<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998
Commission File Number 1-8803
MATERIAL SCIENCES CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-2673173
(State or other jurisdiction (IRS employer identification
of incorporation or organization) number)
2200 East Pratt Boulevard
Elk Grove Village, Illinois 60007
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (847) 439-8270
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
------- -------
As of July 13, 1998, there were outstanding 15,406,106 shares of common stock,
$.02 par value.
<PAGE>
MATERIAL SCIENCES CORPORATION
FORM 10-Q
For The Quarter Ended May 31, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
(a) Financial statements of Material Sciences Corporation and Subsidiaries
(b) Summarized income statement information for Walbridge Coatings, An
Illinois Partnership
2
<PAGE>
Consolidated Statements of Income
Material Sciences Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
May 31,
(In thousands, except per share data) 1998 1997
- --------------------------------------------------- -------- --------
<S> <C> <C>
Net Sales(1) $112,883 $ 73,096
Cost of Sales 93,773 55,505
-------- --------
Gross Profit $ 19,110 $ 17,591
Selling, General and Administrative
Expenses 13,701 13,202
-------- --------
Income from Operations $ 5,409 $ 4,389
-------- --------
Other (Income) and Expense:
Interest Income $ (71) $ (29)
Interest Expense 3,290 1,013
Equity in Results of Partnership (45) (502)
Other, Net (428) (260)
-------- --------
Total Other Expense, Net $ 2,746 $ 222
-------- --------
Income Before Income Taxes $ 2,663 $ 4,167
Income Taxes 1,025 1,605
-------- --------
Net Income(6) $ 1,638 $ 2,562
======== ========
Net Income Per Share(7):
Basic $ 0.11 $ 0.17
======== ========
Diluted $ 0.11 $ 0.17
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Consolidated Balance Sheets
Material Sciences Corporation and Subsidiaries
<TABLE>
<CAPTION>
May 31, February 28,
(In thousands) 1998 1998
- ------------------------------------------------------------- --------- ------------
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 4,709 $ 3,625
Receivables:
Trade, Less Reserves of $4,155 and $4,785, Respectively (2) 48,216 53,536
Current Portion of Partnership Note - 380
Income Taxes 1,694 2,391
Prepaid Expenses 3,888 3,080
Inventories 57,280 60,892
Prepaid Taxes 1,944 1,944
--------- ---------
Total Current Assets $ 117,731 $ 125,848
--------- ---------
Gross Property, Plant and Equipment $ 366,275 $ 363,004
Accumulated Depreciation and Amortization (113,664) (106,405)
--------- ---------
Net Property, Plant and Equipment $ 252,611 $ 256,599
--------- ---------
Other Assets:
Investment in Partnership $ 11,239 $ 10,842
Intangible Assets, Net 23,978 24,142
Other 1,069 643
--------- ---------
Total Other Assets $ 36,286 $ 35,627
--------- ---------
Total Assets $ 406,628 $ 418,074
========= =========
Liabilities:
Current Liabilities:
Current Portion of Long-Term Debt $ 2,971 $ 3,410
Accounts Payable 44,723 43,040
Accrued Payroll Related Expenses 7,554 10,300
Accrued Expenses 10,594 8,768
--------- ---------
Total Current Liabilities $ 65,842 $ 65,518
--------- ---------
Long-Term Liabilities:
Deferred Income Taxes $ 13,140 $ 13,012
Long-Term Debt, Less Current Portion 173,551 187,563
Accrued Superfund Liability 3,350 3,350
Other 7,850 7,747
--------- ---------
Total Long-Term Liabilities $ 197,891 $ 211,672
--------- ---------
Shareowners' Equity:
Preferred Stock (3) $ - $ -
Common Stock (4) 328 327
Additional Paid-In Capital 52,859 52,253
Treasury Stock at Cost (5) (8,545) (8,545)
Retained Earnings 98,521 96,883
Cumulative Translation Adjustment (6) (268) (34)
--------- ---------
Total Shareowners' Equity $ 142,895 $ 140,884
--------- ---------
Total Liabilities and Shareowners' Equity $ 406,628 $ 418,074
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Consolidated Statements of Cash Flows
Material Sciences Corporation and Subsidiaries
<TABLE>
<CAPTION>
Three Months Ended
May 31,
(In thousands) 1998 1997
- ------------------------------------------------------------------------ -------- --------
<S> <C> <C>
Cash Flows From:
Operating Activities:
Net Income $ 1,638 $ 2,562
Adjustments to Reconcile Net Income to Net Cash Provided By
(Used In) Operating Activities:
Depreciation and Amortization 7,883 4,680
Provision (Benefit) for Deferred Income Taxes 128 (42)
Compensatory Effect of Stock Plans 96 83
Other, Net (170) (504)
-------- --------
Operating Cash Flow Prior to Changes in Assets and Liabilities $ 9,575 $ 6,779
-------- --------
Changes in Assets and Liabilities:
