -------- --------
Net Income $ 74.3 6.7% $ 61.5 6.0% $ 48.0 5.3%
======== ======== ======== ======== ======== ========
</TABLE>
1996 COMPARED TO 1995
Net Sales. Net sales for 1996 increased 7.4% to $1,109.1 million from $1,032.4
million in 1995. Third party sales from U.S. operations increased by 5.8% to
$753.0 million from $711.9 million in 1995. Included in U.S. sales were
international export sales of $90.7 million for 1996, which increased $8.9
million or 10.9% from
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$81.8 million in 1995. Non-U.S. third party sales increased 11.1% to $356.1
million from $320.5 million in 1995. Net sales increases in all international
regions were principally volume driven. Changes in foreign currencies against
the U.S. dollar did not have a significant effect on non-U.S. sales for 1996.
U. S. third party sales benefited from a strong SourceOne distributor program
and growth in export sales principally to the Russia, Africa and Middle East,
Asia Pacific and Latin American regions.
Non-U.S. third party sales increased in the Canadian, European, and Australian
markets. Both the non-U.S. and export sales have been improved through an
increased regional sales focus and for 1996 amounted to 40.3% of the Company's
sales.
Gross Profit. Gross profit improved to $422.6 million in 1996 from $397.8
million in 1995. Gross profit as a percentage of sales was 38.1% in 1996. U.S.
gross profit as a percentage of sales has shown a slight improvement as
start-up costs associated with the new motor facility have tapered off. In
addition, cost-control programs and manufacturing efficiencies have offset
increased labor and product liability defense costs. Non-U.S. gross profit as a
percentage of sales has been negatively affected by market penetration
strategies in developing markets, as well as competitive pressures in the
European and Australian markets.
Distribution Cost/Selling, General and Administrative (SG&A) Expenses.
Distribution cost/selling, general and administrative expenses were $310.3
million in 1996, or 28.0% of sales, as compared to $289.8 million, or 28.0% of
sales in 1995. SG&A expenses for 1996 include non-recurring charges of $3.4
million ($2.1 million after-tax, or $0.08 per share) for the costs of settling a
class action lawsuit over performance awards under the Company's 1988 Incentive
Equity Plan, a $2.0 million charge ($1.2 million after-tax, or $0.05 per share)
for acquired in-process research and development relating to the acquisition of
Electronic Welding Systems; and a $5.5 million charge ($3.3 million after-tax,
or $0.13 per share) for executive retirement and severance costs. SG&A expenses
for 1995 were affected by the devaluation of the Mexican peso resulting in a
charge to operations without tax benefit of approximately $2.3 million ($0.10
per share) and a charge for $4.0 million ($2.5 million after-tax, or $0.11 per
share) for severance costs for retiring executives. Excluding the one-time
charges described above, SG&A expenses were 27.0% of sales in 1996 compared with
27.5% in 1995. The decrease in SG&A as a percentage of sales is principally a
result of cost-control programs to maintain costs in certain areas while
increasing sales volume. The increase in SG&A expenses is attributable to higher
freight costs on higher sales volume, incremental promotional costs associated
with the SourceOne distributor program and higher wage and salary costs.
Included in SG&A expenses are the costs related to the Company's discretionary
employee bonus program, net of hospitalization costs.
Other Income. Other income includes a gain of $8.4 million ($5.1 million
after-tax, or $0.20 per share) relating to the sale of the Company's gas
distribution businesses. The impact of this sale on future operations is not
significant.
Interest Expense, Net. Interest expense, net, was $4.8 million in 1996, a
decrease of 54.1% from $10.6 million in 1995. This decrease reflects the lower
debt levels as a result of the 1995 recapitalization and cash flow from
operations.
Income Taxes. Income taxes in 1996 were $43.6 million on income before income
taxes of $117.9 million, an effective rate of 37.0%, as compared with income
taxes of $38.1 million in 1995 on income before income taxes of $99.6 million or
an effective tax rate of 38.3%. The decrease in the effective tax rate was
principally due to an increase in the utilization of net operating loss
carryforwards by the Company's non-U.S. subsidiaries.
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Net Income. Net income for 1996 was $74.3 million as compared with net income of
$61.5 million in 1995, or an increase of 20.8%. The net effect of the
non-recurring items as described above reduced 1996 net income by $1.5 million
or $0.06 per share. See Note A for supplemental earnings per share information
regarding the pro forma impact of the 1995 recapitalization.
1995 COMPARED TO 1994
Net Sales. Net sales for 1995 were $1,032.4 million, an increase of $125.8
million or 13.9% from $906.6 million for 1994. Third party sales from the
Company's U.S. operations were $711.9 million in 1995 or 11.0% higher than 1994
sales of $641.6 million, attributable to volume and price increases in both the
domestic and export markets. Non-U.S. third party sales in 1995 were $320.5
million compared with $265.0 million in 1994, an increase of 20.9%. This
increase was the result of improvement in the Company's international operations
as well as improved economic conditions in the markets served, and the
strengthening of certain foreign currencies against the U.S. dollar.
Strengthening foreign currencies against the U.S. dollar increased non-U.S.
sales by approximately $15.3 million or 5.8% during the year. European sales
benefited from the previously reported restructuring of the Company's
operations, increased customer focus and a general improvement in local
economies which appeared to soften during the latter months in 1995. U.S. third
party export sales were $81.8 million in 1995, an increase of $17.4 million or
27.0% from $64.4 million in 1994. This increase in export sales largely reflects
improved worldwide economic conditions and an increased sales focus by the
Company in the non-U.S. market.
Gross Profit. Gross profit increased to $397.8 million in 1995 as compared with
$350.4 million in 1994. Gross profit as a percentage of sales was flat in 1995
compared to 1994. Increased raw material and manufacturing overhead costs plus
start-up costs associated with the opening of a new motor plant were offset by
greater absorption of manufacturing expenses as a result of higher production
volumes in both the U.S. and Europe, selected price increases and cost decreases
by volume purchases.
Distribution Cost/Selling, General and Administrative (SG&A) Expenses.
Distribution cost/selling, general and administrative expenses were $289.8
million in 1995, or 28.0% of sales, as compared with $261.7 million, or 28.9% of
sales in 1994. The decrease in SG&A expenses as a percentage of sales is due to
improved economies of scale achieved by higher worldwide sales volume. SG&A for
1995 was affected by the devaluation of the Mexican peso resulting in a charge
to operations without tax benefit of approximately $2.3 million ($3.1 million in
1994). In addition, 1995 expenses included $4.0 million of severance costs for
retiring executives. Included in SG&A expenses are the costs related to the
Company's discretionary employee bonus program, net of hospitalization costs
deducted therefrom ($66.4 million in 1995 and $59.6 million in 1994, or an
increase of 11.4%).
Interest Expense, Net. Interest expense, net, was $10.6 million in 1995 as
compared with $14.3 million in 1994, a decrease which reflects the effect of
lower debt levels as a result of the recapitalization and lower interest rates.
The overall effective interest rate is higher than the prior year because a
greater proportion of the remaining debt is comprised of higher-rate senior
debt.
Income Taxes. Income taxes in 1995 were $38.1 million on income before income
taxes of $99.6 million, an effective rate of 38.3%, as compared with income
taxes of $32.2 million in 1994 on income before income taxes of $80.2 million or
an effective tax rate of 40.1%. The decrease in the effective tax rate from the
prior year is principally the result of lower non-U.S. losses without tax
benefit and a lower effective tax rate on non-U.S. income.
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Net Income. Net income for 1995 was $61.5 million as compared with net income of
$48.0 million in 1994, or an increase of 28.1%. 1994 net income benefited from a
net reversal of $2.7 million of restructuring charges recorded previously.
LIQUIDITY AND CAPITAL RESOURCES
Increased cash flow from operations improved the Company's financial position in
1996. During 1996, the Company reduced its outstanding borrowings by 37.4% from
$123.4 million at December 31, 1995 to $77.3 million at December 31, 1996. Total
debt to total capitalization improved to 16.5% at December 31, 1996 from 27.2%
at December 31, 1995. Management anticipates that the Company will be able to
satisfy cash requirements for its ongoing businesses for the foreseeable future
primarily with cash generated by operations and, if necessary, borrowings under
its existing credit facilities. Initial start-up capital for anticipated
expansion in the Asia Pacific region will be funded by available cash provided
from operations.
Cash provided from operations was $107.8 million in 1996, an increase of $42.3
million or 64.6% from $65.5 million in 1995. The Company's inventory management
programs resulted in a decrease of $9.6 million in inventory levels during 1996
despite the increased sales volume. Accounts receivable increased largely due to
the higher sales volume in 1996; however, on average, there was an improvement
in receivable collection periods at December 31, 1996 over the prior year.
Capital expenditures during 1996 were $39.8 million, a 17.7% reduction from
$48.4 million in 1995. In 1995, there were large investments in the new electric
motor plant in Cleveland, Ohio, and other areas, which did not recur in 1996.
Capital expenditures for 1996 included the acquisition of the Italian-based
Electronic Welding Systems, a designer of state-of-the-art welding power
supplies and plasma cutting equipment. The Company expects to add capacity and
modernize facilities selectively in both the domestic and international markets.
Cash flows from investing activities include the net cash proceeds of $17.4
million from the sale of the Company's Louisiana and Alaska gas distribution
businesses during the third quarter 1996 .
A total of $11.9 million in dividends was paid during 1996. In January 1997, the
Board of Directors declared a cash dividend of $0.15 per share, payable on April
15, 1997, to shareholders of record on March 31, 1997.
RECAPITALIZATION
The Company completed its recapitalization in 1995 which included the
authorization of Class A Common Shares, a new class of non-voting common shares.
The recapitalization included a distribution payable on June 12, 1995, to
holders of record of the Company's outstanding voting common shares as of June
5, 1995, of a dividend of one Class A Common Share for each outstanding share of
the Company's voting common shares. Prior to the adoption of the
recapitalization, the Company had two authorized and outstanding classes of
voting common shares. As a result, the Company's authorized capital consists of
two voting classes, the Common Shares, without par value (formerly the "Common
Stock"), and the Class B Common Shares, without par value (formerly the "Class A
Common Stock"), and one non-voting class, the Class A Common Shares (the new
"Class A Common Shares"). In addition, the recapitalization included an increase
in the total number of authorized common shares of all classes from 17 million
to 62 million shares consisting of 30 million Common Shares, 30 million Class A
Common Shares and 2 million Class B Common Shares.
11
<PAGE> 12
In 1995, the Company successfully completed a public offering by selling
2,863,507 Class A Common Shares and realized $81.2 million in proceeds, net of
the underwriters' discount. The proceeds from the offering were used to reduce
debt which has improved the Company's leverage and enhanced its financial
position.
In December 1995, the Company entered into a new $200 million unsecured,
multi-currency Credit Agreement ("Credit Agreement"). The Credit Agreement
provides more favorable pricing levels and the financial covenants which require
interest coverage and funded debt-to-capital ratios are less restrictive, a
result of the Company's improved liquidity and financial position. See Note D to
the consolidated financial statements for additional information regarding the
terms and financial covenants of the Company's borrowing arrangements. At
December 31, 1996, no amounts were outstanding under the Credit Agreement.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by the Company, statements by its
employees or information included in its filings with the Securities and
Exchange Commission (including those portions of this Management's Discussion
and Analysis that refer to the future) may contain forward-looking statements
that are not historical facts. Those statements are "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements, and the Company's future performance, operating
results, financial position and liquidity, are subject to a variety of factors
that could materially affect results, including:
- - Competition. The Company operates in a highly competitive global
environment and is subject to a variety of competitive factors such as
pricing, the actions and strength of its competitors, and the Company's
ability to maintain its position as a recognized leader in welding
technology. The intensity of foreign competition is substantially affected
by fluctuations in the value of the United States dollar against other
currencies. The Company's competitive position could also be adversely
affected should new or emerging entrants become more active in the arc
welding business.
- - International Markets. The Company's long-term strategy is to increase its
share in growing international markets, particularly Asia, Latin America,
Central Europe and other developing markets. However, there can be no
certainty that the Company will be successful in its expansion efforts. The
Company is subject to the currency risks of doing business abroad, and
expansion poses challenging demands within the Company's infrastructure.
Further, many developing economies have a significant degree of political
and economic instability, which may adversely affect the Company's
international operations.
- - Cyclicality and Maturity of the Welding Industry. The United States arc
welding industry is both mature and cyclical. The growth of the domestic
arc welding industry has been and continues to be constrained by numerous
factors, including the substitution of plastics and other materials in
place of fabricated metal parts in many products and structures. Increased
offshore production of fabricated steel structures has also cut into the
domestic demand for arc welding products.
- - Litigation. The Company, like other manufacturers, is subject to a variety
of lawsuits and potential lawsuits that arise in the ordinary course of
business. See "Item 3. Legal Proceedings" within this report. Also see
Note K on Contingencies. While the impact of litigation historically has
not been material to the Company, there can be no assurance that
this will remain the case, or that insurance coverage will be adequate.
- - Operating Factors. The Company is highly dependent on its skilled
workforce and efficient production facilities, which could be adversely
affected by its labor relations, business interruptions at its domestic
12
<PAGE> 13
facilities and short-term or long-term interruptions in the availability of
supplies or raw materials or in transportation of finished goods.
- - Research and Development. The Company's continued success depends, in
part, on its ability to continue to meet customer welding needs through the
introduction of new products and the enhancement of existing product design
and performance characteristics. There can be no assurances that new
products or product improvements, once developed, will meet with customer
acceptance and contribute positively to the operating results of the
Company, or that product development will continue at a pace to sustain
future growth.
- - Motor Division. The Company has made substantial capital investments to
modernize and expand its production of electric motors. While management
believes that the profitability of this investment will improve, success is
largely dependent on increased market penetration. The Company is in the
process of enhancing its sales and marketing programs.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
The response to this item is submitted in a separate section of this report
following the signature page.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
A definitive proxy statement will be filed pursuant to Regulation 14A of the
Securities Exchange Act prior to April 30, 1997. Therefore, information required
under this part, unless set forth below, is incorporated herein by reference
from such definitive proxy statement.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Donald F. Hastings 68 Chairman of the Board since 1992; Chief Executive Officer of the
Company 1992-1996; President of the Company 1987-1992.
Anthony A. Massaro 53 Chief Executive Officer of the Company since November 1996;
President and Chief Operating Officer since April 1996; Corporate
Vice President and President Lincoln Europe 1994-1995; Director of
International Operations 1993-1994; prior thereto, a corporate
officer with Westinghouse Electric Corporation, served as Vice
President and then as President and a Member of the Management
Committee with responsibilities worldwide.
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
John M. Stropki 46 Executive Vice President, President North America since October
1995; Senior Vice President, Sales 1994-1995; General Sales Manager
1992-1994; District Manager 1986-1992.
H. Jay Elliott 55 Senior Vice President, Chief Financial Officer and Treasurer since
April 1996; Vice President, Chief Financial Officer, and Treasurer
1994-1996; International Chief Financial Officer 1993-1994; prior
thereto, Assistant Comptroller of The Goodyear Tire & Rubber Company
responsible at various times for Corporate Strategic Planning,
Finance Director of North American Tires and International Vice
President-Finance.
Frederick G. Stueber 43 Senior Vice President, General Counsel and Secretary since April
1996; Vice President, General Counsel and Secretary 1995-1996; prior
thereto, partner in the law firm of Jones, Day, Reavis & Pogue.
William J. Twyble 64 Senior Vice President, Engineering and Marketing since January 1997;
Vice President of the Company since April 1996; CEO, Managing
Director LEC (Australia) Pty. Ltd. 1988-1996.
Richard C. Ulstad 57 Senior Vice President, Manufacturing since May 1996; Senior Vice
President, Consumable Division 1994-1996; Vice
President-Manufacturing Electrode Division 1992-1994;
Superintendent-Electrode Division 1984-1992.
Frederick W. Anderson 44 Vice President, Information Technology, Systems Re-engineering since
May 1996; Vice President, Manufacturing - Machine Division
1994-1996; Plant Manager Machine and Motor Division 1993-1994; Plant
Superintendent 1989-1993.
Paul J. Beddia 63 Vice President, Government and Community Affairs since May 1996;
Vice President, Human Resources 1989-1996.
Dennis D. Crockett 54 Vice President, Consumable Research and Development since 1993;
Chief Engineer, Consumables Research and Development 1987-1993.
Joseph G. Doria 47 Vice President of the Company since October 1995; President and
Chief Executive Officer, Lincoln Electric Co. of Canada 1992 -
present; Executive Vice President and Chief Operating Officer,
Lincoln Electric Co. of Canada 1990-1992.
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Paul F. Fantelli 52 Vice President, Business Development since 1994; Assistant to the
Chief Executive Officer 1992-1994; President and Chief Executive
Officer of Harris Calorific Division of The Lincoln Electric Co.
1990-1992.
Ralph C. Fernandez 50 Vice President of the Company since January 1997, President, Lincoln
Electric Latin America since April 1996; Manager, International
Support and Assistant to the Chief Operating Officer 1995-1996;
Operations Manager 1995; prior thereto, President of WRS, a
subsidiary of Westinghouse Electric Corporation 1991-1994.
Michael J. F. Gillespie 55 Vice President of the Company since January 1997, President, Lincoln
Electric Asia since January 1996; prior thereto, Regional Director,
Asia Pacific Region of Esab AB, a manufacturer and distributor of
welding products.
Charles H. Murray 45 Vice President of the Company since January 1997, President, Lincoln
Electric Europe since January 1996; Vice President - Sales, Lincoln
Electric Europe 1994-1995; Sales Manager, Lincoln Electric Co. of
Canada 1992-1994.
Ronald A. Nelson 47 Vice President, Materials and Service since January 1997; Vice
President, Machine Research and Development 1994-1996; Chief
Engineer-Machine and Motor Division 1993-1994; Service Manager
1989-1993.
Gary M. Schuster 42 Vice President, Motor Division since October 1995; General Manager,
Motor Division 1993-1995; Manager, Motor Transition Team 1993;
Manager, Factory of the Future 1991-1993; Assistant Manager, Quality
Assurance 1989-1991.
Richard J. Seif 49 Vice President, Marketing since 1994; Director of Marketing
1991-1994.
S. Peter Ullman 47 Vice President of the Company since October 1995; President and
Chief Executive Officer, Harris Calorific Division of The Lincoln
Electric Co. 1993-present; President and Chief Operating Officer,
Harris Calorific Division of The Lincoln Electric Co. 1992-1993;
District Manager 1988-1992.
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Raymond S. Vogt 55 Vice President, Human Resources since May 1996; prior thereto, Vice
President, Human Resources, AM International 1995-1996; FMC
Corporation, Director of Human Resources, FMC Europe 1995; Director,
Human Resources, Food Machinery Group 1991-1995.
John H. Weaver 58 Vice President, President, Lincoln Russia, Africa and Middle East
since April 1996; Vice President, Export Sales 1994-1996:
International Sales Manager 1987-1994.
</TABLE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a)(1) Financial Statements
--------------------
The following consolidated financial statements of the Company are
included in a separate section of this report following the signature
page:
Consolidated Balance Sheets -- December 31, 1996 and 1995
Consolidated Statements of Income -- Years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Shareholders' Equity -- Years ended December
31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- Years ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements -- December 31, 1996
Report of Independent Auditors
(a)(2) Financial Statement Schedules
-----------------------------
The following consolidated financial statement schedule of the Company
is included in a separate section of this report following the
signature page:
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore, have been omitted.
16
<PAGE> 17
(a)(3) Exhibits
--------
Exhibit No. Description
----------- ----------------------------------------------------
3(a) Restated Articles of Incorporation of The Lincoln
Electric Company (filed as exhibit 4.1 to the
Registration Statement on Form S-3 of The Lincoln
Electric Company, as filed and amended on June 26,
1995, SEC Registration No. 33-58881 and incorporated
herein by reference and made a part hereof).
3(b) Restated Code of Regulations of The Lincoln Electric
Company (filed as Exhibit 2 to the Registration
Statement on Form 8-A for the Class A Common Shares
of The Lincoln Electric Company filed on June 5, 1995
and incorporated herein by reference and made a part
hereof).
4(a) Note Agreement dated November 20, 1991 between The
Prudential Insurance Company of America and the
Company (filed as Exhibit 4 to Form 10-K of The
Lincoln Electric Company for the year ended December
31, 1991, SEC File No. 0-1402 and incorporated by
reference and made a part hereof), as amended by
letter dated March 18, 1993; 8.98% Senior Note Due
November 26, 2003 (filed as Exhibit 4(a) to Form 10-K
of The Lincoln Electric Company for the year ended
December 31, 1992, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof); as further amended by letter dated as of
November 19, 1993; 8.98% Senior Note Due November 26,
2003 (filed as Exhibit 4(a) to Form 10-K of The
Lincoln Electric Company for the year ended December
31, 1993, SEC File No. 0-1402 and incorporated herein
by reference and made a part hereof); as further
amended by letter dated October 31, 1994 (filed as
Exhibit 4(a) to Form 10-Q of The Lincoln Electric
Company for the period ended September 30, 1994, SEC
File No. 0-1402 and incorporated herein by reference
and made a part hereof); and as further amended by
letter dated December 20, 1995 (filed as Exhibit 4(a)
to Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
4(b) Credit Agreement dated December 20, 1995 among the
Company, the Banks listed on the signature page
thereof, and Society National Bank, as Agent (filed
as Exhibit 4(b) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1995, SEC
File No. 0-1402 and incorporated herein by reference
and made a part hereof).
10(a) The Lincoln Electric Company 1988 Incentive Equity
Plan (filed as Exhibit 28 to the Form S-8
Registration Statement of The Lincoln Electric
Company, SEC File No. 33-25209 and incorporated
herein by reference and made a part hereof).
10(b) Form of Indemnification Agreement (filed as Exhibit
10(b) to Form 10-K of the Lincoln Electric Company
for the year ended December 31, 1994, SEC File No.
0-1402 and incorporated herein by reference).
17
<PAGE> 18
Exhibit No. Description
----------- -----------------------------------------------------
10(c) The Lincoln Electric Company Supplemental Executive
Retirement Plan, as amended (filed as Exhibit 10(c)
to Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
10(d) The Lincoln Electric Company Deferred Compensation
Plan, as amended (filed as Exhibit 10(d) to Form 10-K
of The Lincoln Electric Company for the year ended
December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
10(e) Description of Management Incentive Plan (filed as
Exhibit 10(e) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1995, SEC
File No. 0-1402 and incorporated herein by reference
and made a part hereof).
10(f) Description of Non-Employee Directors' Restricted
Stock Plan (filed as Exhibit 10(f) to Form 10-K of
The Lincoln Electric Company for the year ended
December 31, 1995 SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
10(g) The Lincoln Electric Company Non-Employee Directors'
Deferred Compensation Plan (filed as Exhibit 10(g) to
Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part
hereof).
10(h) Retirement Agreement between the Company and
Frederick W. Mackenbach dated November 8, 1995 (filed
as Exhibit 10(h) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1995, SEC
File No. 0-1402 and incorporated herein by reference
and made a part hereof).
10(i) Employment Retirement and Consulting Agreement
between the Company and Donald F. Hastings, dated
February 14, 1997, filed herewith.
10(j) Employment and Retirement Agreement between the
Company and David Fullen, dated December 12, 1996,
filed herewith.
10(k) Employment Agreement between the Company and Anthony
A. Massaro dated July 14, 1993, as amended on January
1, 1994 (filed as Exhibit 10(e) to Form 10-K of The
Lincoln Electric Company for the year ended December
31, 1994, SEC File No. 0-1402, and incorporated
herein by reference).
10(l) Employment Agreement between the Company and H. Jay
Elliott dated June 22, 1993 (filed as Exhibit 10(f)
to Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1994, SEC File No. 0-1402,
and incorporated herein by reference).
10(m) Employment Agreement between the Company and
Frederick G. Stueber dated February 22, 1995 (filed
as Exhibit 10(g) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1994, SEC
File No. 0-1402, and incorporated herein by
reference).