Receivables $ 5,526 $ (1,853)
Income Taxes Receivable 697 1,249
Prepaid Expenses (808) (868)
Inventories 3,612 (969)
Accounts Payable 1,100 (2,062)
Accrued Expenses (787) (2,559)
Other, Net (1) 54
-------- --------
Cash Flow from Changes in Assets and Liabilities $ 9,339 $ (7,008)
-------- --------
Net Cash Provided By (Used In) Operating Activities $ 18,914 $ (229)
-------- --------
Investing Activities:
Capital Expenditures, Net $ (3,224) $ (8,195)
Investment in Partnership (352) (545)
Other Long-Term Assets (426) 48
-------- --------
Net Cash Used In Investing Activities $ (4,002) $ (8,692)
-------- --------
Financing Activities:
Net Proceeds (Payments) Under Lines of Credit $ 50,600 $(10,100)
Proceeds from Senior Notes - 20,000
Payments to Settle Debt (64,929) (740)
Purchase of Treasury Stock - (1,027)
Sale of Common Stock 511 705
-------- --------
Net Cash Provided By (Used In) Financing Activities $(13,818) $ 8,838
-------- --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents $ (10) $ -
-------- --------
Net Increase (Decrease) in Cash $ 1,084 $ (83)
Cash and Cash Equivalents at Beginning of Period 3,625 2,116
-------- --------
Cash and Cash Equivalents at End of Period $ 4,709 $ 2,033
======== ========
</TABLE>
The Changes in Assets and Liabilities above for the quarter ended May 31, 1998,
are net of assets and liabilities acquired.
The accompanying notes are an integral part of these statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MATERIAL SCIENCES CORPORATION
The data for the three months ended May 31, 1998 and 1997 have not been audited
by independent public accountants but, in the opinion of the Company, reflect
all adjustments (consisting of only normal, recurring adjustments) necessary for
a fair presentation of the information at those dates and for those periods. The
financial information contained in this report should be read in conjunction
with the Company's 1998 Annual Report to Shareowners and Annual Report on Form
10-K. Certain prior year amounts have been reclassified to conform with the
fiscal 1999 presentation.
(1) During the three month periods ending May 31, 1998 and 1997, the Company
derived approximately 12.3% and 20.3%, respectively, of its sales from fees
billed to the Partnership by a subsidiary of the Company for operating the
Walbridge, Ohio facility.
(2) Includes trade receivables due from the Partnership of $354 at May 31, 1998
and $2,461 at February 28, 1998.
(3) Preferred Stock, $1.00 Par Value; 10,000,000 Shares Authorized; 1,000,000
Designated Series B Junior Participating Preferred; None Issued.
(4) Common Stock, $.02 Par Value; 40,000,000 Shares Authorized; 16,385,754
Shares Issued and 15,406,106 Shares Outstanding at May 31, 1998 and
16,336,694 Shares Issued and 15,357,046 Shares Outstanding at February 28,
1998.
(5) Treasury Stock at Cost; 979,648 Shares at May 31, 1998 and February 28,
1998.
(6) Comprehensive Income:
Three Months Ended May 31,
--------------------------
1998 1997
---- ----
Net Income $1,638 $2,562
Other Comprehensive Income:
Foreign Currency Translation Adjustments,
Net of Tax (144) -
------ ------
Comprehensive Income $1,494 $2,562
====== ======
6
<PAGE>
(7) Net Income Per Share:
<TABLE>
<CAPTION>
Three Months Ended May 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Net Income $ 1,638 $ 2,562
=========== ===========
Net Income Per Share:
Basic $ 0.11 $ 0.17
=========== ===========
Diluted $ 0.11 $ 0.17
=========== ===========
Weighted Average Number of Common
Shares Outstanding Used for Basic Net
Income Per Share 15,290,000 15,157,000
Diluted Common Stock Options 83,781 317,603
----------- -----------
Weighted Average Number of Common
Shares Outstanding Plus Dilutive Common
Stock Options 15,373,781 15,474,603
=========== ===========
Outstanding Common Stock Options Having
No Dilutive Effect 1,495,365 1,413,589
=========== ===========
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Summarized Income Statement Information
Walbridge Coatings, An Illinois Partnership
Three Months Ended
May 31,
(In thousands) 1998 1997
- ------------------------------------------- ------------ ------------
<S> <C> <C>
Net Revenues $16,350 $18,335
Gross Profit 1,303 1,623
Income from Operations 1,162 871
Net Income 474 682
</TABLE>
NOTE: The Net Income shown above does not directly correlate to the Equity in
Results of Partnership shown in the Company's Statement of Income due to
certain contractual allocation requirements of the Partnership. The
Company's primary financial benefit from participation in the Partnership
is in the form of revenues from operating the Walbridge, Ohio facility.
These revenues are included in the Company's net sales.
8
<PAGE>
MATERIAL SCIENCES CORPORATION
FORM 10-Q
For the Quarter Ended May 31, 1998
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations (In thousands)
- ----------------------------
Material Sciences Corporation ("MSC" or "Company") operates in one business
segment comprised of the following four product groups: coil coating,
galvanizing, laminates and composites, and specialty films. The following table
provides a summary of net sales and the percent of net sales of MSC's product
groups.
<TABLE>
<CAPTION>
Net Sales Summary Quarter Ended May 31,
- --------------------- --------------------------------------------------
1998 1997
--------------------- ---------------------
Product Group: Dollars Percent Dollars Percent
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Coil Coating $ 36,236 32.1% $ 29,727 40.7%
Galvanizing 48,310 42.8% 14,873 20.3%
Laminates and Composites 17,158 15.2% 17,086 23.4%
Specialty Films 11,179 9.9% 11,410 15.6%
-------- -------- -------- --------
$112,883 100.0% $ 73,096 100.0%
======== ======== ======== ========
</TABLE>
9
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Net Sales
Net sales in the first quarter of fiscal 1999 increased 54.4% to $112,883 from
$73,096 in the same period last year primarily due to the incremental sales from
the Colorstrip, Inc. ("Colorstrip") acquisition completed in the fourth quarter
of fiscal 1998. Comparable sales for the quarter, excluding Colorstrip, were
$74,269, 1.6% above the first quarter of fiscal 1998. Sales of coil coating
products increased by 21.9% (7.9% excluding Colorstrip) and laminates and
composites increased 0.4%. Galvanizing sales increased 224.8%, but decreased
6.9% when excluding the impact of the Colorstrip acquisition. Specialty films
sales decreased by 2.0% compared to last fiscal year.
Coil Coating
Coil coating sales during the first quarter of fiscal 1999 grew 21.9% (7.9%
excluding Colorstrip) to $36,236 from $29,727 in the same quarter last year.
Significant growth in shipments to the building market were somewhat offset by
declines in sales to the transportation, swimming pool, and appliance markets.
Capacity utilization for the first quarter of fiscal 1999 was 76%. Industry
demand for coil coating products has not grown as quickly as supply, and this
has impacted the Company's ability to sustain or increase prices in certain
geographic areas.
Galvanizing
The galvanizing market is served by MSC with two major materials in coil form,
electrogalvanized (primarily automotive) and hot-dipped galvanized (primarily
building products) coated products. MSC participates in the electrogalvanizing
market through Walbridge Coatings (the "Partnership"), a partnership among
subsidiaries of MSC, Bethlehem Steel Corporation ("BSC") and, until June 30,
1998, Inland Steel Industries, Inc. ("Inland"). As of June 30, 1998, Inland sold
its interest in the Partnership to BSC and entered into a long-term toll
processing agreement with the Partnership ending December 31, 2001. The hot-
dipped market is served through MSC Pinole Point Steel Inc. ("Pinole Point"), a
subsidiary formed as part of the Colorstrip acquisition. Galvanizing sales
increased 224.8% to $48,310 from $14,873 in the prior year. Excluding
Colorstrip, galvanizing sales decreased 6.9% from the first quarter last year.
MSC's net sales for electrogalvanizing consists of various fees charged to the
Partnership for operating the facility. BSC and, until June 30, 1998, Inland are
primarily responsible for the sales and marketing activities of the Partnership.
Through June 30, 1998, the sales and marketing responsibilities of the
Partnership are split between BSC and Inland at approximately 76% and 24%,
respectively. The Company's primary financial benefits from the Partnership are
the revenues billed to Walbridge Coatings for operating the facility. These
revenues represent 12.3% and 20.3% of the Company's net sales in the first three
months of fiscal 1999 and 1998, respectively. During the first quarter of fiscal
1999, as well as last fiscal year, the profitability for operating the facility
was higher than MSC's overall operating results due in large part to
depreciation related to significant capital investments in the coil coating and
specialty films areas during last fiscal year. Under the equity method of
accounting, the Company includes its portion of the Partnership shown in the
Consolidated Statements of Income. The amounts do not directly correlate to the
Company's 50% ownership interest due to contractual allocation
10
<PAGE>
requirements of the Partnership agreement. MSC and BSC have extended the
existing terms of the Partnership on a month-to-month basis while negotiating a
long-term arrangement. The Company believes that the fair market value of its
investment in the Partnership is greater than the $11,239 recorded in the
Consolidated Balance Sheets.
MSC's electrogalvanizing sales in the first quarter of fiscal 1999 decreased
6.9% over the first quarter last year. The decrease in sales was a result of
lower shipments to Ford Motor Company, as well as inventory adjustments at other
automotive manufacturers. In addition, the planned annual maintenance shutdown
was moved to the first quarter compared to the second quarter of last fiscal
year. Capacity utilization for electrogalvanizing in the first quarter of fiscal
1999 was 79% versus 93% in the first quarter last year.