18
<PAGE> 19
Exhibit No. Description
----------- -----------------------------------------------------
10(n) The Lincoln Electric Company Employee Savings Plan
(filed on Form S-8 Registration Statement of The
Lincoln Electric Company, SEC file No. 33-64187 and
incorporated herein by reference and made a part
hereof).
10(o) 1995 Lincoln Stock Purchase Plan (filed on Form S-8
Registration Statement of The Lincoln Electric
Company, SEC File No. 33-64189 and incorporated
herein by reference and made a part hereof).
11 Computation of earnings per share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K during the fourth
quarter of 1996.
(c) The exhibits which are listed under Item 14 (a) (3) are filed or
incorporated by reference herein.
(d) The financial statement schedule which is listed under item 14 (a) (2)
is filed hereunder.
Upon request, The Lincoln Electric Company will furnish to security holders
copies of any exhibit to the Form 10-K report upon payment of a reasonable fee.
Any requests should be made in writing to: Mr. H. Jay Elliott, Senior Vice
President, Chief Financial Officer and Treasurer, The Lincoln Electric Company,
22801 St. Clair Avenue, Cleveland, Ohio 44117, Phone: (216) 481-8100.
19
<PAGE> 20
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.
The Lincoln Electric Company
------------------------------
(Registrant)
By: /s/ H. JAY ELLIOTT
--------------------
H. Jay Elliott
Senior Vice President, Chief Financial
Officer and Treasurer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 15, 1997.
<TABLE>
<CAPTION>
<S> <C>
/s/ Donald F. Hastings /s/ H. Jay Elliott
- ------------------------------------ ------------------------------------
Donald F. Hastings, Chairman of H. Jay Elliott, Senior Vice President,
the Board Chief Financial Officer and Treasurer
(principal financial and accounting officer)
/s/ Anthony A. Massaro
- ------------------------------------
Anthony A. Massaro, President and
Chief Executive Officer
(principal executive officer)
/s/ Harry Carlson /s/ Kathryn Jo Lincoln
- ------------------------------------ ------------------------------------
Harry Carlson, Director Kathryn Jo Lincoln, director
/s/ David H. Gunning /s/ Frederick W. Mackenbach
- ------------------------------------ ------------------------------------
David H. Gunning, Director Frederick W. Mackenbach, Director
/s/ Edward E. Hood /s/ Henry L. Meyer III
- ---------------------------------- -------------------------------------
Edward E. Hood, Jr., Director Henry L. Meyer III, Director
/s/ Paul E. Lego /s/ Lawrence O. Selhorst
- ------------------------------------ ------------------------------------
Paul E. Lego, Director Lawrence O. Selhorst, Director
/s/ Hugh L. Libby /s/ Craig R. Smith
- ---------------------------------- ------------------------------------
Hugh L. Libby, Director Craig R. Smith, Director
/s/ David C. Lincoln /s/ Frank L. Steingass
- ------------------------------------ ------------------------------------
David C. Lincoln, Director Frank L. Steingass, Director
/s/ G. Russell Lincoln
- ------------------------------------
G. Russell Lincoln, Director
</TABLE>
20
<PAGE> 21
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2) AND ITEM 14(d)
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
21
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
The Lincoln Electric Company
We have audited the consolidated financial statements of The Lincoln Electric
Company and subsidiaries listed in the accompanying Index to Financial
Statements at Item 14 (a)(1). Our audits also included the financial statement
schedule listed in the Index at Item 14 (a)(2). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Lincoln Electric Company and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
Cleveland, Ohio
February 10, 1997
22
<PAGE> 23
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1996 1995
------- --------
(In thousands of dollars)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 40,491 $ 10,087
Accounts receivable (less allowances of $2,878 in 1996;
$3,916 in 1995) 151,287 140,833
Inventories
Raw materials and in-process 79,100 86,335
Finished goods 91,555 96,530
-------- --------
170,655 182,865
Deferred income taxes 10,579 9,738
Other current assets 10,197 13,560
-------- --------
TOTAL CURRENT ASSETS 383,209 357,083
OTHER ASSETS
Goodwill 37,440 39,154
Other 25,311 15,929
-------- --------
62,751 55,083
PROPERTY, PLANT AND EQUIPMENT
Land 11,710 12,396
Buildings 114,640 123,360
Machinery, tools and equipment 335,738 354,855
-------- --------
462,088 490,611
Less: accumulated depreciation 260,849 285,017
-------- --------
201,239 205,594
-------- --------
TOTAL ASSETS $647,199 $617,760
======== ========
</TABLE>
23
<PAGE> 24
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1996 1995
--------- ---------
(In thousands of dollars,
except share data)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 2,607 $ 28,541
Trade accounts payable 58,157 53,882
Salaries, wages and amounts withheld 18,983 17,080
Taxes, including income taxes 36,297 33,160
Dividend payable 2,977 2,988
Other current liabilities 39,976 31,729
Current portion of long-term debt 10,528 1,269
--------- ---------
TOTAL CURRENT LIABILITIES 169,525 168,649
Long-term debt, less current portion 64,148 93,582
Deferred income taxes 3,643 7,063
Other long-term liabilities 18,107 13,021
Minority interest in subsidiary -- 5,499
SHAREHOLDERS' EQUITY
Common Shares, without par value -- at stated capital amount:
Authorized -- 30,000,000 shares;
Outstanding -- 10,484,247 shares in 1996 and 10,520,987
shares in 1995 2,097 2,104
Class A Common Shares (non-voting), without par value -- at
stated capital amount:
Authorized -- 30,000,000 shares;
Outstanding -- 13,837,697 shares in 1996 and 13,880,171
shares in 1995 2,768 2,776
Class B Common Shares, without par value -- at stated capital
amount:
Authorized -- 2,000,000 shares; Outstanding -- 486,772 shares
in 1996 and 487,117 shares in 1995 97 97
Additional paid-in capital 103,720 102,652
Retained earnings 290,252 228,555
Cumulative translation adjustment (7,158) (6,238)
--------- ---------
391,776 329,946
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 647,199 $ 617,760
========= =========
</TABLE>
See notes to these consolidated financial statements.
24
<PAGE> 25
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
---------- ----------- -----------
(In thousands of dollars, except per share data)
<S> <C> <C> <C>
Net sales $ 1,109,144 $ 1,032,398 $ 906,604
Cost of goods sold 686,545 634,551 556,259
----------- ----------- -----------
Gross profit 422,599 397,847 350,345
Distribution cost/selling, general & administrative expenses 310,258 289,812 261,681
Restructuring (income) (2,735)
----------- ----------- -----------
Operating income 112,341 108,035 91,399
Other income (expense):
Interest income 2,832 1,664 1,442
Other income 10,421 2,231 3,067
Interest expense (7,731) (12,346) (15,740)
----------- ----------- -----------
5,522 (8,451) (11,231)
----------- ----------- -----------
Income before income taxes 117,863 99,584 80,168
Income taxes 43,610 38,109 32,160
----------- ----------- -----------
Net income $ 74,253 $ 61,475 $ 48,008
=========== =========== ===========
Per share:
Net income $ 2.99 $ 2.63 $ 2.19
=========== =========== ===========
</TABLE>
See notes to these consolidated financial statements.
25
<PAGE> 26
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996, 1995, 1994
<TABLE>
<CAPTION>
Common Shares Class A Common Shares Class B Common Shares
------------------- --------------------- --------------------
(In thousands of dollars, except share data) Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 10,381,450 $2,076 - - 499,840 $100
Net Income
Cash Dividends Declared - $.38 per share
Shares Sold to Employees 107,520 22
Shares Issued Under Incentive Equity Plan 25,354 5
Adjustment for the Year
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 10,514,324 2,103 - - 499,840 100
Net Income
Cash Dividends Declared - $.42 per share
Shares Issued Under Incentive Equity Plan 2,500
Stock Dividend 11,016,664 $2,203
Shares Sold in Public Offering, net of expenses 2,863,507 573
Repurchase of Class B Shares (12,723) (3)
Shares Issued to Non-Employee Directors 4,163 1
Adjustment for the Year
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 10,520,987 2,104 13,880,171 2,776 487,117 97
Net Income
Cash Dividends Declared - $.48 per share
Repurchase of Class B Shares (345) -
Shares Issued to Non-Employee Directors 5,734 1
Shares Repurchased Under Incentive Equity Plan (42,474) (8) (42,474) (8)
Options Issued in Settlement of Litigation
Adjustment for the Year
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 10,484,247 $2,097 13,837,697 $2,768 486,772 $ 97
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Cumulative
Additional Retained Translation
(In thousands of dollars, except share data) Paid-in Capital Earnings Adjustment Total
- ---------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1994 $ 22,926 $ 137,307 $ (18,914) $ 143,495
Net Income 48,008 48,008
Cash Dividends Declared - $.38 per share (8,350) (8,350)
Shares Sold to Employees 2,063 2,085
Shares Issued Under Incentive Equity Plan 458 463
Adjustment for the Year 8,432 8,432
- ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 25,447 176,965 (10,482) 194,133
Net Income 61,475 61,475
Cash Dividends Declared - $.42 per share (9,885) (9,885)
Shares Issued Under Incentive Equity Plan 99 99
Stock Dividend (2,203)
Shares Sold in Public Offering, net of expenses 79,296 79,869
Repurchase of Class B Shares (111) (114)
Shares Issued to Non-Employee Directors 124 125
Adjustment for the Year 4,244 4,244
- ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 102,652 228,555 (6,238) 329,946
Net Income 74,253 74,253
Cash Dividends Declared - $.48 per share (11,931) (11,931)
Repurchase of Class B Shares (4) (4)
Shares Issued to Non-Employee Directors 136 137
Shares Repurchased Under Incentive Equity Plan (629) (625) (1,270)
Options Issued in Settlement of Litigation 1,565 1,565
Adjustment for the Year (920) (920)
- ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $103,720 $ 290,252 $ (7,158) $ 391,776
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to these consolidated financial statements.
26
<PAGE> 27
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994
--------- -------- ---------
(In thousands of dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 74,253 $ 61,475 $ 48,008
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 29,488 29,742 27,960
Deferred income taxes (3,083) 2,810 31,862
(Gain) on sale of fixed assets and businesses (8,892) (607) (1,148)
Foreign exchange (gain) loss (82) 1,558 4,047
Provision for restructuring (2,735)
Changes in operating assets and liabilities net of effects from
acquisitions:
(Increase) in accounts receivable (11,167) (13,082) (14,003)
Decrease (increase) in inventories 9,591 (25,648) (6,476)
Decrease (increase) in other current assets 4,287 (2,879) (1,447)
Increase (decrease) in accounts payable 2,834 (1,375) 9,929
Increase (decrease) in other current liabilities 10,511 11,045 (31,026)
Gross change in other noncurrent assets and liabilities (2,095) 1,991 2,458
Other--net 2,188 426 1,237
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 107,833 65,456 68,666
INVESTING ACTIVITIES
Capital expenditures (39,777) (48,351) (37,366)
Proceeds from sale of property, plant and equipment and businesses 22,375 2,909 5,099
--------- --------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (17,402) (45,442) (32,267)
FINANCING ACTIVITIES
Proceeds from the sale of Common Shares and Class A Common Shares 81,180 2,085
Short-term borrowings - net (27,366) 11,749 (8,010)
Proceeds from long-term borrowings 5,461 204,476 317,669
Repayments on long-term borrowings (25,799) (309,111) (351,793)
Cash dividends paid (11,942) (9,100) (8,106)
Other (1,138) 562 838
--------- --------- ---------
NET CASH (USED) BY FINANCING ACTIVITIES (60,784) (20,244) (47,317)
Effect of exchange rate changes on cash and cash equivalents 757 (107) 961
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 30,404 (337) (9,957)
Cash and cash equivalents at beginning of year 10,087 10,424 20,381
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 40,491 $ 10,087 $ 10,424
========= ========= =========
</TABLE>
See notes to these consolidated financial statements.
27
<PAGE> 28
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of dollars except per share data)
December 31, 1996
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of The Lincoln Electric Company and its subsidiaries (the "Company")
after elimination of all significant intercompany accounts, transactions and
profits.
CASH EQUIVALENTS: The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
INVENTORIES: Inventories are valued at the lower of cost or market. For domestic
inventories, cost is determined principally by the last-in, first-out (LIFO)
method, and for non-U.S. inventories cost is determined by the first-in,
first-out (FIFO) method. At December 31, 1996 and 1995, approximately 64% and
63%, respectively, of total inventories were valued using the LIFO method. The
excess of current cost over LIFO cost amounted to $53,660 at December 31, 1996
and $55,300 at December 31, 1995.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost
and include improvements which significantly extend the useful lives of existing
plant and equipment. Depreciation and amortization are computed by both
accelerated and straight-line methods over useful lives ranging from 3 to 20
years for machinery, tools and equipment, and up to 50 years for buildings. Net
gains or losses related to asset dispositions are recognized in earnings in the
period in which dispositions occur.
The carrying value of property, plant and equipment is reviewed if facts and
circumstances indicate a potential impairment of carrying value utilizing
relevant cash flow and profitability information.
RESEARCH AND DEVELOPMENT: Research and development costs, which are expensed as
incurred, were $19,800 in 1996, $19,736 in 1995 and $18,473 in 1994. Included in
research and development costs for 1996 is $2,040 related to in-process research
and development acquired with the purchase of Electronic Welding Systems.
GOODWILL: The excess of the purchase price over the fair value of net assets
acquired is amortized on a straight-line basis over periods not exceeding 40
years. Amounts are stated net of accumulated amortization of $7,960 and $6,750
in 1996 and 1995, respectively.
The carrying value of goodwill is reviewed if facts and circumstances indicate a
potential impairment of carrying value may have occurred.
TRANSLATION OF FOREIGN CURRENCIES: Asset and liability accounts are translated
into U.S. dollars using exchange rates in effect at the date of the consolidated
balance sheet; revenue and expense accounts are translated at monthly exchange
rates. Translation adjustments are reflected as a component of shareholders'
equity.
28
<PAGE> 29
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES - (Continued)
Transaction gains and losses are included in the consolidated statements of
income in distribution cost/selling, general and administrative expenses. The
Company recorded transaction losses of $302 in 1996, $1,930 in 1995 and $3,746
in 1994.
FINANCIAL INSTRUMENTS: The Company, on a limited basis, has used forward
exchange contracts to hedge exposure to exchange rate fluctuations on certain
intercompany loans, purchase and sales transactions and other intercompany
commitments. Contracts are written on a short-term basis and are not held for
trading or speculation purposes. Gains and losses on all forward exchange
contracts are recognized in the consolidated statements of income in the periods
the exchange rates change. At December 31, 1996, the Company had $38,103 of
outstanding forward exchange contracts.
ESTIMATES: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in certain circumstances that affect the amounts reported in the
accompanying consolidated financial statements and notes. Actual results could
differ from these estimates.
NET INCOME PER SHARE: Net income per share is based on the average number of all
shares outstanding during the year (24,861,656 in 1996; 23,350,254 in 1995 and
21,939,982 in 1994).
SUPPLEMENTAL EARNINGS PER SHARE: In 1995, the Company sold Class A Common Shares
in an underwritten public offering (see Note B). The proceeds of the offering
were used to reduce the Company's outstanding indebtedness. Had the proceeds
been received and applied to reduce indebtedness as of January 1, 1995 and 1994,
net income per share would have been $2.54 for 1995 and $2.06 for 1994.
OTHER: Included in distribution cost/selling, general & administrative expenses
are the costs related to the Company's discretionary employee bonus, net of
hospitalization costs ($66,681 in 1996; $66,357 in 1995; and $59,559 in 1994).
Certain reclassifications have been made to prior year financial statements to
conform to current year classifications.
NOTE B -- RECAPITALIZATION
The Company completed a recapitalization in 1995 that included the authorization
of Class A Common Shares, which became a new class of non-voting common shares.
The recapitalization included a distribution payable on June 12, 1995, to
holders of record of the Company's outstanding voting common shares as of June
5, 1995, of a dividend of one Class A Common Share for each outstanding share of
the Company's voting common shares. Retroactive effect has been given to the
stock dividend in the computation of all historical per share data prior to June
1995 in these financial statements.
Prior to the recapitalization, the Company had two authorized and outstanding
classes of voting common shares. As a result of the recapitalization, the
Company's authorized capital consists of two voting classes, the Common Shares,
without par value (formerly the "Common Stock"), and the Class B Common Shares,
without par value (formerly the "Class A Common Stock"), and one non-voting
class, the Class A Common Shares (the new "Class A Common Shares"). The
recapitalization included an increase in the total number of authorized
29
<PAGE> 30
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE B -- RECAPITALIZATION - (Continued)
common shares of all classes from 17 million to 62 million shares consisting of
30 million Common Shares, 30 million Class A Common Shares and 2 million Class B
Common Shares.
On June 29, 1995, the Company sold in an underwritten public offering 2,796,914
Class A Common Shares for $28.35 per share, net of the underwriting discount.
The closing date for the transaction was July 6, 1995, at which time the Company
received the net proceeds of $79,292 which were used to reduce debt of the
Company. On August 2, 1995, the Company sold an additional 66,593 Class A Common
Shares for $28.35 per share under an over-allotment provision of the
Underwriting Agreement and received additional net proceeds of $1,888 which were
also used to reduce debt of the Company.
NOTE C -- STOCK PLANS
The Board of Directors terminated The Lincoln Electric Company Employees' Stock
Purchase Plan effective March 30, 1995, and in May 1995, the shareholders
approved the 1995 Lincoln Stock Purchase Plan ("Purchase Plan"), which provides
employees the ability to purchase open market shares on a commission-free basis
up to a limit of ten thousand dollars annually. In 1996, there were 2,799 Common
Shares and 1,443 Class A Common Shares purchased under this plan. There were no
purchases during 1995.
The Lincoln Electric Company 1988 Incentive Equity Plan ("Incentive Equity
Plan") provides for the award or sale of Common Shares and Class A Common Shares
to officers and other key employees of the Company and its subsidiaries. In
1994, 10,354 common shares were issued under the Incentive Equity Plan and a
corresponding number of Class A Common Shares were distributed at the time of
the 1995 stock dividend. Additionally in 1994, 15,000 shares of restricted stock
(after the stock dividend, 30,000 shares) were issued to two officers of the
Company, with scheduled vesting over time which was completed in January 1997.
In 1995, 5,000 shares of restricted stock were issued to another officer with
vesting over a six-year period.
The Company's Incentive Equity Plan provides for the awarding of stock options
at the discretion of the Board of Directors. On October 1, 1996, the Company
granted non-qualified options for 139,000 Common Shares and 139,000 Class A
Common Shares to key employees. The options are outstanding for a term of ten
years from the date of grant and vest ratably over a period of three years from
the grant date. All such options remained outstanding at December 31, 1996. The
exercise prices of the options were equal to the fair market value of the Common
and Class A Shares at the date of grant, $30.00 and $27.25, respectively. As
permitted under Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation ("SFAS 123"), the Company has chosen to continue to
record stock-based compensation in accordance with the intrinsic value method
established by Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, which measures compensation expense as the excess, if any,
of the market price at the date of grant over the exercise price of the options.
Accordingly, no compensation expense was recognized upon the award of these
stock options.
SFAS 123 requires pro forma disclosure of the before- and after-tax cost of
stock-based compensation when the instruments are measured at fair value. The
pro forma effect on 1996 net income in applying the fair value method was not
material.
30
<PAGE> 31
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE C -- STOCK PLANS - (Continued)
In 1996, the Company settled a lawsuit over performance awards under the
Incentive Equity Plan which resulted in a pre-tax charge of $3,400. The portion
of the settlement paid to current employees was made in the form of stock
options which were recorded at their estimated fair value. The options granted
are exercisable over five- and ten-year periods and are fully vested,
non-qualified and non-transferable. Options for 79,766 Class A Common Shares
were granted at an exercise price of $30.00 per share, and options for 87,824
Class A Common Shares were granted at an exercise price of $34.00 per share. As
of December 31, 1996, no options granted under this settlement had been
exercised.
At December 31, 1996, there were 810,976 Common Shares and 643,386 Class A
Common Shares reserved for future issuance under the Incentive Equity Plan.
The Lincoln Electric Company Employee Stock Ownership Plan (the "ESOP") is a
non-contributory profit-sharing plan established to provide deferred
compensation benefits for all eligible employees. The cost of the plan is borne
by the Company through contributions to an employee stock ownership trust. In
May 1989, shareholders authorized 2,000,000 shares of Class B Common Shares
(formerly the "Class A Common Stock"), without par value. The Company's Common
Shares and Class B Common Shares are identical in all respects, except that
holders of Class B Common Shares are subject to certain transfer restrictions
and the Class B Common Shares are only issued to the ESOP. In 1996 and 1995, no
shares were issued to the ESOP. At December 31, 1996, 1,513,228 authorized but
unissued shares are available for future issuance to the ESOP.
The Lincoln Non-Employee Directors' Restricted Stock Plan ("Non-Employee
Directors' Plan") was adopted in May 1995. The Non-Employee Directors' Plan
provides for distributions of ten thousand dollars worth of Common Shares to
each non-employee Director as part of an annual retainer. During 1996 and 1995,
5,734 and 4,163 shares were issued to 14 and 13 non-employee Directors,
respectively, under this plan.
31
<PAGE> 32
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE D -- SHORT-TERM AND LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31,
1996 1995
------- -------
<S> <C> <C>
Short-term debt:
Notes payable to banks at interest rates from 3.64% to 10.25%
(5.36% to 12.50% in 1995) $ 2,607 $28,541
======= =======
Long-term debt:
Multi-currency Credit Agreement, due December 20, 2000 (5.975%) $ -- $10,000
8.73% Senior Note due 2003 (seven equal annual principal
payments remaining) 65,625 75,000
Other borrowings due through 2023, interest at 2.00% to 12.00%
(2.00% to 6.20% in 1995) 9,051 9,850
------- -------
74,676 94,850
Less current portion 10,528 1,268
------- -------
Total $64,148 $93,582
======= =======
</TABLE>
In December 1995, the Company entered into a $200 million unsecured,
multi-currency Credit Agreement. The terms of the Credit Agreement, which
expires December 20, 2000, provide for annual extensions. The interest rate on
outstanding borrowings is determined based upon defined leverage rates for the
pricing options selected. The interest rate can range from LIBOR plus .20% to
LIBOR plus .30% depending upon the defined leverage rate. The agreement also
provides for a facility fee ranging from .10% to .15% per annum based upon the
daily aggregate amount of the commitment. The Credit Agreement and the 8.73%
Senior Note due in 2003 contain financial covenants which require the same
interest coverage and funded debt-to-capital ratios.
Maturities of long-term debt for the five years succeeding December 31, 1996 are
$10,528 in 1997, $10,183 in 1998, $9,846 in 1999, $9,691 in 2000, $11,247 in
2001 and $23,181 thereafter.
Total interest paid was $7,800 in 1996, $12,606 in 1995 and $17,400 in 1994.
Weighted-average interest rates on notes payable to banks at December 31, 1996
and 1995 were 6.1% and 6.4%, respectively.
32
<PAGE> 33
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E -- INCOME TAXES
The components of income before income taxes were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
U.S. $ 94,951 $ 80,351 $ 70,703
Non-U.S 22,912 19,233 9,465
-------- -------- --------
Total $117,863 $ 99,584 $ 80,168
======== ======== ========
</TABLE>
Components of income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Current:
Federal $ 33,484 $ 24,605 $ (8,379)
Non-U.S 6,197 5,465 4,143
State and local 7,012 5,229 4,534
-------- -------- --------
46,693 35,299 298
Deferred:
Federal (2,735) 2,576 31,223
Non-U.S (348) 234 639
-------- -------- --------
(3,083) 2,810 31,862
-------- -------- --------
Total $ 43,610 $ 38,109 $ 32,160
======== ======== ========
</TABLE>
The differences between total income tax expense and the amount computed by
applying the statutory Federal income tax rate to income before income taxes are
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- ---------
<S> <C> <C> <C>
Statutory rate of 35% applied
to pre-tax income $ 41,252 $ 34,854 $ 28,059
Effect of state and local income taxes, net of Federal
tax benefit 4,558 3,399 2,947
Taxes in excess of (less than) the U.S. tax rate on non-
U.S. earnings, including utilization of net operating
loss carryforwards (2,663) (605) 955
Foreign sales corporation (1,220) (961) (838)
Other - net 1,683 1,422 1,037
-------- -------- --------
Total $ 43,610 $ 38,109 $ 32,160
======== ======== ========
</TABLE>
Total income tax payments, net of refunds, were $36,764 in 1996, $22,428 in 1995
and $6,115 in 1994.