Hot-dipped galvanizing sales were $34,461 for the first quarter of fiscal 1999.
Due to the increasingly competitive environment, pricing pressure from the
Asian market, as well as unusually wet weather on the West Coast, sales were
less than the comparable pre-acquisition period a year ago. Capacity utilization
was 59% for the first quarter this year.
Laminates and Composites
During the first quarter of fiscal 1999, laminates and composites sales of
$17,158 were flat with the same quarter last year. Sales of Polycore
Composites(R) increased slightly as gains in appliance and computer materials
were offset by a decrease in automotive applications. Disc brake noise damper
sales increased with growth in both original equipment manufacturer ("OEM") and
replacement market sales. A continuing decline in the reflective lighting market
contributed to the lower Specular+(R) sales for the quarter.
Specialty Films
Sales of specialty films products decreased 2.0% to $11,179 in the first three
months of this year compared to $11,410 in the same period last year. Good gains
were made in the industrial films segment due to higher shipments of
photoreceptor belt material used in paper copiers, films used to manufacture
digital imaging printing plates, and other sputtered materials. This increase
was offset by lower shipments of window film products. Capacity utilization for
specialty films was 69% for the first quarter.
Gross Profit
The Company's gross profit margin was 16.9% in the first quarter of fiscal 1999
as compared to 24.1% in the same period last year. The decrease in gross profit
margin for the quarter was primarily due to the impact of selling a package hot-
dipped galvanized product (both substrate and coating components are included in
sales and cost of sales). In addition, improvements in production efficiencies
were offset by an increase in depreciation expense and the impact of a more
competitive pricing environment.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses were 12.1% of sales in the
first quarter of fiscal 1999 as compared to 18.1% of sales for the same period
last fiscal year. The decrease in SG&A was largely due to the increase in sales
from the Colorstrip acquisition and the
11
<PAGE>
Company's cost reduction program implemented in the fourth quarter of last year.
Also, the first quarter of fiscal 1998 included approximately $500 of one-time
expenses.
Total Other (Income) and Expense, Net and Income Taxes
Total other (income) and expense, net was expense of $2,746 in the first three
months of fiscal 1999 compared to $222 of expense for the first quarter of
fiscal 1998. Interest expense increased $2,277 due to additional debt related to
the Company's increase in capital expenditures in fiscal 1998 and the Colorstrip
acquisition. In addition, Equity in Results of Partnership declined to income of
$45 for the first quarter of this fiscal year compared to $502 last year due to
a decline in third party sales. MSC's effective income tax rate was
approximately 38.5% during the first quarter of fiscal 1999 and fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the first quarter of fiscal 1999, MSC generated $18,914 of cash from
operating activities compared to utilizing $229 in the first quarter last year.
The increase in cash generation is due mainly to significant improvements in
working capital, as well as higher depreciation and amortization compared to the
prior year, slightly offset by lower net income. Earnings before interest,
taxes, depreciation, and amortization ("EBITDA") increased to $13,765 for the
first quarter of fiscal 1999 compared to $9,831 for the same quarter last year.
MSC's capital expenditures during the first quarter of fiscal 1999 were $3,224
compared with $8,195 in the same period last fiscal year. The prior fiscal
quarter included higher spending for increasing capacity in the coil coating and
specialty films areas.
Total debt for MSC decreased at May 31, 1998, to $176,522 from $190,973 at
fiscal year end due mainly to the significant improvements in working capital
and lower capital expenditures. As of May 31, 1998, the Company maintains two
committed lines of credit totaling $100,000. There was $55,100 outstanding under
the lines of credit as of May 31, 1998, versus $4,500 as of February 28, 1998.
The Company has executed letters of credit totaling $4,740 against these lines
leaving available lines of credit of $40,160 at May 31, 1998. On April 3, 1998,
the Company paid the entire balance of the seller note ($64,082), along with
accrued interest, issued in connection with the Colorstrip acquisition. The
Company believes that its cash flow from operations, together with available
financing and cash on hand will be sufficient to fund its working capital needs,
capital expenditure program, and debt amortization.
On May 19, 1998, the Company announced the signing of a letter of intent to form
a joint venture with N.V. Bekaert S.A. for the research and development,
manufacture, and sale of sputtered film. The transaction is subject to
completion of satisfactory due diligence and negotiation and execution of a
definitive agreement. There can be no assurance that the definitive agreement
will be executed or that the transaction will be consummated.
In the first quarter of fiscal 1999, approximately 28% of the Company's net
sales were concentrated with customers in the automotive industry, of which 38%
can be directly or indirectly related to General Motors. If the recent General
Motors' strike continues, it will have an impact on operating results to a
greater extent than the Company's consolidated historical operating results due
to the value-added nature of the products sold to General Motors.
12
<PAGE>
The Company has a capital lease obligation, which was $2,992 as of May 31, 1998,
relating to a facility which the Company subleases to the Partnership. In
addition, throughout the term of the Partnership, the Company is contingently
responsible for 50% of the Partnership's financing requirements, including the
Company's share (approximately $625) of $1,250 in Partnership financing loans
from third parties at May 31, 1998.
MSC continues to participate in the implementation of settlements with the
government for the clean-up of various Superfund sites. For additional
information, refer to MSC's Form 10-K for the fiscal year ended February 28,
1998.
Forward-looking statements contained in this filing are qualified by the
cautionary language described in Part II, Item 7 of the Company's 1998 Annual
Report on Form 10-K, filed with the SEC pursuant to the Securities Exchange Act
of 1934, as amended.
13
<PAGE>
MATERIAL SCIENCES CORPORATION
FORM 10-Q
For the Quarter Ended May 31, 1998
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) 3 See the exhibits listed in the Index to Exhibits.
4 See the exhibits listed in the Index to Exhibits.
10.1 See the exhibits listed in the Index to Exhibits.
10.2 See the exhibits listed in the Index to Exhibits.
27 Financial Data Schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which
this report is filed. On June 22, 1998, the Company filed a Form
8-K regarding the amendment of the Registrant's By-Laws and
Rights Agreement.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Elk Grove Village, State of Illinois,
on the 15th day of July, 1998.
MATERIAL SCIENCES CORPORATION
By: /s/ Gerald G. Nadig
--------------------------------
Gerald G. Nadig
Chairman, President
and Chief Executive Officer
By: /s/ James J. Waclawik, Sr.
--------------------------------
James J. Waclawik, Sr.
Vice President,
Chief Financial Officer
and Secretary
15
<PAGE>
MATERIAL SCIENCES CORPORATION
Quarterly Report on Form 10-Q
Index to Exhibits
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Description of Exhibit Numbered Page
- -------------- ---------------------- -------------
<S> <C> <C>
3 By-Laws of the Registrant, as *
amended.
4 First Amendment to Rights *
Agreement, dated as of June 17, 1998
between the Registrant and
Chasemellon Shareholder Services,
L.L.C., as rights agent.
10.1 Form of Change of Control Agreement.
10.2 Amendment to the Supplemental Employee
Retirement Plan.
27 Financial Data Schedule (1)
</TABLE>
* Incorporated by reference to the Company's Registration Statement on Form
8-K, filed with the Commission on June 22, 1998.
(1) Appears only in the electronic filing of this report with the Securities
and Exchange Commission.
<PAGE>
Exhibit 10.1
------------
CHANGE IN CONTROL AGREEMENT
---------------------------
CHANGE IN CONTROL AGREEMENT (this "Agreement") dated as of June __, 1998 by
and between MATERIAL SCIENCES CORPORATION, a Delaware corporation (the
"Company"), and ________________ ("Employee") (capitalized terms used herein and
not otherwise defined shall have the meanings ascribed thereto in Section 9
hereof).
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, in order to induce Employee to continue employment with, and
remain in the employment of the Company, the Company and Employee desire to
enter into this Agreement to provide Employee with appropriate compensation in
the event of a Change in Control.
NOW, THEREFORE, in consideration of the foregoing, of the mutual covenants
and agreements herein contained and for other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged, the
parties, intending legally to be bound, hereby agree as follows:
1. Term of Agreement. The term of this Agreement shall commence on the
date hereof and shall terminate on the third anniversary of the date hereof;
provided; however, that this Agreement shall automatically renew for successive
one year terms unless either party delivers written notice to the other party at
least 90 days in advance of the expiration of the initial term or the applicable
renewal term, as the case may be, to the effect that such party desires to
terminate this Agreement as of the last day of the initial term or applicable
renewal term, as the case may be. The Company shall not terminate Employee's
employment by the Company in connection with or in anticipation of a Change in
Control.
2. Post Change in Control Employment.
(a) Commencement of Employment Period. The Company hereby employs
Employee, and Employee hereby accepts such employment, effective upon the
occurrence of a Change in Control (the "Effective Date"), upon the terms and
conditions hereinafter set forth.
(b) Termination of Employment Period. The term of employment under
this Agreement shall terminate upon the earliest to occur of the following
events (the date of such event being referred to as the "Termination Date,"
except as more particularly defined in Section 9 or 4(e)):
- 1 -
<PAGE>
(i) Employee's death;
(ii) the Company's termination of Employee's employment by
the Company as a result of Employee's Disability;
(iii) the Company's termination of Employee's employment by
the Company for Cause or without Cause;
(iv) Employee's termination of Employee's employment by the
Company for Good Reason or without Good Reason; and
(v) the date specified in Section 2(b)(v) of attached
Schedule A (the period commencing on the Effective Date and ending on such
date is referred to as the "Subject Period"); provided, however, that such
period of employment may be extended by written agreement of the parties
(it being understood that if no such written agreement is entered into and
Employee remains employed by the Company after the completion of the
Subject Period, such employment shall be "at-will" unless different terms
are established in writing).