33
<PAGE> 34
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E -- INCOME TAXES - (Continued)
At December 31, 1996, the Company's non-U.S. subsidiaries had net operating loss
carryforwards of approximately $49,600 which expire in various years from 1997
through 2006, except for $18,025 for which there is no expiration date. Income
tax expense for the years 1996, 1995 and 1994 was reduced by $3,467, $2,525 and
$1,273, respectively, due to utilization of these net operating loss
carryforwards.
Significant components of the Company's deferred tax assets and liabilities at
December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 16,106 $ 20,917
U.S. foreign tax credits 1,797
State income taxes 2,256 926
Inventory (1,407) (1,003)
Other accruals 9,346 5,826
Employee benefits 5,912 1,983
Pension obligations 3,975 2,038
Other 11,965 8,017
-------- --------
48,153 40,501
Valuation allowance (16,161) (21,955)
-------- --------
31,992 18,546
Deferred tax liabilities:
Depreciation (16,526) (11,820)
Pension obligations (6,838) (1,401)
Other deferred tax liabilities (1,692) (2,650)
-------- --------
(25,056) (15,871)
-------- --------
Total $ 6,936 $ 2,675
======== ========
</TABLE>
The Company does not provide deferred income taxes on unremitted earnings of
non-U.S. subsidiaries as such funds are deemed permanently reinvested to finance
non-U.S. expansion and meet operational needs on an ongoing basis. Upon
distribution of those earnings in the form of dividends or otherwise, the
Company would be subject to both U.S. income taxes subject to an adjustment for
foreign tax credits and withholding taxes payable to the various non-U.S.
countries. Determination of the amount of unrecognized deferred U.S. income tax
liability is not practicable because of the complexities associated with its
calculation; however, unrecognized non-U.S. tax credits and withholding taxes
paid upon distribution would be available to reduce some portion of the U.S.
liability.
34
<PAGE> 35
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS
The Company and its subsidiaries maintain a number of defined benefit and
defined contribution plans to provide retirement benefits for employees in the
United States as well as employees in non-U.S. countries. These plans are
maintained and contributions are made in accordance with the Employee Retirement
Income Security Act of 1974, local statutory law or as determined by the Board
of Directors. The plans generally provide benefits based upon years of service
and compensation. Pension plans are funded except for a supplemental employee
retirement plan for certain key employees.
A summary of the components of total pension expense is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
U.S. Plans:
Service cost - benefits earned during the year $ 9,417 $ 7,375 $ 7,155
Interest cost on projected benefit obligation 23,250 21,847 19,601
Actual return on plan assets (23,169) (37,696) (18,795)
Net amortization and deferral 266 17,819 (528)
-------- -------- --------
Net pension cost of defined benefit plans 9,764 9,345 7,433
Defined contribution plans 149 154 258
-------- -------- --------
Total U.S. plans 9,913 9,499 7,691
Non-U.S. Plans:
Service cost - benefits earned during the year 1,639 1,476 1,524
Interest cost on projected benefit obligation 2,477 2,291 2,207
Actual return on plan assets (3,733) (3,186) (932)
Net amortization and deferral 804 374 (1,717)
-------- -------- --------
Net pension cost of defined benefit plans 1,187 955 1,082
Defined contribution plans 690 687 702
-------- -------- --------
Total Non-U.S. plans 1,877 1,642 1,784
-------- -------- --------
Total pension expense $ 11,790 $ 11,141 $ 9,475
======== ======== ========
</TABLE>
35
<PAGE> 36
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS -
(Continued)
The funded status of the U.S. and non-U.S. plans at December 31, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
U.S. Non-U.S.
1996 1995 1996 1995
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated benefit obligations:
Vested $ 275,052 $ 261,132 $ 32,247 $ 26,659
Nonvested 4,480 9,407 1,249 1,080
--------- --------- --------- ---------
$ 279,532 $ 270,539 $ 33,496 $ 27,739
========= ========= ========= =========
Actuarial present value of projected benefit obligations $ 323,673 $ 309,359 $ 36,908 $ 31,153
Plan assets at fair value 304,017 282,843 41,530 35,270
--------- --------- --------- ---------
Plan assets in excess of (less than) projected benefit
obligations (19,656) (26,516) 4,622 4,117
Unrecognized net (gain) loss 14,966 16,725 (1,897) (1,759)
Unrecognized prior service cost 9,590 12,651 477 505
Unrecognized transition assets, net of amortization (2,214) (2,581) (1,226) (1,359)
Minimum liability (474) (1,208) -- (321)
--------- --------- --------- ---------
Prepaid (accrued) pension expense recognized
in the balance sheet $ 2,212 $ (929) $ 1,976 $ 1,183
========= ========= ========= =========
</TABLE>
Assumptions used in accounting for the defined benefit plans as of December 31,
1996 and 1995 for the U.S. and non-U.S. plans were as follows:
<TABLE>
<CAPTION>
U.S. Non-U.S.
Plans Plans
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average discount rates 7.6% 7.5% 7.7% 8.1%
Projected rates of increase in compensation 5.3% 5.5% 4.7% 4.8%
Expected rates of return on plan assets 9.0% 9.0% 8.1% 8.4%
</TABLE>
U.S. plan assets consist principally of deposit administration contracts, an
investment contract with an insurance company and equity and fixed income
securities. Non-U.S. plan assets are invested in non-U.S. insurance contracts
and non-U.S. equity and fixed income securities.
The Company does not have, and does not provide for, any postretirement or
postemployment benefits other than pensions.
36
<PAGE> 37
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE F -- RETIREMENT ANNUITY AND GUARANTEED CONTINUOUS EMPLOYMENT PLANS -
(Continued)
The Cleveland, Ohio, area operations have a Guaranteed Continuous Employment
Plan covering substantially all employees, which, in general, provides that the
Company will provide work for at least 75% of every standard work week
(presently 40 hours). This plan does not guarantee employment when the Company's
ability to continue normal operations is seriously restricted by events beyond
the control of the Company. The Company has reserved the right to terminate this
plan effective at the end of a calendar year by giving notice of such
termination not less than six months prior to the end of such year.
NOTE G -- INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION
The Company's primary business is the design, manufacture and sale, in the U.S.
and international markets of arc, cutting and other welding products. The
Company also designs, manufactures and sells integral horsepower industrial
electric motors. Financial information by geographic areas follows:
<TABLE>
<CAPTION>
United Other
States Europe Countries Eliminations Total
---------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1996:
Net sales to unaffiliated
customers $ 752,952 $ 219,436 $ 136,756 $ -- $1,109,144
Inter-geographic sales 55,942 10,786 9,219 (75,947)
---------- ---------- ---------- ---------- ----------
Total $ 808,894 $ 230,222 $ 145,975 $ (75,947) $1,109,144
========== ========== ========== ========== ==========
Operating income $ 90,271 $ 9,993 $ 12,431 $ (354) $ 112,341
Identifiable assets 416,911 183,938 87,808 (41,458) 647,199
1995:
Net sales to unaffiliated
customers $ 711,940 $ 201,672 $ 118,786 $ -- $1,032,398
Inter-geographic sales 53,347 15,662 9,092 (78,101)
---------- ---------- ---------- ---------- ----------
Total $ 765,287 $ 217,334 $ 127,878 $ (78,101) $1,032,398
========== ========== ========== ========== ==========
Operating income $ 87,044 $ 11,350 $ 10,246 $ (605) $ 108,035
Identifiable assets 404,972 188,906 80,594 (56,712) 617,760
1994:
Net sales to unaffiliated
customers $ 641,607 $ 156,803 $ 108,194 $ -- $ 906,604
Inter-geographic sales 40,876 10,558 7,060 (58,494)
---------- ---------- ---------- ---------- ----------
Total $ 682,483 $ 167,361 $ 115,254 $ (58,494) $ 906,604
========== ========== ========== ========== ==========
Operating income $ 81,091 $ 5,843 $ 4,410 $ 55 $ 91,399
Identifiable assets 350,012 161,691 75,880 (30,726) 556,857
</TABLE>
37
<PAGE> 38
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE G -- INDUSTRY AND GEOGRAPHIC SEGMENT INFORMATION - (Continued)
Intercompany sales between geographic regions are accounted for at prices
comparable to normal, customer sales and are eliminated in consolidation.
Export sales (excluding intercompany sales) from the United States were $90,706
in 1996, $81,770 in 1995 and $64,400 in 1994.
NOTE H -- ACQUISITION AND DIVESTITURES
In July 1996, the Company acquired Electronic Welding Systems (EWS), a designer
and supplier of welding power supplies and plasma cutting equipment, based in
Italy. The acquisition was accounted for as a purchase. The results of
operations of EWS, which are not material, are included in the Consolidated
Statement of Income from the date of acquisition. The net cost of the
acquisition, $5,520, net of cash received, is included in capital expenditures
in the Consolidated Statement of Cash Flows for the year ended December 31,
1996.
Also during 1996, the Company sold its Louisiana and Alaska gas distribution
businesses for net cash proceeds of $17,343. The Company realized a gain on
disposal of these businesses of $8,365 ($5,093 after-tax, or $0.20 per share),
which is included in other income. The results of operations from these
businesses were not material to the Company for the years ended December 31,
1996, 1995 and 1994.
NOTE I -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company has various financial instruments, including cash, cash equivalents,
short- and long-term debt and forward contracts. The Company has determined the
estimated fair value of these financial instruments by using available market
information and appropriate valuation methodologies which require judgment.
Accordingly, the use of different market assumptions or estimation methodologies
could have a material effect on the estimated fair value amounts. The total
notional value of forward currency exchange contracts at December 31, 1996 was
$38,103.
The carrying amounts and estimated fair value of the Company's significant other
financial instruments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------ ------------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
------- ----- ------- -----
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 40,491 $ 40,491 $ 10,087 $ 10,087
Notes payable to banks 2,607 2,607 28,541 28,541
Long-term debt (including current portion) 74,676 77,061 94,850 101,026
Forward contracts 214 214 (167) (167)
</TABLE>
38
<PAGE> 39
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE J -- OPERATING LEASES
The Company leases sales offices, warehouses and distribution centers, office
equipment and data processing equipment. Such leases, some of which are
noncancelable and, in many cases, include renewals, expire at various dates. The
Company pays most maintenance, insurance and taxes relating to leased assets.
Rental expense was $8,345 in 1996, $8,852 in 1995 and $9,226 in 1994.
At December 31, 1996, total minimum lease payments for noncancelable operating
leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 6,382
1998 5,681
1999 4,830
2000 3,678
2001 1,742
Thereafter 3,496
-------
Total $25,809
=======
</TABLE>
NOTE K -- CONTINGENCIES
The Company is subject to a variety of civil and administrative proceedings
arising out of its normal operations, including those relating to product
liability claims, health, safety and environmental claims and employment-related
actions. Based on information known to the Company, and subject to the factors
and contingencies noted below, management believes the outcome of pending
litigation will not have a material adverse effect upon the consolidated
financial position of the Company.
The Company has been named as a co-defendant in nine lawsuits in California,
all arising from alleged property damage claimed to have been discovered after
the Northridge, California, earthquake of January 1994. One case, filed in 1997
as a class action complaint against the Company and at least 100 other unnamed
"John Doe" defendants, alleges a certain category of welding electrode
manufactured by the Company and others was defective for use in "moment
resisting" steel frame buildings in seismically sensitive areas. The complaint
claims there may be 1,500 such buildings, with damages (including costs of
inspection, retrofitting and repairs, loss of income, and diminution in value)
exceeding $1 billion; it also seeks punitive damages. The other eight cases are
not pled as class actions, but involve substantially similar allegations with
respect to certain similar type buildings in Los Angeles County.
While the ultimate outcome of the earthquake-related litigation described
above cannot be determined at this time, management believes the Company has
substantial defenses and intends to contest the suits vigorously. The Company
believes that it has applicable insurance and that other potential defendants
and their respective insurers will be identified as the lawsuits proceed.
However, if the Company is unsuccessful in defending or otherwise
satisfactorily resolving these lawsuits, and if insurance coverage is
unavailable or inadequate, then the litigation could have a material adverse
impact on the Company's operating results, financial position and liquidity.
39
<PAGE> 40
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE L -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 MAR 31 JUN 30 SEP 30 DEC 31
---- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $278,712 $284,508 $270,947 $274,977
Gross profit 106,554 109,757 104,012 102,276
Income before income taxes 26,751 32,121 31,103 27,888
Net income 16,557 20,223 19,671 17,802
Net income per share $ 0.67 $ 0.81 $ 0.79 $ 0.72
</TABLE>
<TABLE>
<CAPTION>
1995 MAR 31 JUN 30 SEP 30 DEC 31
---- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $263,407 $268,199 $249,525 $251,267
Gross profit 101,862 107,215 93,530 95,240
Income before income taxes 26,856 27,962 23,473 21,293
Net income 16,054 17,385 14,710 13,326
Net income per share (a) $ 0.73 $ 0.79 $ 0.59 $ 0.54
<FN>
(a) - Net income per share is computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share in 1995 does
not equal the total computed for the year due to stock transactions which
occurred during 1995.
</TABLE>
40
<PAGE> 41
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
(In thousands of dollars)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------
Additions
---------------------------
(1)
Charged
Balance at Charged to to other Balance
beginning costs and accounts (2) at end
Description of period expenses describe Deductions of period
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996 $3,916 $ 193 $ (127)(1) $1,104 (3) $2,878
Year ended December 31, 1995 $4,251 $ 944 $ 194 (1) $1,473 $3,916
Year ended December 31, 1994 $6,258 $ 995 $ 117 (1) $3,119 (4) $4,251
<FN>
(1) -- Currency translation adjustment.
(2) -- Uncollectible accounts written-off, net of recoveries.
(3) -- Includes balance of $363 at the dates of disposition relating to the
Alaska and Louisiana gas distribution businesses.
(4) -- Includes $2,480 relating to accounts written off during 1994 in
connection with the Company's restructuring activities.
</TABLE>
41
<PAGE> 42
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
3(a) Restated Articles of Incorporation of The Lincoln Electric
company (filed as Exhibit 4.1 to the Registration Statement
on Form S-3 of The Lincoln Electric Company, as filed and
amended on June 26, 1995, SEC Registration No. 33-58881 and
incorporated herein by reference and made a part hereof).
3(b) Restated Code of Regulations of The Lincoln Electric Company
(filed as Exhibit 2 to the Registration Statement on Form
8-A for the Class A Common Shares of The Lincoln Electric
Company filed on June 5, 1995 and incorporated herein by
reference and made a part hereof).
4(a) Note Agreement dated November 20, 1991 between The
Prudential Insurance Company of America and the Company
(filed as Exhibit 4 to form 10-K of The Lincoln Electric
Company for the year ended December 31, 1991, SEC File No.
0-1402 and incorporated by reference and made a part
hereof), as amended by letter dated March 18, 1993; 8.98%
Senior Note Due November 26, 2003 (filed as Exhibit 4(a) to
Form 10-K of The Lincoln Electric Company for the year ended
December 31, 1992, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof); as further
amended by letter dated as of November 19, 1993; 8.98%
Senior Note Due November 26, 2003 (filed as Exhibit 4(a) to
Form 10-K of The Lincoln Electric Company for the year ended
December 31, 1993, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof); as further
amended by letter dated October 31, 1994 (filed as Exhibit
4(a) to Form 10-Q of The Lincoln Electric Company for the
period ended September 30, 1994, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof);
and as further amended by letter dated December 20, 1995
(filed as Exhibit 4(a) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1995, SEC File No.
0-1402 and incorporated herein by reference and made a part
hereof).
4(b) Credit Agreement dated December 20, 1995 among the Company,
the Banks listed on the signature page thereof, and Society
National Bank, as Agent (filed as Exhibit 4(b) to Form 10-K
of The Lincoln Electric Company for the year ended December
31, 1995, SEC File No. 0-1402 and incorporated herein by
reference and made a part hereof).
10(a) The Lincoln Electric Company 1988 Incentive Equity Plan
(filed as Exhibit 28 to the Form S-8 Registration Statement
of The Lincoln Electric Company, SEC File No. 33-25209 and
incorporated herein by reference and made a part hereof).
10(b) Form of Indemnification Agreement (filed as Exhibit 10(b) to
Form 10-K of The Lincoln Electric Company for the year ended
December 31, 1994, SEC File No. 0-1402 and incorporated
herein by reference).
42
<PAGE> 43
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
10(c) The Lincoln Electric Company Supplemental Executive
Retirement Plan, as amended (filed as Exhibit 10(c) to Form
10-K of The Lincoln Electric Company for the year ended
December 31, 1995, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof).
10(d) The Lincoln Electric Company Deferred Compensation Plan, as
amended (filed as Exhibit 10(d) to Form 10-K of The Lincoln
Electric Company for the year ended December 31, 1995, SEC
File No. 0-1402 and incorporated herein by reference and
made a part hereof).
10(e) Description of Management Incentive Plan (filed as Exhibit
10(e) to Form 10-K of The Lincoln Electric Company for the
year ended December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof).
10(f) Description of Non-Employee Directors' Restricted Stock Plan
(filed as Exhibit 10(f) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1995, SEC File No.
0-1402 and incorporated herein by reference and made a part
hereof).
10(g) The Lincoln Electric Company Non-Employee Directors'
Deferred Compensation Plan (filed as Exhibit 10(g) to Form
10-K of The Lincoln Electric Company for the year ended
December 31, 1995, SEC File No. 0-1402 and incorporated
herein by reference and made a part hereof).
10(h) Retirement Agreement between the Company and Frederick W.
Mackenbach dated November 8, 1995 (filed as Exhibit 10(h)
to Form 10-K of The Lincoln Electric Company for the year
ended December 31, 1995, SEC File No. 0-1402 and
incorporated herein by reference and made a part hereof).
10(i) Employment Retirement and Consulting Agreement between the
Company and Donald F. Hastings, dated February 14, 1997,
filed herewith.
10(j) Employment and Retirement Agreement between the Company and
David Fullen, dated December 12, 1996, filed herewith.
10(k) Employment Agreement between the Company and Anthony A.
Massaro dated July 14, 1993, as amended on January 1, 1994
(filed as Exhibit 10(e) to Form 10-K of The Lincoln Electric
Company for the year ended December 31, 1994, SEC File No.
0-1402, and incorporated herein by reference).
10(l) Employment Agreement between the Company and H. Jay Elliott
dated June 22, 1993 (filed as Exhibit 10(f) to Form 10-K of
The Lincoln Electric Company for the year ended December 31,
1994, SEC File No. 0-1402, and incorporated herein by
reference).
10(m) Employment Agreement between the Company and Frederick G.
Stueber dated February 22, 1995 (filed as Exhibit 10(g) to
Form 10-K of The Lincoln Electric Company for the year ended
December 31, 1994, SEC File No. 0-1402, and incorporated
herein by reference).
43
<PAGE> 44
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
------ ----------------------
10(n) The Lincoln Electric Company Employee Savings Plan (filed on
Form S-8 Registration Statement of The Lincoln Electric
Company, SEC file No. 33-64187 and incorporated herein by
reference and made a part hereof).
10(o) 1995 Lincoln Stock Purchase Plan (filed on Form S-8
Registration Statement of The Lincoln Electric Company, SEC
File No. 33-64189 and incorporated herein by reference and
made a part hereof).
11 Computation of Earnings Per Share.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
44
<PAGE> 1
Exhibit 10(i)
EMPLOYMENT, RETIREMENT AND CONSULTING AGREEMENT
-----------------------------------------------
THIS EMPLOYMENT, RETIREMENT AND CONSULTING AGREEMENT (this "Agreement")
is made and entered into this 14th day of February, 1997, by and between THE
LINCOLN ELECTRIC COMPANY (the "Company," a term which in this Agreement shall
include its predecessors, parents, subsidiaries, divisions, related or
affiliated companies, officers, directors, stockholders, members, employees,
heirs, successors, assigns, representatives, agents and counsel, unless the
context otherwise clearly requires), and DONALD F. HASTINGS ("Executive"),
WITNESSETH:
----------
WHEREAS, Executive is an employee and director of the Company and
currently serves as Chairman of the Board of Directors of the Company;
WHEREAS, the Executive ceased serving as Chief Executive Officer of the
Company, effective October 31, 1996, and the Company and Executive have
determined that Executive shall resign and retire as a director and as an
officer and employee of the Company effective May 27, 1997, and its subsidiaries
and related or affiliated companies effective on the date hereof, and that
Executive will become Chairman Emeritus on May 27, 1997;
WHEREAS, the Company and Executive desire to provide for a consulting
arrangement whereby the Company may continue to benefit from the services of
Executive following his retirement from the Company;
WHEREAS, the Company and Executive desire to make provision for the
payments and benefits that Executive will be entitled to receive from the
Company in consideration for Executive's obligations and actions under this
Agreement and in connection with such resignations and retirement and the
cessation of his employment with the Company; and
WHEREAS, the Company and Executive wish to resolve, settle and/or
compromise any and all matters, claims and issues between them arising from or
relating to Executive's service and employment with the Company, including the
termination thereof;
NOW THEREFORE, in consideration of the promises and agreements contained
herein and other good and valuable consideration, the sufficiency and receipt of
which are hereby acknowledged, and intending to be legally bound, the Company
and Executive agree as follows:
<PAGE> 2
1. EFFECTIVE DATE OF AGREEMENT. This Agreement is effective on the date
hereof and shall continue in effect as provided herein.
2. EMPLOYMENT. Commencing on the date hereof, Executive's employment
shall continue through May 27, 1997 (the "Employment Term"), subject to the
provisions hereof.
3. DUTIES DURING EMPLOYMENT TERM. Executive's principal duties and
authority after the date hereof during the Employment Term will be to serve as
Chairman of the Board of Directors of the Company and as an advisor to the Chief
Executive Officer of the Company.
4. COMPENSATION DURING EMPLOYMENT TERM. In consideration of the services
of the Executive during the Employment Term, and of the promises of Executive in
this Agreement and subject to the conditions hereof, including without
limitation Paragraph 10 of this Agreement, the Company shall:
(a) During the Employment Term, and thereafter until July 2, 1997 as if
Executive remained an employee, continue to pay Executive an annualized base
salary of FIVE HUNDRED FIFTY THOUSAND DOLLARS ($550,000) in accordance with the
Company's regular payroll practices; PROVIDED that (i) no such payment shall be
made unless and until the conditions in Paragraph 10 below have been satisfied,
(ii) the continuance of such payments is contingent upon Executive's compliance
with each and every requirement of this Agreement applicable to him and (iii) if
Executive dies before the completion of the payments described in this
subparagraph 4(a), the remaining payments described in this subparagraph 4(a)
following his death shall be made to his estate.
(b) During the Employment Term continue Executive's eligibility for a
prorated 1997 bonus calculated as if Executive continued his employment with the
Company until July 2, 1997, to be determined by the Board of Directors of the
Company, but in any event, said 1997 prorated bonus shall not be less than
$200,000 if management goals for 1997 are achieved; provided that in each case
(A) no such payment shall be made unless and until each of the conditions in
Paragraph 10 below have been satisfied, (B) the payment of any bonus is
contingent upon Executive's compliance with each and every requirement of this
Agreement applicable to him and (C) if Executive dies before any payment
described in this subparagraph 4(b) is made, such payment described in this
subparagraph 4(b) following his death shall be made to his estate.