(c) Notice of Termination. Any purported termination of Employee's
employment by the Company or by Employee shall be communicated to the other
party hereto by a written notice which shall indicate the specific termination
provision of this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Employee's employment under the provision so indicated.
(d) Compensation During Employment Period. During the Employment
Period, Employee shall be entitled to the following compensation:
(i) The Company shall pay to Employee a monthly base
salary in an amount which is at least equal to Employee's highest base
monthly salary in effect during the 12-month period immediately preceding
the Effective Date.
(ii) The Company shall pay to Employee an annual cash bonus
(the "Required Bonus"), payable within 45 days after each anniversary of
the Effective Date, in an amount which is at least equal to the greater of
(A) the highest annual bonus paid to Employee in respect of any of the
three fiscal years of the Company ended immediately preceding the Effective
Date or (B) the bonus which would otherwise be required to be paid to
Employee under the EVA Plan for the applicable period.
(iii) The Company shall continue to provide all employee
benefit programs and fringe benefits, including ,without limitation,
incentive, savings, bonus, welfare benefit, reimbursement and retirement
plans and the provision of Company automobile or allowance, and permit
Employee to participate therein at rates of participation and on terms and
- 2 -
<PAGE>
conditions which are at least equal to the most favorable rates of
participation and terms and conditions available to Employee at any time
during the 120-day period immediately preceding the Effective Date.
(iv) All cash compensation payable pursuant to this Section
shall be subject to all withholding and deductions required by applicable
law.
3. Compensation Upon Termination of Employment Period.
(a) Death. If Employee's employment by the Company is terminated as a
result of the occurrence of Employee's death pursuant to Section 2(b)(i), the
Company shall pay to Employee's estate the compensation and other benefits,
including the bonus described in Section 2(d)(ii) pro-rated for partial years of
service, unpaid deferred compensation and vacation pay, expressly provided under
this Agreement through the Termination Date, as well as any death benefits
available under any Company plan or policy.
(b) Disability. If Employee's employment by the Company is terminated
by the Company as a result of the occurrence of Employee's Disability pursuant
to Section 2(b)(ii), the Company shall pay to Employee the compensation and
other benefits, including the bonus described in Section 2(d)(ii) pro-rated for
partial years of service, unpaid deferred compensation and vacation pay,
expressly provided under this Agreement through the Termination Date, as well as
any disability benefits available under any Company plan or policy.
(c) Termination for Cause. If Employee's employment by the Company is
terminated by the Company for Cause pursuant to Section 2(b)(iii), the Company
shall pay to Employee the compensation and other benefits, including unpaid
deferred compensation and vacation pay (but excluding the bonus described in
Section 2(d)(ii)), expressly provided under this Agreement through the
Termination Date.
(d) Termination without Cause. If Employee's employment by the
Company is terminated by the Company without Cause pursuant to Section
2(b)(iii), the Company shall pay to Employee (i) the compensation and other
benefits, including unpaid deferred compensation and vacation pay (but excluding
the bonus described in Section 2(d)(ii)), expressly provided under this
Agreement through the Termination Date and (ii) a lump sum cash payment (the
"Severance Payment") equal to the sum of:
(A) the product of (I) the number set forth in Section
3(d)(ii)(A) of attached Schedule A multiplied by (II) the sum (y)
Employee's annual base salary in effect at the Termination Date and (z) the
Highest Annual Bonus (as hereinafter defined);
(B) an amount (the "Highest Annual Bonus") equal to the
greater of (I) the Required Bonus or (II) the annual bonus received by
Employee during the most recent
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<PAGE>
fiscal year of the Company, in each case prorated to reflect the partial
year for which Employee was employed by the Company from and after the most
recent anniversary of the Effective Date;
(C) the product of (I) the number set forth in Section
3(d)(ii)(A) of attached Schedule A multiplied by (II) the amount the
Company would have been required to contribute on behalf of Employee under
its defined contribution plans had Employee remained employed by the
Company in the same status after the Termination Date for one full year;
and
(D) the full amount of the bonus "banked" by the Company in
respect of Employee under the EVA Plan (notwithstanding anything to the
contrary contained in the EVA Plan).
In addition, (i) the Company, at its expense, shall continue to provide
Employee with all employee benefit programs (other than welfare benefit
programs) and fringe benefits specified in Section 2(d)(iii) for the duration of
the Subject Period, or until Employee's death, whichever is the shorter period;
(ii) the Company, at its expense (not to exceed the amount set forth in Section
3(d) of attached Schedule A), shall provide Employee with outplacement services;
and (iii) all stock options, shares of restricted stock and other stock or stock
based awards granted by the Company to Employee shall become fully vested,
notwithstanding the terms and conditions thereof or any plans pursuant to which
such grants or awards were made (the provisions of this paragraph are referred
to as the "Other Severance Benefits").
(e) Termination by Employee.
(i) Except as set forth in Section 3(e)(ii), if Employee's
employment by the Company is terminated by Employee without Good Reason
pursuant to Section 2(b)(iv), the Company shall pay to Employee the
compensation and other benefits, including unpaid deferred compensation and
vacation pay (but excluding the bonus described in Section 2(d)(ii)),
expressly provided under this Agreement through the Termination Date.
(ii) If Employee's employment by the Company is terminated
by Employee (A) without Good Reason within 30 days after the first year
anniversary of the Effective Date pursuant to Section 2(b)(iv) or (B) for
Good Reason at any time from and after the Effective Date, the Company
shall pay to Employee (I) the compensation and other benefits, including
unpaid deferred compensation and vacation pay (but excluding the bonus
described in Section 2(d)(ii)), expressly provided under this Agreement
through the Termination Date and (II) a lump sum cash payment equal to the
Severance Payment. In addition, Employee shall be entitled to the Other
Severance Benefits.
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4. Additional Understandings.
(a) Timing of Certain Payments. The payments provided for in Section
3 shall be made not later than the 30th day following the Termination Date.
(b) Retirement Benefits. In addition to all other amounts payable to
Employee under Section 3, following the termination of Employee's employment by
the Company, Employee shall be entitled to receive all benefits payable to
Employee under any plan or agreement relating to retirement benefits.
(c) No Mitigation. Employee shall not be required to mitigate the
amount of any payment provided for in Section 3 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in
Section 3 be reduced by any compensation earned by Employee as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by Employee to the Company or otherwise.
(d) Excise Tax Gross-Up.
(i) In the event that Employee becomes entitled to the
payments and benefits provided under Section 3 above and/or any other
payments or benefits in connection with a change in control or termination
of Employee's employment with the Company (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a change in control or any
person affiliated with the Company or such person) (collectively, the
"Payments"), if any of the Payments will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code, then (A) if the aggregate amount
of the Payments is equal to or greater than 330% of the "base amount" as
defined in Section 280G(b)(3) of the Code, then the Company shall pay to
Employee, at least 30 days prior to the time payment of any such Excise Tax
is due, an additional amount (the "Gross-Up Payment") such that the net
amount retained by Employee, after deduction of any Excise Tax and any
federal and state and local income tax imposed on the Gross-Up Payment,
shall be equal to the Excise Tax imposed on the Payments; and (B) if the
aggregate amount of the Payments is less than 330% of the "base amount,"
then the aggregate present value of the payments made pursuant to the terms
of this Agreement alone without taking into account payments made pursuant
to any other agreements between the Company and Employee shall be reduced
so that the Payment equals 299.99% of the "base amount" (it being
understood that in no event shall the amount of the payment made pursuant
to the terms of this Agreement be less than $0).
(ii) For purposes of determining whether any of the
Severance Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (A) the Payments shall be treated as "parachute payments"
within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(l) of the
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<PAGE>
Code shall be treated as subject to the Excise Tax, unless, in the opinion
of tax counsel selected by the Company's independent auditors and
reasonably acceptable to Employee, the Payments (in whole or in part) do
not constitute parachute payments or excess parachute payments or are
otherwise not subject to the Excise Tax, (B) the amount of the Payments
which shall be treated as subject to the Excise Tax shall be equal to the
lesser of (y) the total amount of the Payments or (z) the amount of excess
parachute payments within the meaning of Section 280G(b)(l) (after applying
clause (A) above), and (C) the value of any non-cash benefits or any
deferred payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of Section
280G(d)(3) and (4) of the Code.
(iii) For purposes of determining the amount of the Gross-Up
Payment, Employee shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes
at the highest marginal rate of taxation in the state and locality of
Employee's residence on the Termination Date, net of the maximum reduction
in federal income taxes which could be obtained from deduction of such
state and local taxes.
(iv) In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the
time of termination of Employee's employment, Employee shall repay to the
Company at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to
such reduction (plus the portion of the Gross-Up Payment attributable to
the Excise Tax and federal and state and local income tax imposed on the
Gross-Up Payment being repaid by Employee if such repayment results in a
reduction in Excise Tax and/or a federal and state and local income tax
deduction) plus interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder at the
time of the termination of Employee's employment (including by reason of
any payment the existence or amount of which cannot be determined at the
time of the Gross-Up Payment), the Company shall make an additional Gross-
Up Payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
(e) Company Successors. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Employee to compensation from the
Company in the same amount and on the same terms as Employee would be entitled
to hereunder if Employee terminated Employee's employment by the Company for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination
Date. As used in this Agreement, "Company" shall
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<PAGE>
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
(f) No Contract of Employment. This Agreement shall not be construed
as creating an express or implied contract of employment and, subject to Section
1 and except as otherwise agreed in writing between the Company and Employee,
Employee shall not have any right to be retained in the employ of the Company.