(c) Continue to permit Executive to participate in the Company's medical
and life insurance programs, and other plans, programs and perquisites
appropriate for his position and status as a senior officer of the Company, on
the same basis that Executive has participated in such plans, programs and
perquisites, until the end of the Employment Term; provided, however, that
effective on the date hereof, the Company shall neither have any obligation to
maintain the special term life insurance policy in the amount of $3 million on
the life of Executive, nor any obligation to pay any premiums thereon, including
but not limited to premiums that are overdue or delinquent on the date hereof.
<PAGE> 3
5. RESIGNATION AND RETIREMENT.
(a) Executive hereby (i) confirms his resignation as Chief Executive
Officer of the Company effective October 31, 1996, (ii) effective the date
hereof (A) resigns from all boards and offices of any entity that is a
subsidiary of or is otherwise related to or affiliated with the Company, and (B)
resigns from all administrative, fiduciary or other positions he may hold or
have held with respect to arrangements or plans for, of or relating to the
Company, and (iii) agrees to resign from any nonprofit organizations other than
those identified on Exhibit E attached hereto and agrees not to join any other
industry related nonprofit organization without the prior approval of the Chief
Executive Officer of the Company. The costs and expenses associated with the
Executive's memberships in organizations set forth on Exhibit E are the sole
responsibility of the Executive and service for such organizations by Executive
is for and on behalf of Executive. The Company hereby consents to and accepts
said resignations, and the Company records shall so reflect.
(b) Effective May 27, 1997, Executive shall resign and retire from his
employment with the Company, and resign from his position as Chairman of the
Board of Directors of the Company. Effective with the Company's annual meeting
of stockholders on May 27, 1997, Executive shall retire from the Board of
Directors of the Company.
(c) For purposes of Company recognition awards, Executive shall,
notwithstanding his actual retirement date of May 27, 1997 as provided in
subparagraph 5(b), be deemed to have retired on July 2, 1997, the 44th
anniversary of Executive's employment with the Company.
6. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN, ETC. In consideration of the
promises of the Executive in this Agreement and subject to the conditions
hereof, including without limitation Paragraph 10 of this Agreement, the Company
shall:
(a) Pay Executive a supplemental pension (the "Pension") at Executive's
option, which option shall be exercised in writing and delivered to the Company
on or before May 27, 1997: either (i) in a lump sum in an amount calculated in
accordance with the letter dated October 2, 1996 issued by Watson Wyatt &
Company, payable on August 1, 1997, or (ii) TWO HUNDRED EIGHTY-NINE THOUSAND
FOUR HUNDRED FOURTEEN DOLLARS ($289,414) per year, in equal monthly
installments, payable in the form of a single life annuity, commencing with a
payment on August 1, 1997 and ending with a payment on the first day of the
month in which Executive dies;; PROVIDED that (x) no such payment shall be made
unless each of the conditions in the Option Agreements provided for in Paragraph
8(a) and the conditions in Paragraphs 8(b) and 10 below have been satisfied, and
(y) such payment is contingent upon Executive's compliance with each and every
requirement of this Agreement applicable to him; and PROVIDED FURTHER that the
Pension shall be paid through the Company's Supplemental Executive Retirement
Plan (but no other benefit shall be payable to or with respect to Executive
under such plan); and PROVIDED FURTHER that in the event Executive elects to
receive the Pension pursuant to paragraph 6(a)(ii), that Executive may elect to
receive the Pension in the form of an
<PAGE> 4
actuarially equivalent joint and survivor annuity in lieu of a single life
annuity (such actuarial equivalence being determined in accordance with the
terms of the Company's Supplemental Executive Retirement Plan).
(b) Permit Executive to participate in the Company's medical program
through which retirees, at their cost (as determined by the Company), may elect
to have coverage under the Company's medical program that is secondary to
Medicare.
7. CONSULTING SERVICES. Commencing at the expiration of the Employment
Term:
(a) The Company shall retain the Executive's services, and he shall serve
the Company, as a consultant for the period May 28, 1997 through May 31, 2004
("the Consulting Period").
(b) During the Consulting Period, Executive will render to the Company
such services of a consultative nature as the Company reasonably may request, so
that the Company may continue to have the benefit of his experience and
knowledge of the affairs of the Company and of his business reputation and
contacts. Executive will be an advisor to the Chief Executive Officer and will
perform such tasks as the Chief Executive shall designate. The Company
understands and agrees that Executive may relocate his residence elsewhere.
Executive will be available for advice and counsel to the officers and directors
of the Company at all reasonable times by telephone, letter or in person for up
to the equivalent of twenty (20) eight hour days per calendar quarter through
May 31, 1999, and five (5) eight hour days per calendar quarter commencing June
1, 1999 through the end of the Consulting Period, in each case during normal
business hours.
(c) The Company shall pay Executive a consulting fee of FIVE HUNDRED
THOUSAND DOLLARS ($500,000) per annum during the period commencing June 1, 1997
through May 31, 1999, and a consulting fee of ONE HUNDRED THOUSAND DOLLARS
($100,000) per annum during the period commencing June 1, 1999 through the end
of the Consulting Period, in each case payable monthly in arrears.
(d) During the Consulting Period the Company shall reimburse Executive
monthly for travel and other expenses in connection with his services as a
consultant, such reimbursement to be in accordance with the Company's standard
reimbursement practices. The Company hereby agrees to indemnify Executive and
hold Executive harmless from any and all claims, losses, costs and expenses
(including reasonable attorneys fees) incurred, suffered or paid by Executive
arising out of or in connection with Executive's performance of consulting
services to the Company during the Consulting Period unless caused by the
negligence or intentional misconduct of Executive and/or Executive's material
breach of this Agreement. This provision is not intended to limit or eliminate
any indemnification obligations the Company may have to Executive as a result of
Executive's position as an officer and director of the Company.
<PAGE> 5
(e) During the Employment Term and the period May 28, 1997 through
December 31, 1999, the Company will provide Executive with up to 1,250 square
feet of usable office space at a location to be selected by the Company and
acceptable to Executive, including rent, utilities and escalations, but not in
the Company's home office building. The office space shall be furnished with
office furniture and shall be equipped with other reasonable furnishings,
including computer, telephone and photocopy equipment and shall be staffed by a
full-time salaried qualified executive secretary with appropriate fringe
benefits. Ownership of the furnishings and equipment furnished by the Company
shall be retained by the Company and at December 31, 1999 possession thereof
shall be delivered to Company. Reasonable operating expenses of the office shall
be paid by the Company. The Executive may at any time deliver possession of this
office space and the furnishings to the Company, at which time the Company's
obligations to Executive under this subparagraph 7(e) shall cease.
8. Option; Trading of Company Common Shares.
(a) The Company confirms that Executive received conditional grants on
September 24, 1996 of an option to purchase 50,000 Common Shares of the Company
at a price of $30.00 per share (the closing price on October 1, 1996) and an
option to purchase 50,000 Class A Common Shares of the Company at a price of
$27.25 per share (the closing price on October 1, 1996), in accordance with the
terms of the Option Agreements attached hereto as Exhibits A-1 and A-2 and made
a part hereof. Such grants were conditioned on Executive's execution and
delivery of this Agreement. Executive hereby delivers to the Company originals
of the Option Agreements duly executed by Executive.
(b) Executive agrees that, from the date hereof through May 31, 1999, the
Executive shall not dispose of shares of the Company's equity securities except
during a period in which the Company's general counsel confirms that the
Company's then directors and officers are permitted to trade such securities;
provided, however, that from the date hereof through May 31, 1997, Executive may
transfer such equity securities to a private foundation, as such term is defined
in Section 509(a) of the Internal Revenue Code of 1986 (as amended) (the
"Code"), established solely by the Executive (the "Private Foundation").
Executive shall cause his spouse, and any donee or transferee of Executive or
his spouse of such securities, including, but not limited to the Private
Foundation, not to dispose of shares of the Company's equity securities except
for dispositions of such equity securities by the Private Foundation in order to
avoid excise taxes which may be imposed under Section 4942 or 4943 of the Code
or except during a period in which the Company's general counsel confirms that
the Company's then directors and officers are permitted to trade such
securities; provided, however, that the restrictions of this sentence shall not
apply to any transferee that acquires such securities in an open market
transaction that is permitted hereunder. Nothing in this subparagraph 8(b) shall
restrict Executive's right to exercise any exercisable portion of the options
described in subparagraph 8(a).
9. CONSIDERATION FOR RELEASES. Executive acknowledges and agrees that the
consideration provided by the Company to Executive under this Agreement,
including, without limitation, the payments and benefits to be made or provided
by the Company to Executive pursuant to this Agreement and the Option
Agreements, is greater than and in addition to anything
<PAGE> 6
of value to which he otherwise would be entitled from the Company and that the
releases by Executive set forth in Paragraph 10 of this Agreement and the
obligations of and actions taken by Executive under this Agreement are given and
undertaken in consideration of, and adequately supported by, the payments and
benefits to be made or provided to Executive by the Company under and pursuant
to this Agreement and the Option Agreements.
10. RELEASES BY EXECUTIVE.
(a) In consideration of the payments made and to be made and the benefits
to be received by Executive pursuant to Paragraphs 6, 7 and 8(a) of this
Agreement, Executive, for himself and his dependents, successors, assigns,
heirs, executors and administrators (and his and their legal representatives of
every kind), hereby releases, dismisses, remises and forever discharges the
Company from any and all arbitrations, claims, including claims for attorney's
fees, demands, damages, suits, proceedings, actions and/or causes of action of
any kind and every description, whether known or unknown, which Executive now
has or may have had for, upon, or by reason of any cause whatsoever (except that
this release shall not apply to the obligations of the Company arising under
this Agreement) ("claims"), against the Company, including but not limited to:
(i) any and all claims arising out of or relating to Executive's
employment by or service with the Company through the date hereof;
(ii) any and all claims arising out of or relating to the matter
of ELLIS F. SMOLIK VS. THE LINCOLN ELECTRIC COMPANY, Case No. 288514 in
the Common Pleas Court of Cuyahoga County, Ohio;
(iii) any and all claims of discrimination, including but not
limited to claims of discrimination on the basis of sex, race, age,
national origin, marital status, religion or handicap, including,
specifically, but without limiting the generality of the foregoing, any
claims under the Age Discrimination in Employment Act, as amended, Title
VII of the Civil Rights Act of 1964, as amended, the Americans with
Disabilities Act, Ohio Revised Code Section 4101.17 and Ohio Revised Code
Chapter 4112, including Sections 4112.02 and 4112.99 thereof; and
(iv) any and all claims of breach of any contract or promise,
express or implied.
(b) Executive understands and acknowledges that the Company does not
admit any violation of law, liability or invasion of any of his rights and that
any such violation, liability or invasion is expressly denied. The consideration
provided under this Agreement is made for the purpose of settling and
extinguishing all claims and rights (and every other similar or dissimilar
matter) that Executive ever had or now may have against the Company to the
extent provided in this Paragraph 10. Executive further agrees and acknowledges
that no representations, promises or inducements have been made by the Company
other than as appear in this Agreement.
<PAGE> 7
(c) Executive further agrees and acknowledges that:
(i) The release provided for in this Paragraph 10 releases claims
to and including the date of this Agreement;
(ii) He has been advised by the Company to consult with legal
counsel prior to executing this Agreement and the release provided for in
this Paragraph 10, has had an opportunity to consult with and to be
advised by legal counsel of his choice, fully understands the terms of
this Agreement, and enters into this Agreement freely, voluntarily and
intending to be bound;
(iii) He has been given a period of twenty-one (21) days to review
and consider the terms of this Agreement, and the release contained
herein, prior to its execution and that he may use as much of the
twenty-one (21) day period as he desires; and
(iv) He may, within seven (7) days after execution, revoke this
Agreement. Revocation shall be made by delivering a written notice of
revocation to the Vice President of Human Resources at the Company. For
such revocation to be effective, written notice must be actually received
by the Vice President of Human Resources at the Company no later than the
close of business on the seventh (7th) day after Executive executes this
Agreement. If Executive does exercise his right to revoke this Agreement,
all of the terms and conditions of the Agreement shall be of no force and
effect and the Company shall not have any obligation to make payments or
provide benefits or option to Executive as set forth in Paragraphs 6, 7
and 8 of this Agreement, except as may be required under COBRA.
(d) Executive agrees that he will never file a lawsuit or other complaint
asserting any claim that is released in this Paragraph 10.
(e) It is understood and agreed that Executive's resignation and
retirement are by mutual agreement between the Company and Executive, and that
Executive waives and releases any claim that he has or may have to reemployment
after May 27, 1997.
(f) As a condition of the Company's obligation to make payments or
provide benefits to Executive as set forth in Paragraphs 6 and 7 of this
Agreement, and as a condition to any exercise of the options granted pursuant to
the Option Agreements provided for in Paragraph 8(a) of this Agreement,
Executive shall, at the time of his retirement as an employee of the Company
pursuant to Paragraph 5 of this Agreement, execute and deliver the Release
attached hereto as Exhibit B and made a part hereof.
<PAGE> 8
11. CONFIDENTIAL INFORMATION; STATEMENTS TO THIRD PARTIES.
(a) Executive acknowledges and agrees that in the performance of his
duties as an officer and employee of the Company, and as a consultant to the
Company pursuant to Paragraph 7 hereof, he was and may be brought into frequent
contact with, had or may have had access to, and/or became or may become
informed of confidential and proprietary information of the Company and/or
information which is a trade secret of the Company (collectively, "Confidential
Information"), as more fully described in subparagraph (b) of this Paragraph 11.
Executive acknowledges and agrees that the Confidential Information of the
Company gained by Executive during his association with the Company was or will
be developed by and/or for the Company through substantial expenditure of time,
effort and money and constitutes valuable and unique property of the Company.
(b) Executive will keep in strict confidence, and will not, directly or
indirectly, at any time, disclose, furnish, disseminate, make available, use or
suffer to be used in any manner any Confidential Information of the Company
(except as may be necessary in connection with the discharge of Executive's
obligations pursuant to Paragraphs 3, 7 and 15 of this Agreement) without
limitation as to when or how Executive may have acquired such Confidential
Information. Executive specifically acknowledges that Confidential Information
includes any and all information, whether reduced to writing (or in a form from
which information can be obtained, translated, or derived into reasonably usable
form), or maintained in the mind or memory of Executive and whether compiled or
created by the Company, which derives independent economic value from not being
readily known to or ascertainable by proper means by others who can obtain
economic value from the disclosure or use of such information, that reasonable
efforts have been put forth by the Company to maintain the secrecy of
Confidential Information, that such Confidential Information is and will remain
the sole property of the Company, and that any retention or use by Executive of
Confidential Information after the termination of Executive's employment with
and services for the Company shall constitute a misappropriation of the
Company's Confidential Information.
(c) Executive further agrees that he shall return (to the extent he has
not already returned), within ten (10) days of the effective date of his
retirement as an employee of the Company, in good condition, all property of the
Company, including, without limitation, (i) property, documents and/or all other
materials (including copies, reproductions, summaries and/or analyses) which
constitute, refer or relate to Confidential Information of the Company, (ii)
keys to Company property, (iii) files and (iv) blueprints or other drawings.
(d) Executive further acknowledges and agrees that his obligation of
confidentiality shall survive, regardless of any other breach of this Agreement
or any other agreement, by any party hereto, until and unless such Confidential
Information of the Company shall have become, through no fault of Executive,
generally known to the public or Executive is required by law (after providing
the Company with notice and opportunity to contest such requirement) to make
disclosure. Executive's obligations under this Paragraph 11 are in addition to,
and not in limitation or preemption of, all other obligations of confidentiality
which Executive may have to the Company under general legal or equitable
principles or statutes.
<PAGE> 9
(e) Because the purpose of this Agreement is to settle amicably any and
all potential disputes or claims among the parties, neither Executive nor the
Company shall, directly or indirectly, make or cause to be made any statements
to any third parties criticizing or disparaging the other or commenting on the
character or business reputation of the other. Executive further hereby agrees
that, without the prior written consent of the Chief Executive Officer of the
Company, unless otherwise required by law, he will not (1) comment to others
concerning the status, plans or prospects of the business of the Company, (2)
comment to others concerning the status, plans or prospects of any existing,
threatened or potential claims or litigation involving the Company, or (3)
engage in any act or omission that would be detrimental, financially or
otherwise, to the Company, or that would subject the Company to public
disrespect, scandal or ridicule.
12. NON-COMPETITION; CERTAIN ACTIONS.
(a) Executive agrees that for a period commencing on the date of this
Agreement through the end of the Consulting Period, within the Territory (as
described in subparagraph (b)(i) of this Paragraph 12) (and, as to subparagraph
(a)(iii) of this Paragraph 12, any place), he shall not, directly or indirectly,
do or suffer any of the following:
(i) Own, manage, control or participate in the ownership,
management, or control of, or be employed or engaged by or otherwise
affiliated or associated as a consultant, independent contractor or
otherwise with, any other corporation, partnership, proprietorship, firm,
association, or other business entity, or otherwise engage in any
business, which is in competition with the Company's business (as
described in subparagraph (b)(ii) of this Paragraph 12); provided,
however, that the ownership of not more than five percent (5%) of any
class of publicly-traded securities of any entity shall not be deemed a
violation of this Agreement.
(ii) Employ, assist in employing, or otherwise associate in
business with any person who presently or at the end of the Employment
Term is an employee, officer or agent of the Company, or any of its
affiliated, related or subsidiary entities.
(iii) Induce any person who is an employee, officer or agent of
the Company, or any of its affiliated, related, or subsidiary entities to
terminate such relationship.
(b) For purposes of this Agreement:
(i) "Territory" shall mean the countries identified in Exhibit C
hereto.
(ii) The Company's business shall mean the design, manufacture,
distribution and sale of the products identified in Exhibit D hereto.
<PAGE> 10
(c) Executive agrees that for a period commencing on the date of this
Agreement through the end of the Consulting Period, except within the terms of a
specific request from the Company, Executive shall not as a principal, or agent
of another person, propose or publicly announce or otherwise disclose an intent
to propose, or enter into or agree to enter into, singly or with any other
person or directly or indirectly, (i) any form of business combination,
acquisition, or other transaction relating to the Company or any majority-owned
affiliate thereof, (ii) any form of restructuring, recapitalization or similar
transaction with respect to the Company or any such affiliate, or (iii) any
demand, request or proposal to amend, waive or terminate any provision of this
subparagraph 12(c) of this Agreement, nor except as aforesaid during such period
will Executive, except with respect to the exercise of options granted pursuant
to the Option Agreements provided for in Paragraph 8 of this Agreement, as a
principal, or agent of another person, (1) acquire, or offer, propose or agree
to acquire, by purchase or otherwise, any securities entitled to vote generally
in the election of directors of the Company or any direct or indirect options or
other rights to acquire any such securities ("Voting Securities"), (2) make, or
in any way participate in, any solicitation of proxies with respect to any
Voting Securities (including by the execution of action by written consent),
become a participant in any election contest with respect to the Company, seek
to influence any person with respect to any Voting Securities or demand a copy
of the Company's list of its stockholders or other books and records, (3)
participate in or encourage the formation of any partnership, syndicate, or
other group which owns or seeks or offers to acquire beneficial ownership of any
Voting Securities or which seeks to affect control of the Company or for the
purpose of circumventing any provision of this Agreement, or (4) except in
connection with Executive's duties as Chairman of the Board of the Company,
otherwise act, alone or in concert with others (including by providing financing
for another person), to seek or to offer to control or influence, in any manner,
the management, Board of Directors, or policies of the Company.
(d) In the event Executive shall violate any provision of this Paragraph
12 as to which there is a specific time period during which he is prohibited
from taking certain actions or from engaging in certain activities, as set forth
in such provision, then, in such event, such violation shall toll the running of
such time period from the date of such violation until such violation shall
cease.
(e) Executive has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon the Company
under this Paragraph 12 and this Agreement, and hereby acknowledges and agrees
that the same are reasonable in time and territory, are designed to eliminate
competition which otherwise would be unfair to the Company, do not stifle the
inherent skill and experience of Executive, would not operate as a bar to
Executive's sole means of support, are fully required to protect the legitimate
interests of the Company and do not confer a benefit upon the Company
disproportionate to the detriment to Executive.
13. DISCLOSURE. Executive, for a period commencing on the date of this
Agreement through the end of the Consulting Period, agrees to communicate the
contents of Paragraphs 11, 12, 14(b), 15 and 17 of this Agreement to any person,
firm, association, or corporation which he intends to be employed by, associated
in business with, or represent.
<PAGE> 11
14. BREACH.
(a) If Executive breaches in any material way any of the provisions of
this Agreement, then the Company may, at its sole option, (1) immediately
terminate all remaining payments and benefits described in Paragraphs 4 and 7 of
this Agreement, and Paragraph 6 of this Agreement to the extent not vested in
Executive on the date hereof, (2) cancel the outstanding options granted
pursuant to the Option Agreements provided for in Paragraph 8(a) of this
Agreement, and (3) obtain reimbursement from Executive of all payments and
benefits, options and related Common Shares and Class A Common Shares of the
Company already provided pursuant to Paragraphs 4, 7 and 8(a) of this Agreement,
and Paragraph 6 of this Agreement to the extent not vested in Executive on the
date hereof, plus any expenses and damages incurred as a result of the breach,
with the remainder of this Agreement, and all promises and covenants herein,
remaining in full force and effect.
(b) Executive acknowledges and agrees that the remedy at law available to
the Company for breach by Executive of any of his obligations under Paragraphs
11 and 12 of this Agreement would be inadequate and that damages flowing from
such a breach would not readily be susceptible to being measured in monetary
terms. Accordingly, Executive acknowledges, consents and agrees that, in
addition to any other rights or remedies which the Company may have at law, in
equity or under this Agreement, upon adequate proof of Executive's violation of
any provision of Paragraph 11 or 12 of this Agreement, the Company shall be
entitled to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach, without the necessity of proof of
actual damage.
(c) The Company acknowledges and agrees that the remedy at law available
to the Executive for breach by the Company of its obligations under Paragraph
11(e) of this Agreement would be inadequate and that damages flowing from such a
breach would not be readily susceptible to being measured in monetary terms.
Accordingly, the Company acknowledges, consents and agrees that, in addition to
any other rights or remedies which Executive may have at law, in equity or under
this Agreement, upon adequate proof of the Company's violation of Paragraph
11(e) of this Agreement, Executive shall be entitled to immediate injunctive
relief and may obtain a temporary order restraining any threatened or further
breach, without the necessity of proof of actual damages.
(d) In the event of the nonpayment by Company after receipt of thirty
(30) days written notice of non-payment from Executive of all or any part of the
compensation or consideration required to be paid to Executive pursuant to the
terms of this Agreement (other than by reason of Executive's breach of the terms
of this Agreement) or in the event this Agreement is not ratified by any
receiver, trustee or similar officer appointed in connection with a bankruptcy
proceeding involving the Company, then in either event, the restrictions on
Executive set forth in paragraph 12 of this Agreement shall immediately
terminate and be of no further force and effect without further action by
Executive.
<PAGE> 12
15. CONTINUED AVAILABILITY AND COOPERATION.
(a) Executive shall cooperate fully with the Company and with the
Company's counsel in connection with any present and future actual or threatened
litigation or administrative proceeding involving the Company that relates to
events, occurrences or conduct occurring (or claimed to have occurred) during
the period of Executive's employment by the Company. This cooperation by
Executive shall include, but not be limited to:
(i) making himself reasonably available for interviews and
discussions with the Company's counsel as well as for depositions and
trial testimony;
(ii) if depositions or trial testimony are to occur, making
himself reasonably available and cooperating in the preparation therefor
as and to the extent that the Company or the Company's counsel reasonably
requests;
(iii) refraining from impeding in any way the Company's
prosecution or defense of such litigation or administrative proceeding;
and
(iv) cooperating fully in the development and presentation of the
Company's prosecution or defense of such litigation or administrative
proceeding.
(b) After the end of the Consulting Period, Executive shall be reimbursed
by the Company for reasonable travel, lodging, telephone and similar expenses
incurred in connection with such cooperation, which the Company shall reasonably
endeavor to schedule at times not conflicting with the reasonable requirements
of any future employer of Executive, or with the requirements of any third party
with whom Executive has a business relationship that provides remuneration to
Executive. Executive shall not unreasonably withhold his availability for such
cooperation. The Company will give appropriate consideration to reimbursement of
Executive at a per diem rate if significant involvement and/or cooperation in
excess of five (5) days in any given year is required of Executive by Company.
16. SUCCESSORS AND BINDING AGREEMENT. (a) This Agreement shall be binding
upon and inure to the benefit of the Company and any successor of or to the
Company, including, without limitation, any persons acquiring directly or
indirectly all or substantially all of the business and/or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed included in the definition of "the
Company" for purposes of this Agreement), but shall not otherwise be assignable
or delegable by the Company.
(b) This Agreement shall inure to the benefit of and be enforceable by
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and/or legatees.
<PAGE> 13
(c) This Agreement is personal in nature and none of the parties hereto
shall, without the consent of the other parties, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in subparagraphs (a) and (b) of this Paragraph 16.
(d) This Agreement is intended to be for the exclusive benefit of the
parties hereto, and except as provided in subparagraphs (a) and (b) of this
Paragraph 16, no third party shall have any rights hereunder.
(e) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, operation of law or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform this Agreement.
17. NON-DISCLOSURE. Except to the extent that this Agreement or the terms
hereof become publicly known or available because of legally mandated disclosure
and filing requirements of the Securities and Exchange Commission, or because of
any other legal requirement that this Agreement or the terms hereof be disclosed
or filed with a governmental instrumentality or agency, all provisions of this
Agreement and the circumstances giving rise hereto are and shall remain
confidential and shall not be disclosed to any person not a party hereto (other
than (i) Executive's spouse and children, (ii) each party's attorney, financial
advisor and/or tax advisor to the extent necessary for such advisor to render
appropriate legal, financial and tax advice, and (iii) persons or entities that
fall within the scope of Paragraph 13 of this Agreement, but only to the extent
required thereby), except as necessary to carry out the provisions of this
Agreement, and except as may be required by law; PROVIDED, HOWEVER, that
Executive may disclose to prospective employers the circumstances of his
retirement from the Company so long as all such disclosures are made in a manner
not injurious to the reputation or business of the Company.
18. NOTICES. For all purposes of this Agreement, all communications
provided for herein shall be in writing and shall be deemed to have been duly
given when delivered, addressed to the Company (to the attention of the Vice
President of Human Resources) at its principal executive offices and to
Executive at his principal residence, _________________, or to such other
address as any party may have furnished to the other in writing and in
accordance herewith. Notices of change of address shall be effective only upon
receipt.
19. PROFESSIONAL FEES. The Company and Executive acknowledge and agree
that each shall be responsible for the payment of their respective professional
fees and costs (and related disbursements) incurred in connection with
Executive's termination and resignation and all matters relating to the
negotiation and execution of this Agreement; provided that the Company shall
reimburse Executive his reasonable professional fees and costs (and related
disbursements) in connection herewith in an amount not to exceed SIXTY THOUSAND
DOLLARS ($60,000).
<PAGE> 14
20. TAXES, PAYMENTS, ETC.
(a) Executive acknowledges and agrees that he shall be responsible for
his share of any and all Federal, State and/or local taxes applicable to the
payments made, and benefits provided or made available, to Executive pursuant to
this Agreement and further agrees to indemnify the Company against any liability
as a result of those taxes.
(b) The payments to Executive pursuant to Paragraphs 4, 6 and 7 of this
Agreement shall be made by check or direct deposit to an account designated by
Executive, and shall be reduced by any applicable Federal, State and local tax
or other required withholding. The payments to Executive pursuant to
subparagraph 4(b) of this Agreement shall be reduced by any applicable
deductions resulting from Executive's election to participate in the Company's
medical and/or life insurance programs as described in subparagraph 4(c) of this
Agreement.
21. MISCELLANEOUS. The death or disability of Executive following the
execution of this Agreement shall not affect or revoke this Agreement or any of
the obligations of the parties hereto. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by Executive and the Company. No waiver by either
party hereto at any time of any breach by the other party hereto or compliance
with any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, expressed or implied with respect to the
subject matter hereof have been made by any of the parties that are not set
forth expressly in this Agreement and every one of them (if, in fact, there have
been any) is hereby terminated without liability or any other legal effect
whatsoever.
22. ENTIRE AGREEMENT. This Agreement shall constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
shall supersede all prior verbal or written agreements, covenants,
communications, understandings, commitments, representations or warranties,
whether oral or written, by any party hereto or any of its representatives
pertaining to such subject matter.
23. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the substantive laws of the
State of Ohio, without giving effect to the principles of conflict of laws of
such state.
24. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement which shall nevertheless remain in full force and effect.
25. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
<PAGE> 15
26. CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph headings used
herein are for convenience and are not part of this Agreement and shall not be
used in construing it.
27. FURTHER ASSURANCES. Each party hereto shall execute such additional
documents, and do such additional things, as may reasonably be requested by the
other party to effectuate the purposes and provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement on the date set forth above.
THE LINCOLN ELECTRIC COMPANY
By: /s/ RAYMOND S. VOGT
---------------------------------
Its: Vice President, Human Resources
---------------------------------
Witness: /s/ L.O. SELHORST /s/ DONALD F. HASTINGS
---------------------- --------------------------------------
Lawrence O. Selhorst Donald F. Hastings
Date: February 14, 1997
<PAGE> 16
[Common Shares]
EXHIBIT A-1
THE LINCOLN ELECTRIC COMPANY
Non-Qualified Stock Option Agreement
------------------------------------
WHEREAS, Donald F. Hastings (the "Optionee") is an employee of The
Lincoln Electric Company (the "Company");
WHEREAS, the execution of a stock option agreement in the form hereof has
been authorized by a resolution of the Compensation Committee (the "Committee")
of the Board of Directors (the "Board") of the Company that was duly adopted on
September 24, 1996, with an effective date of October 1, 1996 (the "Date of
Grant"), and is incorporated herein by this reference; and
WHEREAS, the option granted hereby is intended to be a non-qualified
stock option and shall not be treated as an "incentive stock option" within the
meaning of that term under Section 422 of the Internal Revenue Code of 1986;
NOW, THEREFORE, pursuant to the Company's 1988 Incentive Equity Plan (the
"Plan") and subject to the terms and conditions thereof and the terms and
conditions hereinafter set forth, the Company hereby grants to the Optionee a
non-qualified stock option (the "Option") to purchase 50,000 Common Shares,
without par value, of the Company (the "Common Shares"), at the exercise price
of thirty dollars ($30.00) per Common Share (the "Exercise Price").
1. VESTING OF OPTION. (a) Unless terminated as hereinafter provided, the
Option shall be exercisable after the Optionee shall have been in the continuous
employ of the Company or a Subsidiary (as defined in the Plan) from the Date of
Grant to May 27, 1997.
(b) Notwithstanding the provisions of Section 1(a) hereof, the Option
shall become immediately exercisable in full upon any change in control of the
Company that shall
<PAGE> 17
occur while the Optionee is an employee of the Company or a Subsidiary.
For the purposes of this agreement, the term "change in control" shall mean the
occurrence of any of the following events:
(i) all or substantially all of the assets of the Company are sold
or transferred to another corporation or entity, or the Company is
merged, consolidated or reorganized into or with another corporation or
entity, with the result that upon conclusion of the transaction less than
51 percent of the outstanding securities entitled to vote generally in
the election of directors or other capital interests of the acquiring
corporation or entity is owned, directly or indirectly, by the
shareholders of the Company generally prior to the transaction; or
(ii) there is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report thereto), as promulgated pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act"), disclosing
that any person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as
the term "beneficial owner" is defined under Rule 13d-3 or any successor
rule or regulation thereto under the Exchange Act) of securities
representing 30 percent or more of the combined voting power of the
then-outstanding voting securities of the Company, excluding (A) any
person or group of persons who are officers, directors or employees of
the Company or any Subsidiary as of the date hereof or are related by
blood or marriage to the descendants of James F. or John C. Lincoln,
including any trusts or similar arrangements for any of the foregoing and
any foundations established by any of the foregoing and (B) any
underwriter or syndicate of underwriters acting on behalf of the Company
in a public offering of the Company's securities and any of their
transferees; or
(iii) the Company shall file a report or proxy statement with the
Securities and Exchange Commission (the "SEC") pursuant to the Exchange
Act disclosing in response to Item 1 of Form 8-K thereunder or Item 5(f)
of Schedule 14A thereunder (or any successor schedule, form, report or
item thereto) that a change in control of the
<PAGE> 18
Company has or may have occurred, or will or may occur in the future,
pursuant to any then-existing contract or transaction; or
(iv) the individuals who constituted the Board at the beginning of
any period of two consecutive calendar years cease for any reason to
constitute at least a majority thereof unless the nomination for election
by the Company's shareholders of each new member of the Board was
approved by a vote of at least two-thirds of the members of the Board
still in office who were members of the Board at the beginning of any
such period.
In the event that any person described in Section 1(b)(ii) hereof files an
amendment to any report referred to in Section 1(b)(ii) hereof that shows the
beneficial ownership described in Section 1(b)(ii) hereof to have decreased to
less than 30 percent, or in the event that any anticipated change in control
referred to in Section 1(b)(iii) hereof does not occur following the filing with
the SEC of any report or proxy statement described in Section 1(b)(iii) hereof
because any contract or transaction referred to in Section 1(b)(iii) hereof is
cancelled or abandoned, the Committee may nullify the effect of Section 1(b)(ii)
or 1(b)(iii) hereof, as the case may be, and reinstate the provisions of Section
1(a) hereof by giving notice thereof to the Optionee; PROVIDED, HOWEVER, that
any such action by the Committee shall not prejudice any exercise of the Option
that may have occurred prior to the nullification and reinstatement. The
provisions of Section 1(b)(ii) hereof shall again become automatically effective
following any such nullification of the provisions thereof and reinstatement of
the provisions of Section 1(a) hereof in the event that any person described in
Section 1(b)(ii) hereof files a further amendment to any report referred to in
Section 1(b)(ii) hereof that shows the beneficial ownership described in Section
1(b)(ii) hereof to have again increased to 30 percent or more.
(c) Notwithstanding the provisions of Section 1(a) hereof, the Option
shall become immediately exercisable in full upon the death or disability (as
defined in the Plan) of the Optionee while in the employment of the Company or
any Subsidiary, or the Retirement (as defined in the Plan) of the Optionee with
the consent of the Board of Directors.
<PAGE> 19
(d) To the extent that the Option shall have become exercisable in
accordance with the terms of this agreement, it may be exercised in whole or in
part from time to time thereafter.
2. TERMINATION OF OPTION. The Option shall terminate automatically and
without further notice on the earliest of the following dates:
(a) Three months after the date upon which the Optionee ceases to be an
employee of the Company or a Subsidiary, unless the cessation of his employment
(i) is a result of his or her death, Disability (as defined in the Plan) or
Retirement or (ii) occurs in a manner described in (d) or (e) below;
(b) Three years after the date of the death or Disability of the Optionee
while an employee of the Company or a Subsidiary or three years after the date
of Retirement of the Optionee;
(c) One year after the date of the death of the Optionee, if the Optionee
dies after the termination of his employment with the Company or a Subsidiary
and prior to the termination of the Option; (d) Automatically and without
further notice upon the termination of Optionee's employment for Cause;
(e) If the Optionee, either during employment by the Company or after
termination of such employment, does not comply with each and every provision of
the Employment, Retirement and Consulting Agreement dated February 14, 1997
between the Optionee and the Company (the "ERC Agreement") applicable to the
Optionee, including, without limitation Paragraphs 10, 11, 12, 13 and 15 of the
ERC Agreement and the Board of Directors or the Compensation Committee shall so
find, the Optionee shall, forthwith upon notice of such finding, (i) return to
the Company, in exchange for payment by the Company of the option price paid
therefor, all the Common Shares that the Optionee has not disposed of that were
purchased pursuant to this Agreement prior to the date of such noncompliance or
the commencement of such noncompliance with the ERC Agreement, and (ii) with
respect to any shares so purchased that the
<PAGE> 20
Optionee has disposed of, pay to the Company in cash the difference between (A)
the option price paid therefor by the Optionee pursuant to this Agreement, and
(B) the closing price of the Common Shares on the NASDAQ National Market on the
date of such purchase (or on the last trading day prior to such purchase, if
there was no trading on the purchase date). To the extent that such amounts are
not paid to the Company, the Company may set off the amounts so payable to it
against any amounts that may be owing from time to time by the Company or a
Subsidiary to the Optionee, whether as wages, deferred compensation or vacation
pay or in the form of any other benefit under the ERC Agreement or for any other
reason.
(f) ten years after the Date of Grant.
For purposes of this agreement, the following term shall be defined as
set forth below:
(i) "Cause" means a felony conviction of the Optionee or the
failure of the Optionee to contest prosecution for a felony,
or Optionee's willful misconduct or dishonesty, any of which
is directly and materially harmful to the business or
reputation of the Company or any Subsidiary.
3. PAYMENT OF EXERCISE PRICE. The Exercise Price shall be payable upon
exercise (a) in cash in the form of certified or bank check or other cash
equivalent acceptable to the Company, (b) by transfer to the Company of
nonforfeitable, unrestricted Common Shares or Class A Common Shares, without par
value, of the Company ("Class A Shares") that have been owned by the Optionee
for at least six months prior to the date of exercise, or (c) by any combination
of the methods of payment described in Sections 3(a) and 3(b) hereof.
Nonforfeitable, unrestricted Common Shares or Class A Shares that are
transferred by the Optionee in payment of all or any part of the Exercise Price
shall be valued on the basis of their fair market value as determined by the
Committee from time to time.
4. COMPLIANCE WITH LAW. Notwithstanding any other provision of this
agreement, the Option shall not be exercisable if the exercise or issuance
thereof would result in a violation of any law. To the extent that the Ohio
Securities Act shall be applicable to the Option, the Option
<PAGE> 21
shall not be exercisable unless the Common Shares or other securities covered by
the Option are (a) exempt from registration thereunder, (b) the subject of a
transaction that is exempt from compliance therewith, (c) registered by
description or qualification thereunder, or (d) the subject of a transaction
that shall have been registered by description thereunder.
5. TRANSFERABILITY AND EXERCISABILITY. The Option, including any interest
therein, shall not be transferable by the Optionee except by will or the laws of
descent and distribution, and the Option shall be exercisable during the
lifetime of the Optionee only by him or, in the event of his legal incapacity to
do so, by his guardian or legal representative acting on behalf of the Optionee
in a fiduciary capacity under state law and court supervision.
6. ADJUSTMENTS. The Committee shall make any adjustments in the Exercise
Price and the number or kind of shares of stock or other securities covered by
the Option that the Committee may determine to be equitably required to prevent
any dilution or expansion of the Optionee's rights under this agreement that
otherwise would result from any (a) stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, (b) merger, consolidation, separation, reorganization or partial or
complete liquidation involving the Company, or (c) other transaction or event
having an effect similar to any of those referred to in Section 6(a) or 6(b)
hereof. Furthermore, in the event that any transaction or event described or
referred to in the immediately preceding sentence shall occur, the Committee may
provide in substitution of any or all of the Optionee's rights under this
agreement such alternative consideration as the Committee may determine in good
faith to be equitable under the circumstances.
7. WITHHOLDING TAXES. If the Company shall be required to withhold any
federal, state, local or foreign tax in connection with any exercise of the
Option, the Optionee shall pay the tax or make provisions that are satisfactory
to the Company for the payment thereof.
8. CONTINUOUS EMPLOYMENT. For purposes of this Agreement, the continuous
employ of the Optionee with the Company or a Subsidiary shall not be deemed
interrupted, and
<PAGE> 22
the Optionee shall not be deemed to have ceased to be an employee of the Company
or any Subsidiary, by reason of the transfer of his employment among the Company
and its Subsidiaries.
9. RIGHT TO TERMINATE EMPLOYMENT. No provision of this agreement shall
limit in any way whatsoever any right that the Company or a subsidiary may
otherwise have to terminate the employment of the Optionee at any time.
10. RELATION TO OTHER BENEFITS. Any economic or other benefit to the
Optionee under this agreement or the Plan shall not be taken into account in
determining any benefits to which the Optionee may be entitled under any
profit-sharing, retirement or other benefit or compensation plan maintained by
the Company or a subsidiary and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life insurance plan
covering employees of the Company or a subsidiary.
11. AMENDMENTS. Any amendment to the Plan shall be deemed to be an
amendment to this agreement to the extent that the amendment is applicable
hereto; PROVIDED, HOWEVER, that no amendment shall adversely affect the rights
of the Optionee with respect to the Option without the Optionee's consent.
12. SEVERABILITY. In the event that one or more of the provisions of this
agreement shall be invalidated for any reason by a court of competent
jurisdiction, any provision so invalidated shall be deemed to be separable from
the other provisions hereof, and the remaining provisions hereof shall continue
to be valid and fully enforceable.
13. GOVERNING LAW. This agreement is made under, and shall be construed
in accordance with, the internal substantive laws of the State of Ohio.
This agreement is executed by the Company on this 14th day of February,
1997.
THE LINCOLN ELECTRIC COMPANY
By /s/ RAYMOND S. VOGT
---------------------------------
Raymond S. Vogt
Vice President, Human Resources
<PAGE> 23
The undersigned Optionee hereby acknowledges receipt of an executed
original of this agreement and accepts the Option granted hereunder, subject to
the terms and conditions of the Plan and the terms and conditions hereinabove
set forth.
/s/ DONALD F. HASTINGS
---------------------------------
Donald F. Hastings
Date: February 14, 1997
<PAGE> 24
[Class A Shares]
EXHIBIT A-2
THE LINCOLN ELECTRIC COMPANY
Non-Qualified Stock Option Agreement
------------------------------------
WHEREAS, Donald F. Hastings (the "Optionee") is an employee of The
Lincoln Electric Company (the "Company");
WHEREAS, the execution of a stock option agreement in the form hereof has
been authorized by a resolution of the Compensation Committee (the "Committee")
of the Board of Directors (the "Board") of the Company that was duly adopted on
September 24, 1996, with an effective date of October 1, 1996 (the "Date of
Grant"), and is incorporated herein by this reference; and
WHEREAS, the option granted hereby is intended to be a non-qualified
stock option and shall not be treated as an "incentive stock option" within the
meaning of that term under Section 422 of the Internal Revenue Code of 1986;
NOW, THEREFORE, pursuant to the Company's 1988 Incentive Equity Plan (the
"Plan") and subject to the terms and conditions thereof and the terms and
conditions hereinafter set forth, the Company hereby grants to the Optionee a
non-qualified stock option (the "Option") to purchase 50,000 Class A Common
Shares, without par value, of the Company (the "Class A Shares"), at the
exercise price of twenty-seven dollars and twenty-five cents ($27.25) per Class
A Share (the "Exercise Price").
1. VESTING OF OPTION. (a) Unless terminated as hereinafter provided, the
Option shall be exercisable after the Optionee shall have been in the continuous
employ of the Company or a Subsidiary (as defined in the Plan) from the Date of
Grant to May 27, 1997.
(b) Notwithstanding the provisions of Section 1(a) hereof, the Option
shall become immediately exercisable in full upon any change in control of the
Company that shall
<PAGE> 25
occur while the Optionee is an employee of the Company or a Subsidiary. For the
purposes of this agreement, the term "change in control" shall mean the
occurrence of any of the following events:
(i) all or substantially all of the assets of the Company are sold
or transferred to another corporation or entity, or the Company is
merged, consolidated or reorganized into or with another corporation or
entity, with the result that upon conclusion of the transaction less than
51 percent of the outstanding securities entitled to vote generally in
the election of directors or other capital interests of the acquiring
corporation or entity is owned, directly or indirectly, by the
shareholders of the Company generally prior to the transaction; or
(ii) there is a report filed on Schedule 13D or Schedule 14D-1 (or
any successor schedule, form or report thereto), as promulgated pursuant
to the Securities Exchange Act of 1934 (the "Exchange Act"), disclosing
that any person (as the term "person" is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as
the term "beneficial owner" is defined under Rule 13d-3 or any successor
rule or regulation thereto under the Exchange Act) of securities
representing 30 percent or more of the combined voting power of the
then-outstanding voting securities of the Company, excluding (A) any
person or group of persons who are officers, directors or employees of
the Company or any Subsidiary as of the date hereof or are related by
blood or marriage to the descendants of James F. or John C. Lincoln,
including any trusts or similar arrangements for any of the foregoing and
any foundations established by any of the foregoing and (B) any
underwriter or syndicate of underwriters acting on behalf of the Company
in a public offering of the Company's securities and any of their
transferees; or
(iii) the Company shall file a report or proxy statement with the
Securities and Exchange Commission (the "SEC") pursuant to the Exchange
Act disclosing in response to Item 1 of Form 8-K thereunder or Item 5(f)
of Schedule 14A thereunder (or any successor schedule, form, report or
item thereto) that a change in control of the
<PAGE> 26
Company has or may have occurred, or will or may occur in the future,
pursuant to any then-existing contract or transaction; or
(iv) the individuals who constituted the Board at the beginning of
any period of two consecutive calendar years cease for any reason to
constitute at least a majority thereof unless the nomination for election
by the Company's shareholders of each new member of the Board was
approved by a vote of at least two-thirds of the members of the Board
still in office who were members of the Board at the beginning of any
such period.
In the event that any person described in Section 1(b)(ii) hereof files an
amendment to any report referred to in Section 1(b)(ii) hereof that shows the
beneficial ownership described in Section 1(b)(ii) hereof to have decreased to
less than 30 percent, or in the event that any anticipated change in control
referred to in Section 1(b)(iii) hereof does not occur following the filing with
the SEC of any report or proxy statement described in Section 1(b)(iii) hereof
because any contract or transaction referred to in Section 1(b)(iii) hereof is
cancelled or abandoned, the Committee may nullify the effect of Section 1(b)(ii)
or 1(b)(iii) hereof, as the case may be, and reinstate the provisions of Section
1(a) hereof by giving notice thereof to the Optionee; PROVIDED, HOWEVER, that
any such action by the Committee shall not prejudice any exercise of the Option
that may have occurred prior to the nullification and reinstatement. The
provisions of Section 1(b)(ii) hereof shall again become automatically effective
following any such nullification of the provisions thereof and reinstatement of
the provisions of Section 1(a) hereof in the event that any person described in
Section 1(b)(ii) hereof files a further amendment to any report referred to in
Section 1(b)(ii) hereof that shows the beneficial ownership described in Section
1(b)(ii) hereof to have again increased to 30 percent or more.
(c) Notwithstanding the provisions of Section 1(a) hereof, the Option
shall become immediately exercisable in full upon the death or disability (as
defined in the Plan) of the Optionee while in the employment of the Company or
any Subsidiary, or the Retirement (as defined in the Plan) of the Optionee with
the consent of the Board of Directors.
<PAGE> 27
(d) To the extent that the Option shall have become exercisable in
accordance with the terms of this agreement, it may be exercised in whole or in
part from time to time thereafter.
2. TERMINATION OF OPTION. The Option shall terminate automatically and
without further notice on the earliest of the following dates:
(a) Three months after the date upon which the Optionee ceases to be an
employee of the Company or a Subsidiary, unless the cessation of his employment
(i) is a result of his or her death, Disability (as defined in the Plan) or
Retirement or (ii) occurs in a manner described in (d) or (e) below;
(b) Three years after the date of the death or Disability of the Optionee
while an employee of the Company or a Subsidiary or three years after the date
of Retirement of the Optionee;
(c) One year after the date of the death of the Optionee, if the Optionee
dies after the termination of his employment with the Company or a Subsidiary
and prior to the termination of the Option;
(d) Automatically and without further notice upon the termination of
Optionee's employment for Cause;
(e) If the Optionee, either during employment by the Company or after
termination of such employment, does not comply with each and every provision of
the Employment, Retirement and Consulting Agreement dated February 14, 1997
between the Optionee and the Company (the "ERC Agreement") applicable to the
Optionee, including, without limitation Paragraphs 10, 11, 12, 13 and 15 of the
ERC Agreement and the Board of Directors or the Compensation Committee shall so
find, the Optionee shall, forthwith upon notice of such finding, (i) return to
the Company, in exchange for payment by the Company of the option price paid
therefor, all the Class A Shares that the Optionee has not disposed of that were
purchased pursuant to this Agreement prior to the date of such noncompliance or
the commencement of such noncompliance with the ERC Agreement, and (ii) with
respect to any shares so purchased that the
<PAGE> 28
Optionee has disposed of, pay to the Company in cash the difference between (A)
the option price paid therefor by the Optionee pursuant to this Agreement, and
(B) the closing price of the Class A Shares on the NASDAQ National Market on the
date of such purchase (or on the last trading day prior to such purchase, if
there was no trading on the purchase date). To the extent that such amounts are
not paid to the Company, the Company may set off the amounts so payable to it
against any amounts that may be owing from time to time by the Company or a
Subsidiary to the Optionee, whether as wages, deferred compensation or vacation
pay or in the form of any other benefit under the ERC Agreement or for any other
reason.
(f) ten years after the Date of Grant.
For purposes of this agreement, the following term shall be defined as
set forth below:
(i) "Cause" means a felony conviction of the Optionee or the
failure of the Optionee to contest prosecution for a felony, or
Optionee's willful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company or any
Subsidiary.
3. PAYMENT OF EXERCISE PRICE. The Exercise Price shall be payable upon
exercise (a) in cash in the form of certified or bank check or other cash
equivalent acceptable to the Company, (b) by transfer to the Company of
nonforfeitable, unrestricted Common Shares, without par value, of the Company
("Common Shares") or Class A Shares that have been owned by the Optionee for at
least six months prior to the date of exercise, or (c) by any combination of the
methods of payment described in Sections 3(a) and 3(b) hereof. Nonforfeitable,
unrestricted Common Shares or Class A Shares that are transferred by the
Optionee in payment of all or any part of the Exercise Price shall be valued on
the basis of their fair market value as determined by the Committee from time to
time.
4. COMPLIANCE WITH LAW. Notwithstanding any other provision of this
agreement, the Option shall not be exercisable if the exercise or issuance
thereof would result in a violation of any law. To the extent that the Ohio
Securities Act shall be applicable to the Option, the Option
<PAGE> 29
shall not be exercisable unless the Class A Shares or other securities covered
by the Option are (a) exempt from registration thereunder, (b) the subject of a
transaction that is exempt from compliance therewith, (c) registered by
description or qualification thereunder, or (d) the subject of a transaction
that shall have been registered by description thereunder.
5. TRANSFERABILITY AND EXERCISABILITY. The Option, including any interest
therein, shall not be transferable by the Optionee except by will or the laws of
descent and distribution, and the Option shall be exercisable during the
lifetime of the Optionee only by him or, in the event of his legal incapacity to
do so, by his guardian or legal representative acting on behalf of the Optionee
in a fiduciary capacity under state law and court supervision.
6. ADJUSTMENTS. The Committee shall make any adjustments in the Exercise
Price and the number or kind of shares of stock or other securities covered by
the Option that the Committee may determine to be equitably required to prevent
any dilution or expansion of the Optionee's rights under this agreement that
otherwise would result from any (a) stock dividend, stock split, combination of
shares, recapitalization or other change in the capital structure of the
Company, (b) merger, consolidation, separation, reorganization or partial or
complete liquidation involving the Company, or (c) other transaction or event
having an effect similar to any of those referred to in Section 6(a) or 6(b)
hereof. Furthermore, in the event that any transaction or event described or
referred to in the immediately preceding sentence shall occur, the Committee may
provide in substitution of any or all of the Optionee's rights under this
agreement such alternative consideration as the Committee may determine in good
faith to be equitable under the circumstances.
7. WITHHOLDING TAXES. If the Company shall be required to withhold any
federal, state, local or foreign tax in connection with any exercise of the
Option, the Optionee shall pay the tax or make provisions that are satisfactory
to the Company for the payment thereof.
8. CONTINUOUS EMPLOYMENT. For purposes of this Agreement, the continuous
employ of the Optionee with the Company or a Subsidiary shall not be deemed
interrupted, and
<PAGE> 30
the Optionee shall not be deemed to have ceased to be an employee of the Company
or any Subsidiary, by reason of the transfer of his employment among the Company
and its Subsidiaries.
9. RIGHT TO TERMINATE EMPLOYMENT. No provision of this agreement shall
limit in any way whatsoever any right that the Company or a subsidiary may
otherwise have to terminate the employment of the Optionee at any time.
10. RELATION TO OTHER BENEFITS. Any economic or other benefit to the
Optionee under this agreement or the Plan shall not be taken into account in
determining any benefits to which the Optionee may be entitled under any
profit-sharing, retirement or other benefit or compensation plan maintained by
the Company or a subsidiary and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life insurance plan
covering employees of the Company or a subsidiary.
11. AMENDMENTS. Any amendment to the Plan shall be deemed to be an
amendment to this agreement to the extent that the amendment is applicable
hereto; provided, however, that no amendment shall adversely affect the rights
of the Optionee with respect to the Option without the Optionee's consent.
12. SEVERABILITY. In the event that one or more of the provisions of this
agreement shall be invalidated for any reason by a court of competent
jurisdiction, any provision so invalidated shall be deemed to be separable from
the other provisions hereof, and the remaining provisions hereof shall continue
to be valid and fully enforceable.
13. GOVERNING LAW. This agreement is made under, and shall be construed
in accordance with, the internal substantive laws of the State of Ohio.
This agreement is executed by the Company on this 14th day of February,
1997.
THE LINCOLN ELECTRIC COMPANY
By /s/ RAYMOND S. VOGT
----------------------------------
Raymond S. Vogt
Vice President, Human Resources
<PAGE> 31
The undersigned Optionee hereby acknowledges receipt of an executed
original of this agreement and accepts the Option granted hereunder, subject to
the terms and conditions of the Plan and the terms and conditions hereinabove
set forth.
/s/ DONALD F. HASTINGS
----------------------------------
Donald F. Hastings
Date: February 14, 1997
<PAGE> 32
EXHIBIT B
---------
RELEASE
-------
(a) In consideration of the payments made and to be made and the benefits
to be received by the undersigned (the "Executive") pursuant to Paragraphs 6, 7
and 8(a) of the Employment, Retirement and Consulting Agreement between The
Lincoln Electric Company and the Executive made the 14th day of February, 1997,
the Executive, for himself and his dependents, successors, assigns, heirs,
executors and administrators (and his and their legal representatives of every
kind), hereby releases, dismisses, remises and forever discharges The Lincoln
Electric Company, its predecessors, parents, subsidiaries, divisions, related or
affiliated companies, officers, directors, stockholders, members, employees,
heirs, successors, assigns, representatives, agents and counsel (the "Company")
from any and all arbitrations, claims, including claims for attorney's fees,
demands, damages, suits, proceedings, actions and/or causes of action of any
kind and every description, whether known or unknown, which Executive now has or
may have had for, upon, or by reason of any cause whatsoever (except that this
release shall not apply to the obligations of the Company arising under this
Agreement) ("claims"), against the Company, including but not limited to:
(i) any and all claims arising out of or relating to Executive's
employment by or service with the Company and his termination from the
Company;
(ii) any and all claims of discrimination, including but not limited
to claims of discrimination on the basis of sex, race, age, national
origin, marital status, religion or handicap, including, specifically, but
without limiting the generality of the foregoing, any claims under the Age
Discrimination in Employment Act, as amended, Title VII of the Civil Rights
Act of 1964, as amended, the Americans with Disabilities Act, Ohio Revised
Code Section 4101.17 and Ohio Revised Code Chapter 4112, including Sections
4112.02 and 4112.99 thereof; and
(iii) any and all claims of wrongful or unjust discharge or breach of
any contract or promise, express or implied.
(b) Executive understands and acknowledges that the Company does not admit
any violation of law, liability or invasion of any of his rights and that any
such violation, liability or invasion is expressly denied. The consideration
provided for this Release is made for the purpose of settling and extinguishing
all claims and rights (and every other similar or dissimilar matter) that
Executive ever had or now may have against the Company to the extent provided in
this Release. Executive further agrees and acknowledges that no representations,
promises or inducements have been made by the Company other than as appear in
this Agreement.
(c) Executive further agrees and acknowledges that:
<PAGE> 33
(i) The release provided for herein releases claims to and including
the date of this Release;
(ii) He has been advised by the Company to consult with legal counsel
prior to executing this Release, has had an opportunity to consult with and
to be advised by legal counsel of his choice, fully understands the terms
of this Release, and enters into this Release freely, voluntarily and
intending to be bound;
(iii) He has been given a period of twenty-one (21) days to review and
consider the terms of this Release, prior to its execution and that he may
use as much of the twenty-one (21) day period as he desires; and
(iv) He may, within seven (7) days after execution, revoke this
Release. Revocation shall be made by delivering a written notice of
revocation to the Vice President of Human Resources at the Company. For
such revocation to be effective, written notice must be actually received
by the Vice President of Human Resources at the Company no later than the
close of business on the seventh (7th) day after Executive executes this
Release. If Executive does exercise his right to revoke this Release, all
of the terms and conditions of the Release shall be of no force and effect
and the Company shall not have any obligation to make payments or provide
benefits to Executive as set forth in Paragraphs 6 (to the extent not
vested in Executive on the 14th day of February, 1997) and 7 of the
Employment, Retirement and Consulting Agreement between the Company and the
Executive made the 14th day of February, 1997.
(d) Executive agrees that he will never file a lawsuit or other complaint
asserting any claim that is released in this Release.
(e) It is understood and agreed that Executive's resignation and retirement
are by mutual agreement between the Company and Executive, and that Executive
waives and releases any claim that he has or may have to reemployment after May
27, 1997.
<PAGE> 34
IN WITNESS WHEREOF, the Executive has executed and delivered this Release
on the date set forth below.
DONALD F. HASTINGS
Witness: _____________________ __________________________________
Date: ________________________ Date: ____________________________
<PAGE> 35
EXHIBIT C
---------
Argentina
Australia
Austria
Brazil
Canada
Chile
China
Columbia
Czech Republic
Denmark
England
Finland
France
Germany
Greece
Hungary
India
Indonesia
Ireland
Italy
Japan
Korea
Malaysia
Mexico
Netherlands
Northern Ireland
Norway
Peru
Phillipines
Poland
Portugal
Russia
Scotland
South Africa
Spain
Sweden
Taiwan
Thailand
United States
Venezuela
Vietnam
Wales
<PAGE> 36
EXHIBIT D
---------
I. All Arc Welding Machines ranging from light duty models for light
industrial and farm use to heavy duty models for commercial and
industrial use in manual, semi-automatic, automatic and robotic welding.
II. All Arc Welding Consumables: Welding rods, fluxes and wires used in light
to heavy manufacturing of mild steel, alloy and hard surface
applications; coated manual or stick electrodes; solid electrodes
produced in coil form for continuous feeding in mechanized welding; cored
electrodes produced in coil form for continuous feeding in mechanized
welding; submerged arc electrodes and fluxes; self-shielded cored
electrodes; gas-shielded solid and cored electrodes.
III. All Arc Welding Power Sources and Automated Wire Feeding Systems.
IV. All Integral horsepower electric motors ranging principally from 1/3 to
250 horsepower, but including cast iron motors of up to 1,250 horsepower.
<PAGE> 37
EXHIBIT E
---------
Mr. Hastings may serve on the below-mentioned Boards and with such organizations
only in his individual capacity.
American Welding Society (on Foundation Board)
Case Western Reserve (on Visiting Committee)
Weatherhead School of Management
Cleveland Council on World Affairs (Chairman)
75 Public Square
Cleveland, OH 44113-2001
Ohio Law Enforcement Agency (Fund Raising Captain)
Hope Lodge, American Cancer Society (on Board of Trustees - Chairman of Capital
Campaign)
Lake Erie College (on Board of Trustees)
50 Club (Member)
Cleveland Committee on Foreign Relations (Chairman)
French American Chamber of Commerce (Chairman on Advisory Committee)
Greater Cleveland Growth Association (Executive Committee)
World Trade Center, Chairman
International Trade Alliance (Chairman)
Cleveland World Trade Association (Member)
<PAGE> 1
Exhibit 10(j)
EMPLOYMENT AND RETIREMENT AGREEMENT
-----------------------------------
THIS EMPLOYMENT AND RETIREMENT AGREEMENT (this "Agreement") is
made and entered into this 12th day of December, 1996, by and between THE
LINCOLN ELECTRIC COMPANY (the "Company," a term which in this Agreement shall
include its predecessors, parents, subsidiaries, divisions, related or
affiliated companies, officers, directors, stockholders, members, employees,
heirs, successors, assigns, representatives, agents and counsel, unless the
context otherwise clearly requires), and DAVID FULLEN ("Executive"),
WITNESSETH:
-----------
WHEREAS, Executive is an employee of the Company and currently
serves as Executive Vice President - Engineering/Marketing of the Company;
WHEREAS, the Company and Executive have determined that
Executive shall resign from the position of Executive Vice President -
Engineering/Marketing of the Company, effective December 31, 1996, and that
Executive shall resign and retire as an employee of the Company and its
subsidiaries and related or affiliated companies, effective June 30, 1997;
WHEREAS, the Company and Executive desire to make provision
for the payments and benefits that Executive will be entitled to receive from
the Company in consideration for Executive's obligations and actions under this
Agreement and in connection with such resignations and retirement and the
cessation of his employment with the Company; and
WHEREAS, the Company and Executive wish to resolve, settle
and/or compromise any and all matters, claims and issues between them arising
from or relating to Executive's service and employment with the Company,
including the termination thereof;
NOW THEREFORE, in consideration of the promises and agreements
contained herein and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, and intending to be legally bound, the
Company and Executive agree as follows:
1. EFFECTIVE DATE OF AGREEMENT. This Agreement is effective on
the date hereof and shall continue in effect as provided herein.
2. EMPLOYMENT. Commencing on the date hereof, Executive's
employment shall continue through June 30, 1997 (the "Employment Term"), subject
to the provisions hereof.
<PAGE> 2
3. DUTIES DURING EMPLOYMENT TERM. Executive's principal duties
and authority after December 31, 1996 during the Employment Term will be to
serve as an advisor to the Company in any capacity as the Chief Executive
Officer of the Company may designate.
4. COMPENSATION DURING EMPLOYMENT TERM. In consideration of
the services of the Executive during the Employment Term, and of the promises of
Executive in this Agreement and subject to the conditions hereof, the Company
shall:
(a) During the Employment Term, continue to pay Executive his
base salary at its current rate in accordance with the Company's regular payroll
practices; PROVIDED that (i) the continuance of such payments is contingent upon
Executive's compliance with each and every requirement of this Agreement
applicable to him and (ii) if Executive dies before the completion of the
payments described in this subparagraph 4(a), the remaining payments described
in this subparagraph 4(a) following his death shall be made to his estate.
(b) During the Employment Term, continue Executive's
eligibility for a 1996 bonus, to be determined by the Board of Directors of the
Company; PROVIDED that (i) the payment of any bonus is contingent upon
Executive's compliance with each and every requirement of this Agreement
applicable to him and (ii) if Executive dies before any payment described in
this subparagraph 4(b) is made, such payment described in this subparagraph 4(b)
following his death shall be made to his estate. Executive shall not be eligible
for a 1997 bonus.
(c) Continue to permit Executive to participate in the
Company's medical and life insurance programs, and other plans, programs and
perquisites appropriate for his position and status as a senior officer of the
Company, on the same basis that Executive has participated in such plans,
programs and perquisites, until the end of the Employment Term.
5. RESIGNATION AND RETIREMENT; OTHER PAYMENTS.
(a) Effective December 31, 1996, Executive hereby (i) resigns
as Executive Vice President - Engineering/Marketing of the Company, (ii) resigns
from all offices of the Company and any entity that is a subsidiary of or is
otherwise related to or affiliated with the Company to which he has been elected
by the Board of Directors of the Company (or to which he has otherwise been
appointed), and (iii) resign from all administrative, fiduciary or other
positions he may hold with respect to arrangements or plans for, of or relating
to the Company. The Company hereby consents to and accepts said resignation, and
the Company records shall so reflect.
(b) Effective June 30, 1997, Executive shall resign and retire
from his employment with the Company and its subsidiaries and related or
affiliated companies.
(c) Following Executive's retirement, the Company shall
reimburse Executive's documented relocation expenses relating to (i) the sale of
his house in the Greater Cleveland Area in an amount not to exceed THIRTY
THOUSAND DOLLARS ($30,000), and (ii) the
<PAGE> 3
transportation of his household goods to Florida in an amount not to exceed TEN
THOUSAND SEVEN HUNDRED DOLLARS ($10,700).
(d) The Company shall pay to Executive after January 19, 1997
NINETY THOUSAND ONE HUNDRED FORTY DOLLARS ($90,140) in exchange for the
cancellation of the options granted to him as part of the settlement arising out
of the matter of ELLIS F. SMOLIK VS. THE LINCOLN ELECTRIC COMPANY, Case No.
288514 in the Common Pleas Court of Cuyahoga County, Ohio. Upon such payment,
Executive shall return the Option Agreements dated July 5, 1996, relating to
5524 Class A Common Shares at $30.00 per share and 6304 Class A Common Shares at
$34.00 per share, and such options shall be cancelled.
6. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN, ETC. In
consideration of the promises of the Executive in this Agreement and subject to
the conditions hereof, including without limitation Paragraph 9 of this
Agreement, the Company shall:
(a) Pay Executive a supplemental pension of FORTY-FOUR
THOUSAND FIVE HUNDRED FORTY-THREE DOLLARS ($44,543) per year, in equal monthly
installments, payable in the form of a single life annuity, commencing with a
payment on July 1, 1997 and ending with a payment on the first day of the month
in which Executive dies (the "Pension"); PROVIDED that (i) no such payments
shall be made unless each of the conditions in the Option Agreements provided
for in Paragraph 7 and the conditions in Paragraph 9 below have been satisfied,
and (ii) each such payment is contingent upon Executive's compliance with each
and every requirement of this Agreement applicable to him; and PROVIDED FURTHER
that the Pension shall be paid through the Company's Supplemental Executive
Retirement Plan (but no other benefit shall be payable to or with respect to
Executive under such plan); and PROVIDED FURTHER that Executive may elect to
receive the Pension in the form of an actuarially equivalent joint and survivor
annuity in lieu of a straight life annuity (such actuarial equivalence being
determined in accordance with the terms of the Company's Supplemental Executive
Retirement Plan).
(b) Permit Executive to participate in the Company's medical
program through which retirees, at their cost (as determined by the Company),
may elect to have coverage under the Company's medical program that is secondary
to Medicare.
7. OPTION. The Company shall grant Executive an option to
purchase 4,000 Common Shares of the Company at a price of $30.00 per share and
an option to purchase 4,000 Class A Common Shares of the Company at a price of
$27.25 per share, in accordance with the terms of the Option Agreements attached
hereto as Exhibits A-1 and A-2 and made a part hereof.
8. CONSIDERATION FOR RELEASES. Executive acknowledges and
agrees that the consideration provided by the Company to Executive under this
Agreement, including, without limitation, the payments and benefits to be made
or provided by the Company to Executive pursuant to this Agreement and the
Option Agreements, is greater than and in addition to anything of value to which
he otherwise would be entitled from the Company and that the releases by
Executive set forth in Paragraph 9 of this Agreement and the obligations of and
actions taken by Executive under this Agreement are given and undertaken in
consideration of,
<PAGE> 4
and adequately supported by, the payments and benefits to be made or provided to
Executive by the Company under and pursuant to this Agreement and the Option
Agreements.
9. RELEASES BY EXECUTIVE.
(a) In consideration of the payments made and to be made and
the benefits to be received by Executive pursuant to Paragraphs 5, 6 and 7 of
this Agreement, Executive, for himself and his dependents, successors, assigns,
heirs, executors and administrators (and his and their legal representatives of
every kind), hereby releases, dismisses, remises and forever discharges the
Company from any and all arbitrations, claims, including claims for attorney's
fees, demands, damages, suits, proceedings, actions and/or causes of action of
any kind and every description, whether known or unknown, which Executive now
has or may have had for, upon, or by reason of any cause whatsoever (except that
this release shall not apply to the obligations of the Company arising under
this Agreement) ("claims"), against the Company, including but not limited to:
(i) any and all claims arising out of or relating to
Executive's employment by or service with the Company through
the date hereof;
(ii) any and all claims arising out of or relating to
the matter of ELLIS F. SMOLIK VS. THE LINCOLN ELECTRIC
COMPANY, Case No. 288514 in the Common Pleas Court of Cuyahoga
County, Ohio;
(iii) any and all claims of discrimination, including
but not limited to claims of discrimination on the basis of
sex, race, age, national origin, marital status, religion or
handicap, including, specifically, but without limiting the
generality of the foregoing, any claims under the Age
Discrimination in Employment Act, as amended, Title VII of the
Civil Rights Act of 1964, as amended, the Americans with
Disabilities Act, Ohio Revised Code Section 4101.17 and Ohio
Revised Code Chapter 4112, including Sections 4112.02 and
4112.99 thereof; and
(iv) any and all claims of breach of any contract or
promise, express or implied.
(b) Executive understands and acknowledges that the Company
does not admit any violation of law, liability or invasion of any of his rights
and that any such violation, liability or invasion is expressly denied. The
consideration provided under this Agreement is made for the purpose of settling
and extinguishing all claims and rights (and every other similar or dissimilar
matter) that Executive ever had or now may have against the Company to the
extent provided in this Paragraph 9. Executive further agrees and acknowledges
that no representations, promises or inducements have been made by the Company
other than as appear in this Agreement.
<PAGE> 5
(c) Executive further agrees and acknowledges that:
(i) The release provided for in this Paragraph 9
releases claims to and including the date of this Agreement;
(ii) He has been advised by the Company to consult
with legal counsel prior to executing this Agreement and the
release provided for in this Paragraph 9, has had an
opportunity to consult with and to be advised by legal counsel
of his choice, fully understands the terms of this Agreement,
and enters into this Agreement freely, voluntarily and
intending to be bound;
(iii) He has been given a period of twenty-one (21)
days to review and consider the terms of this Agreement, and
the release contained herein, prior to its execution and that
he may use as much of the twenty-one (21) day period as he
desires; and
(iv) He may, within seven (7) days after execution,
revoke this Agreement. Revocation shall be made by delivering
a written notice of revocation to the Vice President of Human
Resources at the Company. For such revocation to be effective,
written notice must be actually received by the Vice President
of Human Resources at the Company no later than the close of
business on the seventh (7th) day after Executive executes
this Agreement. If Executive does exercise his right to revoke
this Agreement, all of the terms and conditions of the
Agreement shall be of no force and effect and the Company
shall not have any obligation to make payments or provide
benefits or option to Executive as set forth in Paragraphs 6
and 7 of this Agreement, except as may be required under
COBRA.
(d) Executive agrees that he will never file a lawsuit or
other complaint asserting any claim that is released in this Paragraph 9.
(e) It is understood and agreed that Executive's resignation
and retirement are by mutual agreement between the Company and Executive, and
that Executive waives and releases any claim that he has or may have to
reemployment after June 30, 1997.
(f) As a condition of the Company's obligation to make
payments or provide benefits to Executive that are not otherwise vested as set
forth in Paragraphs 5 and 6 of this Agreement, and as a condition to any
exercise of the options granted pursuant to the Option Agreements provided for
in Paragraph 7 of this Agreement, Executive shall, at the time of his retirement
as an employee of the Company pursuant to Paragraph 5 of this Agreement
(6/30/97), execute and deliver the Release attached hereto as Exhibit B and made
a part hereof.
<PAGE> 6
10. CONFIDENTIAL INFORMATION; STATEMENTS TO THIRD PARTIES.
(a) Executive acknowledges and agrees that in the performance
of his duties as an officer and employee of the Company, he was and may be
brought into frequent contact with, had or may have had access to, and/or became
or may become informed of confidential and proprietary information of the
Company and/or information which is a trade secret of the Company (collectively,
"Confidential Information"), as more fully described in subparagraph (b) of this
Paragraph 10. Executive acknowledges and agrees that the Confidential
Information of the Company gained by Executive during his association with the
Company was or will be developed by and/or for the Company through substantial
expenditure of time, effort and money and constitutes valuable and unique
property of the Company.
(b) Executive will keep in strict confidence, and will not,
directly or indirectly, at any time, disclose, furnish, disseminate, make
available, use or suffer to be used in any manner any Confidential Information
of the Company (except as may be necessary in connection with the discharge of
Executive's obligations pursuant to Paragraphs 3 and 14 of this Agreement)
without limitation as to when or how Executive may have acquired such
Confidential Information. Executive specifically acknowledges that Confidential
Information includes any and all information, whether reduced to writing (or in
a form from which information can be obtained, translated, or derived into
reasonably usable form), or maintained in the mind or memory of Executive and
whether compiled or created by the Company, which derives independent economic
value from not being readily known to or ascertainable by proper means by others
who can obtain economic value from the disclosure or use of such information,
that reasonable efforts have been put forth by the Company to maintain the
secrecy of Confidential Information, that such Confidential Information is and
will remain the sole property of the Company, and that any retention or use by
Executive of Confidential Information after the termination of Executive's
employment with and services for the Company shall constitute a misappropriation
of the Company's Confidential Information.
(c) Executive further agrees that he shall return (to the
extent he has not already returned), within ten (10) days of the effective date
of his retirement as an employee of the Company, in good condition, all property
of the Company, including, without limitation, (i) property, documents and/or
all other materials (including copies, reproductions, summaries and/or analyses)
which constitute, refer or relate to Confidential Information of the Company,
(ii) keys to Company property, (iii) files and (iv) blueprints or other
drawings.
(d) Executive further acknowledges and agrees that his
obligation of confidentiality shall survive, regardless of any other breach of
this Agreement or any other agreement, by any party hereto, until and unless
such Confidential Information of the Company shall have become, through no fault
of Executive, generally known to the public or Executive is required by law
(after providing the Company with notice and opportunity to contest such
requirement) to make disclosure. Executive's obligations under this Paragraph 10
are in addition to, and not in limitation or preemption of, all other
obligations of confidentiality which Executive may have to the Company under
general legal or equitable principles or statutes.
<PAGE> 7
(e) Because the purpose of this Agreement is to settle
amicably any and all potential disputes or claims among the parties, neither
Executive nor the Company shall, directly or indirectly, make or cause to be
made any statements to any third parties criticizing or disparaging the other or
commenting on the character or business reputation of the other. Executive
further hereby agrees that, without the prior written consent of the Chief
Executive Officer of the Company, unless otherwise required by law, he will not
(1) comment to others concerning the status, plans or prospects of the business
of the Company, (2) comment to others concerning the status, plans or prospects
of any existing, threatened or potential claims or litigation involving the
Company, or (3) engage in any act or omission that would be detrimental,
financially or otherwise, to the Company, or that would subject the Company to
public disrespect, scandal or ridicule.
11. NON-COMPETITION; CERTAIN ACTIONS.
(a) Executive agrees that for a period commencing on the date
of this Agreement through June 30, 1999 within the Territory (as described in
subparagraph (b)(i) of this Paragraph 11) (and, as to subparagraph (a)(iii) of
this Paragraph 11, any place), he shall not, directly or indirectly, do or
suffer any of the following:
(i) Own, manage, control or participate in the
ownership, management, or control of, or be employed or
engaged by or otherwise affiliated or associated as a
consultant, independent contractor or otherwise with, any
other corporation, partnership, proprietorship, firm,
association, or other business entity, or otherwise engage in
any business, which is in competition with the Company's
business (as described in subparagraph (b)(ii) of this
Paragraph 11); PROVIDED, however, that the ownership of not
more than one percent (1%) of any class of publicly-traded
securities of any entity shall not be deemed a violation of
this Agreement.
(ii) Employ, assist in employing, or otherwise
associate in business with any person who presently or at the
end of the Employment Term is an employee, officer or agent of
the Company, or any of its affiliated, related or subsidiary
entities.
(iii) Induce any person who is an employee, officer
or agent of the Company, or any of its affiliated, related, or
subsidiary entities to terminate such relationship.
(b) For purposes of this Agreement:
(i) "Territory" shall mean the countries identified
in Exhibit C hereto.
<PAGE> 8
(ii) The Company's business shall mean the design,
manufacture, distribution and sale of the products identified
in Exhibit D hereto.
(c) Executive agrees that for a period commencing on the date
of this Agreement through June 30, 1999, except within the terms of a specific
request from the Company, Executive shall not as a principal, or agent of
another person, propose or publicly announce or otherwise disclose an intent to
propose, or enter into or agree to enter into, singly or with any other person
or directly or indirectly, (i) any form of business combination, acquisition, or
other transaction relating to the Company or any majority-owned affiliate
thereof, (ii) any form of restructuring, recapitalization or similar transaction
with respect to the Company or any such affiliate, or (iii) any demand, request
or proposal to amend, waive or terminate any provision of this subparagraph
11(c) of this Agreement, nor except as aforesaid during such period will
Executive, except with respect to the exercise of options granted pursuant to
the Option Agreements provided for in Paragraph 7 of this Agreement, as a
principal, or agent of another person, (1) acquire, or offer, propose or agree
to acquire, by purchase or otherwise, any securities entitled to vote generally
in the election of directors of the Company or any direct or indirect options or
other rights to acquire any such securities ("Voting Securities"), (2) make, or
in any way participate in, any solicitation of proxies with respect to any
Voting Securities (including by the execution of action by written consent),
become a participant in any election contest with respect to the Company, seek
to influence any person with respect to any Voting Securities or demand a copy
of the Company's list of its stockholders or other books and records, (3)
participate in or encourage the formation of any partnership, syndicate, or
other group which owns or seeks or offers to acquire beneficial ownership of any
Voting Securities or which seeks to affect control of the Company or for the
purpose of circumventing any provision of this Agreement, or (4) otherwise act,
alone or in concert with others (including by providing financing for another
person), to seek or to offer to control or influence, in any manner, the
management, Board of Directors, or policies of the Company.
(d) In the event Executive shall violate any provision of this
Paragraph 11 as to which there is a specific time period during which he is
prohibited from taking certain actions or from engaging in certain activities,
as set forth in such provision, then, in such event, such violation shall toll
the running of such time period from the date of such violation until such
violation shall cease.
(e) Executive has carefully considered the nature and extent
of the restrictions upon him and the rights and remedies conferred upon the
Company under this Paragraph 11 and this Agreement, and hereby acknowledges and
agrees that the same are reasonable in time and territory, are designed to
eliminate competition which otherwise would be unfair to the Company, do not
stifle the inherent skill and experience of Executive, would not operate as a
bar to Executive's sole means of support, are fully required to protect the
legitimate interests of the Company and do not confer a benefit upon the Company
disproportionate to the detriment to Executive.
12. DISCLOSURE. Executive, for a period commencing on the date
of this Agreement through June 30, 1999, agrees to communicate the contents of
Paragraphs 10, 11,
<PAGE> 9
13(b), 14 and 16 of this Agreement to any person, firm, association, or
corporation which he intends to be employed by, associated in business with, or
represent.
13. BREACH.
(a) If Executive breaches any of the provisions of this
Agreement, then the Company may, at its sole option, (1) immediately terminate
all remaining payments and benefits described in Paragraphs 4 and 6 of this
Agreement that did not prior to the date hereof constitute vested benefits, (2)
cancel the outstanding options granted pursuant to the Option Agreements
provided for in Paragraph 7 of this Agreement, and (3) obtain reimbursement from
Executive of all non-vested payments and benefits, options and related Common
Shares and Class A Common Shares of the Company already provided pursuant to
Paragraphs 4, 6 and 7 of this Agreement, plus any expenses and damages incurred
as a result of the breach, with the remainder of this Agreement, and all
promises and covenants herein, remaining in full force and effect.
(b) Executive acknowledges and agrees that the remedy at law
available to the Company for breach by Executive of any of his obligations under
Paragraphs 10 and 11 of this Agreement would be inadequate and that damages
flowing from such a breach would not readily be susceptible to being measured in
monetary terms. Accordingly, Executive acknowledges, consents and agrees that,
in addition to any other rights or remedies which the Company may have at law,
in equity or under this Agreement, upon adequate proof of Executive's violation
of any provision of Paragraph 10 or 11 of this Agreement, the Company shall be
entitled to immediate injunctive relief and may obtain a temporary order
restraining any threatened or further breach, without the necessity of proof of
actual damage.
14. CONTINUED AVAILABILITY AND COOPERATION.
(a) Executive shall cooperate fully with the Company and with
the Company's counsel in connection with any present and future actual or
threatened litigation or administrative proceeding involving the Company that
relates to events, occurrences or conduct occurring (or claimed to have
occurred) during the period of Executive's employment by the Company. This
cooperation by Executive shall include, but not be limited to:
(i) making himself reasonably available for interviews and
discussions with the Company's counsel as well as for depositions and
trial testimony;
(ii) if depositions or trial testimony are to occur, making
himself reasonably available and cooperating in the preparation
therefor as and to the extent that the Company or the Company's counsel
reasonably requests;
(iii) refraining from impeding in any way the Company's
prosecution or defense of such litigation or administrative proceeding;
and
(iv) cooperating fully in the development and presentation of
the Company's prosecution or defense of such litigation or
administrative proceeding.
<PAGE> 10
(b) From and after the end of the Employment Term, Executive
shall continue to provide cooperation to the Company with respect to projects
undertaken by the Company where Executive's prior knowledge with respect to, or
prior involvement in, such or similar projects would be relevant to the
advancement of such projects; PROVIDED that such cooperation shall not require
more than twenty (20) days of Executive's time per calendar year and a
reasonable per diem fee can be agreed upon.
(c) After the end of the Employment Term, Executive shall be
reimbursed by the Company for reasonable travel, lodging, telephone and similar
expenses incurred in connection with such cooperation, which the Company shall
reasonably endeavor to schedule at times not conflicting with the reasonable
requirements of any future employer of Executive, or with the requirements of
any third party with whom Executive has a business relationship that provides
remuneration to Executive. Executive shall not unreasonably withhold his
availability for such cooperation.
15. SUCCESSORS AND BINDING AGREEMENT. (a) This Agreement
shall be binding upon and inure to the benefit of the Company and any successor
of or to the Company, including, without limitation, any persons acquiring
directly or indirectly all or substantially all of the business and/or assets of
the Company whether by purchase, merger, consolidation, reorganization or
otherwise (and such successor shall thereafter be deemed included in the
definition of "the Company" for purposes of this Agreement), but shall not
otherwise be assignable or delegable by the Company.
(b) This Agreement shall inure to the benefit of and be
enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and/or legatees.
(c) This Agreement is personal in nature and none of the
parties hereto shall, without the consent of the other parties, assign, transfer
or delegate this Agreement or any rights or obligations hereunder except as
expressly provided in subparagraphs (a) and (b) of this Paragraph 15.
(d) This Agreement is intended to be for the exclusive benefit
of the parties hereto, and except as provided in subparagraphs (a) and (b) of
this Paragraph 15, no third party shall have any rights hereunder.
<PAGE> 11
16. NON-DISCLOSURE.
Except to the extent that this Agreement or the terms hereof
become publicly known or available because of legally mandated disclosure and
filing requirements of the Securities and Exchange Commission, or because of any
other legal requirement that this Agreement or the terms hereof be disclosed or
filed with a governmental instrumentality or agency, all provisions of this
Agreement and the circumstances giving rise hereto are and shall remain
confidential and shall not be disclosed to any person not a party hereto (other
than (i) Executive's spouse, (ii) each party's attorney, financial advisor
and/or tax advisor to the extent necessary for such advisor to render
appropriate legal, financial and tax advice, and (iii) persons or entities that
fall within the scope of Paragraph 12 of this Agreement, but only to the extent
required thereby), except as necessary to carry out the provisions of this
Agreement, and except as may be required by law; PROVIDED, HOWEVER, that
Executive may disclose to prospective employers the circumstances of his
retirement from the Company so long as all such disclosures are made in a manner
not injurious to the reputation or business of the Company.
17. NOTICES. For all purposes of this Agreement, all
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered, addressed to the Company (to the attention
of the Vice President of Human Resources) at its principal executive offices and
to Executive at his principal residence, 6472 Timberlakes Dr. (3-103), Ft.
Myers, FL, 33908 or to such other address as any party may have furnished to the
other in writing and in accordance herewith. Notices of change of address shall
be effective only upon receipt.
18. PROFESSIONAL FEES. The Company and Executive acknowledge
and agree that each shall be responsible for the payment of their respective
professional fees and costs (and related disbursements) incurred in connection
with Executive's termination and resignation and all matters relating to the
negotiation and execution of this Agreement.
19. TAXES, PAYMENTS, ETC..
(a) Executive acknowledges and agrees that he shall be
responsible for his share of any and all Federal, State and/or local taxes
applicable to the payments made, and benefits provided or made available, to
Executive pursuant to this Agreement and further agrees to indemnify the Company
against any liability as a result of those taxes.
(b) The payments to Executive pursuant to Paragraphs 4, 5 and
6 of this Agreement shall be made by check or direct deposit to an account
designated by Executive, and shall be reduced by any applicable Federal, State
and local tax or other required withholding. The payments to Executive pursuant
to subparagraph 4(b) of this Agreement shall be reduced by any applicable
deductions resulting from Executive's election to participate in the Company's
medical and/or life insurance programs as described in subparagraph 4(c) of this
Agreement.
<PAGE> 12
20. MISCELLANEOUS. The death or disability of Executive
following the execution of this Agreement shall not affect or revoke this
Agreement or any of the obligations of the parties hereto. No provision of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing signed by Executive and the Company. No
waiver by either party hereto at any time of any breach by the other party
hereto or compliance with any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, expressed or implied with
respect to the subject matter hereof have been made by any of the parties that
are not set forth expressly in this Agreement and every one of them (if, in
fact, there have been any) is hereby terminated without liability or any other
legal effect whatsoever.
21. ENTIRE AGREEMENT. This Agreement shall constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and shall supersede all prior verbal or written agreements, covenants,
communications, understandings, commitments, representations or warranties,
whether oral or written, by any party hereto or any of its representatives
pertaining to such subject matter.
22. GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the substantive laws of
the State of Ohio, without giving effect to the principles of conflict of laws
of such state.
23. VALIDITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement which shall nevertheless remain in full
force and effect.
24. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same Agreement.
25. CAPTIONS AND PARAGRAPH HEADINGS. Captions and paragraph
headings used herein are for convenience and are not part of this Agreement and
shall not be used in construing it.
26. FURTHER ASSURANCES. Each party hereto shall execute such
additional documents, and do such additional things, as may reasonably be
requested by the other party to effectuate the purposes and provisions of this
Agreement.
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement on the date set forth above.
THE LINCOLN ELECTRIC COMPANY
By: /s/ ANTHONY A. MASSARO
-------------------------------
Its: President and Chief Operating
-------------------------------
Officer, Chief Executive Officer
---------------------------------
Witness: /s/ RAYMOND S. VOGT /s/ DAVID FULLEN
------------------------- -------------------------
Raymond S. Vogt David Fullen
Date: December 12, 1996
<PAGE> 14
[Common Shares]
EXHIBIT A-1
THE LINCOLN ELECTRIC COMPANY
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
WHEREAS, David Fullen (the "Optionee") is an employee of The
Lincoln Electric Company (the "Company");
WHEREAS, the execution of a stock option agreement in the form
hereof has been authorized by a resolution of the Compensation Committee (the
"Committee") of the Board of Directors (the "Board") of the Company that was
duly adopted on September 24, 1996, with an effective date of October 1, 1996
(the "Date of Grant"), and is incorporated herein by this reference; and
WHEREAS, the option granted hereby is intended to be a
non-qualified stock option and shall not be treated as an "incentive stock
option" within the meaning of that term under Section 422 of the Internal
Revenue Code of 1986;
NOW, THEREFORE, pursuant to the Company's 1988 Incentive
Equity Plan (the "Plan") and subject to the terms and conditions thereof and the
terms and conditions hereinafter set forth, the Company hereby grants to the
Optionee a non-qualified stock option (the "Option") to purchase 4,000 Common
Shares, without par value, of the Company (the "Common Shares"), at the exercise
price of thirty dollars ($30.00) per Common Share (the "Exercise Price").
1. VESTING OF OPTION. (a) Unless terminated as hereinafter
provided, the Option shall be exercisable after the Optionee shall have been in
the continuous employ of the Company or a Subsidiary (as defined in the Plan)
from the Date of Grant to June 30, 1997.
(b) Notwithstanding the provisions of Section 1(a)
hereof, the Option shall become immediately exercisable in full upon any change
in control of the Company that shall
<PAGE> 15
occur while the Optionee is an employee of the Company or a Subsidiary. For the
purposes of this agreement, the term "change in control" shall mean the
occurrence of any of the following events:
(i) all or substantially all of the assets of the
Company are sold or transferred to another corporation or entity, or
the Company is merged, consolidated or reorganized into or with another
corporation or entity, with the result that upon conclusion of the
transaction less than 51 percent of the outstanding securities entitled
to vote generally in the election of directors or other capital
interests of the acquiring corporation or entity is owned, directly or
indirectly, by the shareholders of the Company generally prior to the
transaction; or
(ii) there is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report thereto), as
promulgated pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act"), disclosing that any person (as the term "person" is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation thereto under the
Exchange Act) of securities representing 30 percent or more of the
combined voting power of the then-outstanding voting securities of the
Company, excluding (A) any person or group of persons who are officers,
directors or employees of the Company or any Subsidiary as of the date
hereof or are related by blood or marriage to the descendants of James
F. or John C. Lincoln, including any trusts or similar arrangements for
any of the foregoing and any foundations established by any of the
foregoing and (B) any underwriter or syndicate of underwriters acting
on behalf of the Company in a public offering of the Company's
securities and any of their transferees; or
(iii) the Company shall file a report or proxy
statement with the Securities and Exchange Commission (the "SEC")
Pursuant to the Exchange Act disclosing in response to item 1 of Form
8-K thereunder or Item 5(f) of Schedule 14A thereunder (or any
successor schedule, form, report or item thereto) that a change in
control of the
<PAGE> 16
Company has or may have occurred, or will or may occur in the future,
pursuant to any then-existing contract or transaction; or
(iv) the individuals who constituted the Board at the
beginning of any period of two consecutive calendar years cease for any
reason to constitute at least a majority thereof unless the nomination
for election by the Company's shareholders of each new member of the
Board was approved by a vote of at least two-thirds of the members of
the Board still in office who were members of the Board at the
beginning of any such period.
In the event that any person described in Section 1(b)(ii) hereof files an
amendment to any report referred to in Section 1(b)(ii) hereof that shows the
beneficial ownership described in Section 1(b)(ii) hereof to have decreased to
less than 30 percent, or in the event that any anticipated change in control
referred to in Section 1(b)(iii) hereof does not occur following the filing with
the SEC of any report or proxy statement described in Section 1(b)(iii) hereof
because any contract or transaction referred to in Section 1(b)(iii) hereof is
cancelled or abandoned, the Committee may nullify the effect of Section 1(b)(ii)
or 1(b)(iii) hereof, as the case may be, and reinstate the provisions of Section
1(a) hereof by giving notice thereof to the Optionee; PROVIDED, HOWEVER, that
any such action by the Committee shall not prejudice any exercise of the Option
that may have occurred prior to the nullification and reinstatement. The
provisions of Section 1(b)(ii) hereof shall again become automatically effective
following any such nullification of the provisions thereof and reinstatement of
the provisions of Section 1(a) hereof in the event that any person described in
Section 1(b)(ii) hereof files a further amendment to any report referred to in
Section 1(b)(ii) hereof that shows the beneficial ownership described in Section
1(b)(ii) hereof to have again increased to 30 percent or more.
(c) Notwithstanding the provisions of Section 1(a)
hereof, the Option shall become immediately exercisable in full upon the death
or disability (as defined in the Plan) of the Optionee while in the employment
of the Company or any Subsidiary, or the Retirement (as defined in the Plan) of
the Optionee with the consent of the Board of Directors.
<PAGE> 17
(d) To the extent that the Option shall have become
exercisable in accordance with the terms of this agreement, it may be exercised
in whole or in part from time to time thereafter.
2. TERMINATION OF OPTION. The Option shall terminate
automatically and without further notice on the earliest of the following dates:
(a) Three months after the date upon which the
Optionee ceases to be an employee of the Company or a Subsidiary, unless the
cessation of his employment (i) is a result of his or her death, Disability (as
defined in the Plan) or Retirement or (ii) occurs in a manner described in (d)
or (e) below;
(b) Three years after the date of the death or
Disability of the Optionee while an employee of the Company or a Subsidiary or
three years after the date of Retirement of the Optionee;
(c) One year after the date of the death of the
Optionee, if the Optionee dies after the termination of his employment with the
Company or a Subsidiary and prior to the termination of the Option;
(d) Automatically and without further notice upon the
termination of Optionee's employment for Cause;
(e) If the Optionee, either during employment by the
Company or after termination of such employment, does not comply with each and
every provision of the Employment and Retirement Agreement dated December 12,
1996 between the Optionee and the Company (the "ERC Agreement") applicable to
the Optionee, including, without limitation Paragraphs 9, 10, 11, 12 and 14 of
the ERC Agreement and the Board of Directors or the Compensation Committee shall
so find, the Optionee shall, forthwith upon notice of such finding, (i) return
to the Company, in exchange for payment by the Company of the option price paid
therefor, all the Common Shares that the Optionee has not disposed of that were
purchased pursuant to this Agreement prior to the date of such noncompliance or
the commencement of such noncompliance with the ERC Agreement, and (ii) with
respect to any shares so purchased that the
<PAGE> 18
Optionee has disposed of, pay to the Company in cash the difference between (A)
the option price paid therefor by the Optionee pursuant to this Agreement, and
(B) the closing price of the Common Shares on the NASDAQ National Market on the
date of such purchase (or on the last trading day prior to such purchase, if
there was no trading on the purchase date). To the extent that such amounts are
not paid to the Company, the Company may set off the amounts so payable to it
against any amounts that may be owing from time to time by the Company or a
Subsidiary to the Optionee, whether as wages, deferred compensation or vacation
pay or in the form of any other benefit under the ERC Agreement or for any other
reason.
(f) ten years after the Date of Grant.
For purposes of this agreement, the following term shall be
defined as set forth below:
(i) "Cause" means a felony conviction of the Optionee
or the failure of the Optionee to contest prosecution for a felony, or
Optionee's willful misconduct or dishonesty, any of which is directly
and materially harmful to the business or reputation of the Company or
any Subsidiary.
3. PAYMENT OF EXERCISE PRICE. The Exercise Price shall be
payable upon exercise (a) in cash in the form of certified or bank check or
other cash equivalent acceptable to the Company, (b) by transfer to the Company
of nonforfeitable, unrestricted Common Shares or Class A Common Shares, without
par value, of the Company ("Class A Shares") that have been owned by the
Optionee for at least six months prior to the date of exercise, or (c) by any
combination of the methods of payment described in Sections 3(a) and 3(b)
hereof. Nonforfeitable, unrestricted Common Shares or Class A Shares that are
transferred by the Optionee in payment of all or any part of the Exercise Price
shall be valued on the basis of their fair market value as determined by the
Committee from time to time.
<PAGE> 19
4. COMPLIANCE WITH LAW. Notwithstanding any other provision of
this agreement, the Option shall not be exercisable if the exercise or issuance
thereof would result in a violation of any law. To the extent that the Ohio
Securities Act shall be applicable to the Option, the Option shall not be
exercisable unless the Common Shares or other securities covered by the Option
are (a) exempt from registration thereunder, (b) the subject of a transaction
that is exempt from compliance therewith, (c) registered by description or
qualification thereunder, or (d) the subject of a transaction that shall have
been registered by description thereunder.
5. TRANSFERABILITY AND EXERCISABILITY. The Option, including
any interest therein, shall not be transferable by the Optionee except by will
or the laws of descent and distribution, and the Option shall be exercisable
during the lifetime of the Optionee only by him or, in the event of his legal
incapacity to do so, by his guardian or legal representative acting on behalf of
the Optionee in a fiduciary capacity under state law and court supervision.
6. ADJUSTMENTS. The Committee shall make any adjustments in
the Exercise Price and the number or kind of shares of stock or other securities
covered by the Option that the Committee may determine to be equitably required
to prevent any dilution or expansion of the Optionee's rights under this
agreement that otherwise would result from any (a) stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure
of the Company, (b) merger, consolidation, separation, reorganization or partial
or complete liquidation involving the Company, or (c) other transaction or event
having an effect similar to any of those referred to in Section 6(a) or 6(b)
hereof. Furthermore, in the event that any transaction or event described or
referred to in the immediately preceding sentence shall occur, the Committee may
provide in substitution of any or all of the Optionee's rights under this
agreement such alternative consideration as the Committee may determine in good
faith to be equitable under the circumstances.
<PAGE> 20
7. WITHHOLDING TAXES. If the Company shall be required to
withhold any federal, state, local or foreign tax in connection with any
exercise of the Option, the Optionee shall pay the tax or make provisions that
are satisfactory to the Company for the payment thereof.
8. CONTINUOUS EMPLOYMENT. For purposes of this Agreement, the
continuous employ of the Optionee with the Company or a Subsidiary shall not be
deemed interrupted, and the Optionee shall not be deemed to have ceased to be an
employee of the Company or any Subsidiary, by reason of the transfer of his
employment among the Company and its Subsidiaries.
9. RIGHT TO TERMINATE EMPLOYMENT. No provision of this
agreement shall limit in any way whatsoever any right that the Company or a
subsidiary may otherwise have to terminate the employment of the Optionee at any
time.
10. RELATION TO OTHER BENEFITS. Any economic or other benefit
to the Optionee under this agreement or the Plan shall not be taken into account
in determining any benefits to which the Optionee may be entitled under any
profit-sharing, retirement or other benefit or compensation plan maintained by
the Company or a subsidiary and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life insurance plan
covering employees of the Company or a subsidiary.
11. AMENDMENTS. Any amendment to the Plan shall be deemed to
be an amendment to this agreement to the extent that the amendment is applicable
hereto; PROVIDED, HOWEVER, that no amendment shall adversely affect the rights
of the Optionee with respect to the Option without the Optionee's consent.
12. SEVERABILITY. In the event that one or more of the
provisions of this agreement shall be invalidated for any reason by a court of
competent jurisdiction, any provision so invalidated shall be deemed to be
separable from the other provisions hereof, and the remaining provisions hereof
shall continue to be valid and fully enforceable.
<PAGE> 21
13. GOVERNING LAW. This agreement is made under, and shall be
construed in accordance with, the internal substantive laws of the State of
Ohio.
This agreement is executed by the Company on this 12th day
of December, 1996.
THE LINCOLN ELECTRIC COMPANY
By /s/ ANTHONY A. MASSARO
---------------------------------
Anthony A. Massaro
President and Chief Operating
Officer, Chief Executive Officer
<PAGE> 22
The undersigned Optionee hereby acknowledges receipt of an
executed original of this agreement and accepts the Option granted hereunder,
subject to the terms and conditions of the Plan and the terms and conditions
hereinabove set forth.
/s/ DAVID FULLEN
----------------------
David Fullen
Date: December 12, 1996
<PAGE> 23
[Class A Shares]
EXHIBIT A-2
THE LINCOLN ELECTRIC COMPANY
Non-Qualified Stock Option Agreement
------------------------------------
WHEREAS, David Fullen (the "Optionee") is an employee of The
Lincoln Electric Company (the "Company");
WHEREAS, the execution of a stock option agreement in the form
hereof has been authorized by a resolution of the Compensation Committee (the
"Committee") of the Board of Directors (the "Board") of the Company that was
duly adopted on September 24, 1996, with an effective date of October 1, 1996
(the "Date of Grant"), and is incorporated herein by this reference; and
WHEREAS, the option granted hereby is intended to be a
non-qualified stock option and shall not be treated as an "incentive stock
option" within the meaning of that term under Section 422 of the Internal
Revenue Code of 1986;
NOW, THEREFORE, pursuant to the Company's 1988 Incentive
Equity Plan (the "Plan") and subject to the terms and conditions thereof and the
terms and conditions hereinafter set forth, the Company hereby grants to the
Optionee a non-qualified stock option (the "Option") to purchase 4,000 Class A
Common Shares, without par value, of the Company (the "Class A Shares"), at the
exercise price of twenty-seven dollars and twenty-five cents ($27.25) per Class
A Share (the "Exercise Price").
1. VESTING OF OPTION. (a) Unless terminated as hereinafter
provided, the Option shall be exercisable after the Optionee shall have been in
the continuous employ of the Company or a Subsidiary (as defined in the Plan)
from the Date of Grant to June 30, 1997.
(b) Notwithstanding the provisions of Section 1(a)
hereof, the Option shall become immediately exercisable in full upon any change
in control of the Company that shall
<PAGE> 24
occur while the Optionee is an employee of the Company or a Subsidiary. For the
purposes of this agreement, the term "change in control" shall mean the
occurrence of any of the following events:
(i) all or substantially all of the assets of the
Company are sold or transferred to another corporation or entity, or
the Company is merged, consolidated or reorganized into or with another
corporation or entity, with the result that upon conclusion of the
transaction less than 51 percent of the outstanding securities entitled
to vote generally in the election of directors or other capital
interests of the acquiring corporation or entity is owned, directly or
indirectly, by the shareholders of the Company generally prior to the
transaction; or
(ii) there is a report filed on Schedule 13D or
Schedule 14D-1 (or any successor schedule, form or report thereto), as
promulgated pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act"), disclosing that any person (as the term "person" is
used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
become the beneficial owner (as the term "beneficial owner" is defined
under Rule 13d-3 or any successor rule or regulation thereto under the
Exchange Act) of securities representing 30 percent or more of the
combined voting power of the then-outstanding voting securities of the
Company, excluding (A) any person or group of persons who are officers,
directors or employees of the Company or any Subsidiary as of the date
hereof or are related by blood or marriage to the descendants of James
F. or John C. Lincoln, including any trusts or similar arrangements for
any of the foregoing and any foundations established by any of the
foregoing and (B) any underwriter or syndicate of underwriters acting
on behalf of the Company in a public offering of the Company's
securities and any of their transferees; or
(iii) the Company shall file a report or proxy
statement with the Securities and Exchange Commission (the "SEC")
pursuant to the Exchange Act disclosing in response to Item 1 of Form
8-K thereunder or Item 5(f) of Schedule 14A thereunder (or any
successor schedule, form, report or item thereto) that a change in
control of the
<PAGE> 25
Company has or may have occurred, or will or may occur in the future,
pursuant to any then-existing contract or transaction; or
(iv) the individuals who constituted the Board at the
beginning of any period of two consecutive calendar years cease for any
reason to constitute at least a majority thereof unless the nomination
for election by the Company's shareholders of each new member of the
Board was approved by a vote of at least two-thirds of the members of
the Board still in office who were members of the Board at the
beginning of any such period.
In the event that any person described in Section 1(b)(ii) hereof files an
amendment to any report referred to in Section 1(b)(ii) hereof that shows the
beneficial ownership described in Section 1(b)(ii) hereof to have decreased to
less than 30 percent, or in the event that any anticipated change in control
referred to in Section 1(b)(iii) hereof does not occur following the filing with
the SEC of any report or proxy statement described in Section 1(b)(iii) hereof
because any contract or transaction referred to in Section 1(b)(iii) hereof is
cancelled or abandoned, the Committee may nullify the effect of Section 1(b)(ii)
or 1(b)(iii) hereof, as the case may be, and reinstate the provisions of Section
1(a) hereof by giving notice thereof to the Optionee; PROVIDED, HOWEVER, that
any such action by the Committee shall not prejudice any exercise of the Option
that may have occurred prior to the nullification and reinstatement. The
provisions of Section 1(b)(ii) hereof shall again become automatically effective
following any such nullification of the provisions thereof and reinstatement of
the provisions of Section 1(a) hereof in the event that any person described in
Section 1(b)(ii) hereof files a further amendment to any report referred to in
Section 1(b)(ii) hereof that shows the beneficial ownership described in Section
1(b)(ii) hereof to have again increased to 30 percent or more.
(c) Notwithstanding the provisions of Section 1(a)
hereof, the Option shall become immediately exercisable in full upon the death
or disability (as defined in the Plan) of the Optionee while in the employment
of the Company or any Subsidiary, or the Retirement (as defined in the Plan) of
the Optionee with the consent of the Board of Directors.
<PAGE> 26
(d) To the extent that the Option shall have become
exercisable in accordance with the terms of this agreement, it may be exercised
in whole or in part from time to time thereafter.
2. TERMINATION OF OPTION. The Option shall terminate
automatically and without further notice on the earliest of the following dates:
(a) Three months after the date upon which the
Optionee ceases to be an employee of the Company or a Subsidiary, unless the
cessation of his employment (i) is a result of his or her death, Disability (as
defined in the Plan) or Retirement or (ii) occurs in a manner described in (d)
or (e) below;
(b) Three years after the date of the death or
Disability of the Optionee while an employee of the Company or a Subsidiary or
three years after the date of Retirement of the Optionee;
(c) One year after the date of the death of the
Optionee, if the Optionee dies after the termination of his employment with the
Company or a Subsidiary and prior to the termination of the Option;
(d) Automatically and without further notice upon the
termination of Optionee's employment for Cause;
(e) If the Optionee, either during employment by the
Company or after termination of such employment, does not comply with each and
every provision of the Employment and Retirement Agreement dated December 12,
1996 between the Optionee and the Company (the "ERC Agreement") applicable to
the Optionee, including, without limitation Paragraphs 9, 10, 11, 12 and 14 of
the ERC Agreement and the Board of Directors or the Compensation Committee shall
so find, the Optionee shall, forthwith upon notice of such finding, (i) return
to the Company, in exchange for payment by the Company of the option price paid
therefor, all the Class A Shares that the Optionee has not disposed of that were
purchased pursuant to this Agreement prior to the date of such noncompliance or
the commencement of such noncompliance with the ERC Agreement, and (ii) with
respect to any shares so purchased that the
<PAGE> 27
Optionee has disposed of, pay to the Company in cash the difference between (A)
the option price paid therefor by the Optionee pursuant to this Agreement, and
(B) the closing price of the Class A Shares on the NASDAQ National Market on the
date of such purchase (or on the last trading day prior to such purchase, if
there was no trading on the purchase date). To the extent that such amounts are
not paid to the Company, the Company may set off the amounts so payable to it
against any amounts that may be owing from time to time by the Company or a
Subsidiary to the Optionee, whether as wages, deferred compensation or vacation
pay or in the form of any other benefit under the ERC Agreement or for any other
reason.
(f) ten years after the Date of Grant.
For purposes of this agreement, the following term shall be
defined as set forth below:
(i) "Cause" means a felony conviction of the Optionee
or the failure of the Optionee to contest prosecution for a felony, or
Optionee's willful misconduct or dishonesty, any of which is directly
and materially harmful to the business or reputation of the Company or
any Subsidiary.
3. PAYMENT OF EXERCISE PRICE. The Exercise Price shall be
payable upon exercise (a) in cash in the form of certified or bank check or
other cash equivalent acceptable to the Company, (b) by transfer to the Company
of nonforfeitable, unrestricted Common Shares, without par value, of the Company
("Common Shares") or Class A Shares that have been owned by the Optionee for at
least six months prior to the date of exercise, or (c) by any combination of the
methods of payment described in Sections 3(a) and 3(b) hereof. Nonforfeitable,
unrestricted Common Shares or Class A Shares that are transferred by the
Optionee in payment of all or any part of the Exercise Price shall be valued on
the basis of their fair market value as determined by the Committee from time to
time.
4. COMPLIANCE WITH LAW. Notwithstanding any other provision of
this agreement, the Option shall not be exercisable if the exercise or issuance
thereof would result in a violation of any law. To the extent that the Ohio
Securities Act shall be applicable to the Option, the Option
<PAGE> 28
shall not be exercisable unless the Class A Shares or other securities covered
by the Option are (a) exempt from registration thereunder, (b) the subject of a
transaction that is exempt from compliance therewith, (c) registered by
description or qualification thereunder, or (d) the subject of a transaction
that shall have been registered by description thereunder.
5. TRANSFERABILITY AND EXERCISABILITY. The Option, including
any interest therein, shall not be transferable by the Optionee except by will
or the laws of descent and distribution, and the Option shall be exercisable
during the lifetime of the Optionee only by him or, in the event of his legal
incapacity to do so, by his guardian or legal representative acting on behalf of
the Optionee in a fiduciary capacity under state law and court supervision.
6. ADJUSTMENTS. The Committee shall make any adjustments in
the Exercise Price and the number or kind of shares of stock or other securities
covered by the Option that the Committee may determine to be equitably required
to prevent any dilution or expansion of the Optionee's rights under this
agreement that otherwise would result from any (a) stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure
of the Company, (b) merger, consolidation, separation, reorganization or partial
or complete liquidation involving the Company, or (c) other transaction or event
having an effect similar to any of those referred to in Section 6(a) or 6(b)
hereof. Furthermore, in the event that any transaction or event described or
referred to in the immediately preceding sentence shall occur, the Committee may
provide in substitution of any or all of the Optionee's rights under this
agreement such alternative consideration as the Committee may determine in good
faith to be equitable under the circumstances.
7. WITHHOLDING TAXES. If the Company shall be required to
withhold any federal, state, local or foreign tax in connection with any
exercise of the Option, the Optionee shall pay the tax or make provisions that
are satisfactory to the Company for the payment thereof.
8. CONTINUOUS EMPLOYMENT. For purposes of this Agreement, the
continuous employ of the Optionee with the Company or a Subsidiary shall not be
deemed interrupted, and
<PAGE> 29
the Optionee shall not be deemed to have ceased to be an employee of the Company
or any Subsidiary, by reason of the transfer of his employment among the Company
and its Subsidiaries.
9. RIGHT TO TERMINATE EMPLOYMENT. No provision of this
agreement shall limit in any way whatsoever any right that the Company or a
subsidiary may otherwise have to terminate the employment of the Optionee at any
time.
10. RELATION TO OTHER BENEFITS. Any economic or other benefit
to the Optionee under this agreement or the Plan shall not be taken into account
in determining any benefits to which the Optionee may be entitled under any
profit-sharing, retirement or other benefit or compensation plan maintained by
the Company or a subsidiary and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life insurance plan
covering employees of the Company or a subsidiary.
11. AMENDMENTS. Any amendment to the Plan shall be deemed to
be an amendment to this agreement to the extent that the amendment is applicable
hereto; PROVIDED, HOWEVER, that no amendment shall adversely affect the rights
of the Optionee with respect to the Option without the Optionee's consent.
12. SEVERABILITY. In the event that one or more of the
provisions of this agreement shall be invalidated for any reason by a court of
competent jurisdiction, any provision so invalidated shall be deemed to be
separable from the other provisions hereof, and the remaining provisions hereof
shall continue to be valid and fully enforceable.
<PAGE> 30
13. GOVERNING LAW. This agreement is made under, and shall be
construed in accordance with, the internal substantive laws of the State of
Ohio.
This agreement is executed by the Company on this 12th day
of December, 1996.
THE LINCOLN ELECTRIC COMPANY
By /s/ ANTHONY A. MASSARO
----------------------------------
Anthony A. Massaro
President and Chief Operating
Officer, Chief Executive Officer
<PAGE> 31
The undersigned Optionee hereby acknowledges receipt of an
executed original of this agreement and accepts the Option granted hereunder,
subject to the terms and conditions of the Plan and the terms and conditions
hereinabove set forth.
/s/ DAVID FULLEN
----------------------------
David Fullen
Date: December 12, 1996
<PAGE> 32
EXHIBIT B
---------
RELEASE
-------
(a) In consideration of the payments made and to be made and
the benefits to be received by the undersigned (the "Executive") pursuant to
Paragraphs 5, 6 and 7 of the Employment, Retirement and Consulting Agreement
between The Lincoln Electric Company and the Executive made the 12th day of
December, 1996, the Executive, for himself and his dependents, successors,
assigns, heirs, executors and administrators (and his and their legal
representatives of every kind), hereby releases, dismisses, remises and forever
discharges The Lincoln Electric Company, its predecessors, parents,
subsidiaries, divisions, related or affiliated companies, officers, directors,
stockholders, members, employees, heirs, successors, assigns, representatives,
agents and counsel (the "Company") from any and all arbitrations, claims,
including claims for attorney's fees, demands, damages, suits, proceedings,
actions and/or causes of action of any kind and every description, whether known
or unknown, which Executive now has or may have had for, upon, or by reason of
any cause whatsoever (except that this release shall not apply to the
obligations of the Company arising under this Agreement) ("claims"), against the
Company, including but not limited to:
(i) any and all claims arising out of or relating to
Executive's employment by or service with the Company and his
termination from the Company;
(ii) any and all claims of discrimination, including
but not limited to claims of discrimination on the basis of
sex, race, age, national origin, marital status, religion or
handicap, including, specifically, but without limiting the
generality of the foregoing, any claims under the Age
Discrimination in Employment Act, as amended, Title VII of the
Civil Rights Act of 1964, as amended, the Americans with
Disabilities Act, Ohio Revised Code Section 4101.17 and Ohio
Revised Code Chapter 4112, including Sections 4112.02 and
4112.99 thereof; and
(iii) any and all claims of wrongful or unjust
discharge or breach of any contract or promise, express or
implied.
(b) Executive understands and acknowledges that the Company
does not admit any violation of law, liability or invasion of any of his rights
and that any such violation, liability or invasion is expressly denied. The
consideration provided for this Release is made for the purpose of settling and
extinguishing all claims and rights (and every other similar or dissimilar
matter) that Executive ever had or now may have against the Company to the
extent provided in this Release. Executive further agrees and acknowledges that
no representations, promises or inducements have been made by the Company other
than as appear in this Agreement.
(c) Executive further agrees and acknowledges that:
<PAGE> 33
(i) The release provided for herein releases claims
to and including the date of this Release;
(ii) He has been advised by the Company to consult
with legal counsel prior to executing this Release, has had an
opportunity to consult with and to be advised by legal counsel
of his choice, fully understands the terms of this Release,
and enters into this Release freely, voluntarily and intending
to be bound;
(iii) He has been given a period of twenty-one (21)
days to review and consider the terms of this Release, prior
to its execution and that he may use as much of the twenty-one
(21) day period as he desires; and
(iv) He may, within seven (7) days after execution,
revoke this Release. Revocation shall be made by delivering a
written notice of revocation to the Vice President of Human
Resources at the Company. For such revocation to be effective,
written notice must be actually received by the Vice President
of Human Resources at the Company no later than the close of
business on the seventh (7th) day after Executive executes
this Release. If Executive does exercise his right to revoke
this Release, all of the terms and conditions of the Release
shall be of no force and effect and the Company shall not have
any obligation to make payments or provide benefits to
Executive as set forth in Paragraph 6 of the Employment,
Retirement and Consulting Agreement between the Company and
the Executive made the 12 day of December, 1996.
(d) Executive agrees that he will never file a lawsuit or
other complaint asserting any claim that is released in this Release.
(e) It is understood and agreed that Executive's resignation
and retirement are by mutual agreement between the Company and Executive, and
that Executive waives and releases any claim that he has or may have to
reemployment after June 30, 1997.
<PAGE> 34
IN WITNESS WHEREOF, the Executive has executed and delivered
this Release on the date set forth below.
DAVID FULLEN
Witness:
-------------------------- ---------------------
Date: Date:
------------------- --------------------
<PAGE> 35
EXHIBIT C
---------
Argentina
Australia
Brazil
Canada
Chile
China
Columbia
Czech Republic
England
France
Germany
Greece
Hungary
India
Indonesia
Ireland
Italy
Japan
Korea
Malaysia
Mexico
Netherlands
Norway
Peru
Poland
Russia
South Africa
Spain
Sweden
Taiwan
Thailand
United States
Venezuela
Vietnam
<PAGE> 36
EXHIBIT D
---------
I. Arc Welding Machines ranging from light duty models for light
industrial and farm use to heavy duty models for commercial and
industrial use in manual, semi-automatic, automatic and robotic
welding.
II. Arc Welding Consumables: Welding rods, fluxes and wires used in light
to heavy manufacturing of mild steel, alloy and hard surface
applications; coated manual or stick electrodes; solid electrodes
produced in coil form for continuous feeding in mechanized welding;
cored electrodes produced in coil form for continuous feeding in
mechanized welding; submerged arc electrodes and fluxes; self-shielded
cored electrodes; gas-shielded solid and cored electrodes.
III. Arc Welding Power Sources and Automated Wire Feeding Systems.
IV. Integral horsepower electric motors ranging principally from 1/3 to 250
horsepower, but including cast iron motors of 1,250 horsepower.
<PAGE> 1
EXHIBIT (11)
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share data)
Year Ended December 31
----------------------
1996 1995 1994
---- ---- ----
Primary and fully diluted:
Average shares outstanding 24,862 23,350 21,940
Net income $74,253 $61,475 $48,008
Per share amounts:
Net income $ 2.99 $ 2.63 $ 2.19
<PAGE> 1
EXHIBIT (21)
THE LINCOLN ELECTRIC COMPANY AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
The Company's significant subsidiaries, all of which are included in its
consolidated financial statements, are listed in the following table:
COUNTRY OF CONSOLIDATED
NAME INCORPORATION PERCENT OWNERSHIP
- ------------------------------- ------------- -----------------
Lincoln Electric (U.K.) Limited United Kingdom 100
Lincoln-Norweld A/S Norway 100
Lincoln Electric France S.A. France 100
Lincoln Smitweld B.V. The Netherlands 100
Lincoln K.D.S.A. Spain 100
Lincoln Electric Company Australia 100
(Australia) Proprietary Limited
Lincoln Electric Company of Canada 100
Canada Limited
Lincoln Electric Mexicana, S.A. de C.V. Mexico 100
Lincoln Electric Do Brasil Ltda. Brazil 100
The Company has omitted the names of its subsidiaries which, considered in the
aggregate as a single subsidiary, would not constitute a "significant
subsidiary" within the meaning of Rule 1-02 contained in Regulation S-X.
<PAGE> 1
EXHIBIT (23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements of
The Lincoln Electric Company pertaining to The Lincoln Electric Company 1988
Incentive Equity Plan (Form S-8 No. 33-25209), pertaining to The Lincoln Stock
Purchase Plan (Form S-8 No. 33-64189) and pertaining to the Lincoln Electric
Company Employee Savings Plan (Form S-8 No. 33-64187) of our report dated
February 10, 1997, with respect to the consolidated financial statements and
schedule of The Lincoln Electric Company and subsidiaries included in the Annual
Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Cleveland, Ohio
March 21, 1997
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