5. Confidential Information and Ownership of Property.
(a) Confidential Information. Employee agrees to use all Confidential
Information solely in connection with the performance of services for or on
behalf of the Company. Employee shall not, during the term of this Agreement,
or at any time after the termination of this Agreement, in any manner, either
directly or indirectly, (i) disseminate, disclose, use or communicate any
Confidential Information to any person or entity, regardless of whether such
Confidential Information is considered to be confidential by third parties, or
(ii) otherwise directly or indirectly misuse any Confidential Information;
provided, however, that (y) none of the provisions of this Section shall apply
to disclosures made for valid business purposes of the Company or (z) that
Employee shall not be obligated to treat as confidential any Confidential
Information that (I) was publicly known at the time of disclosure to Employee;
(II) becomes publicly known or available thereafter other than by means in
violation of this Agreement or any other duty owed to the Company or any of its
Affiliates by any person or entity; or (III) is lawfully disclosed to Employee
by a third party. Notwithstanding the foregoing, Employee shall be permitted to
disclose Confidential Information to the extent required to enforce Employee's
rights hereunder in any litigation arising under, or pertaining to, this
Agreement provided that Employee shall give prior written notice to the Company
of any such disclosure so that the Company may have an opportunity to protect
the confidentiality of such Confidential Information in such litigation.
(b) Ownership of Property. Employee agrees that all works of
authorship developed, authored, written, created or contributed to during the
term of this Agreement for the benefit of the Company, whether solely or jointly
with others, shall be considered works-made-for hire. Employee agrees that such
works shall be the sole and exclusive property of the Company (or its
appropriate Affiliate) and that all right, title and interest therein or
thereto, including all intellectual property rights existing or obtained in
connection therewith, shall likewise be the sole and exclusive property of the
Company (or its appropriate Affiliate). Employee agrees further that, in the
event that any work is not considered to be work-made-for-hire by operation of
law, Employee will immediately, and without further compensation, assign all of
Employee's right, title and interest therein to the Company (or its designated
Affiliate), its successors and assigns. At the request and expense of the
Company, Employee agrees to perform in a timely manner such further acts as may
be necessary or desirable to transfer, defend or perfect the Company's ownership
of such work and all rights incident thereto.
6. Covenant Not to Compete. Employee covenants and agrees that Employee
shall not, during the term of Employee's employment by the Company or any
Affiliate thereof and for the Non-
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<PAGE>
Compete Period, directly or indirectly own an interest in, operate, join,
control, advise, work for, consult to, have a financial interest which provides
any control of, or participate in any corporation, partnership, proprietorship,
firm, association, person, or other entity producing, designing, providing,
soliciting orders for, selling, distributing, consulting to, or marketing or re-
marketing products, goods, equipment, or services competitive with or in
substantially the same line of business as the Company or any Affiliate thereof,
or any part thereof, as of the commencement of the Non-Compete Period. This
prohibition applies in the territory specified in Section 6 of attached Schedule
A. This covenant does not prohibit (i) the mere ownership of less than three
percent (3%) of the outstanding stock of any publicly-traded corporation as long
as Employee is not otherwise in violation of this Agreement./1/
7. Covenant Against Solicitation of Employees. During the term of
Employee's employment by the Company and for the Non-Compete Period, Employee
shall not employ employees or agents or former employees or agents of the
Company or its Affiliates or, directly or indirectly, solicit or otherwise
encourage the employment of employees or agents or former employees or agents of
the Company or its Affiliates; provided, however, that this restriction shall
not apply to former employees or agents (y) who, as of the date of termination
of Employee's employment by the Company, have not worked for any of the Company
or its Affiliates during the twelve preceding months or (z) whose employment by
the Company or any Affiliate thereof was terminated by the Company.
8. Remedies.
(a) Employee Acknowledgments. Employee acknowledges (i) that the
covenants contained in Sections 5, 6 and 7, including, without limitation, the
time and geographic limits (collectively, the "Restrictive Covenants"), are
reasonable and appropriate and that Employee will not any claim to the contrary
in any action brought by the Company or its Affiliates to enforce any of such
provisions and (ii) that should Employee violate any of the Restrictive
Covenants, it will be difficult to determine the resulting damages to the
Company and its Affiliates and, in addition to any other remedies the Company
and its Affiliates may have, (A) the Company and its Affiliates shall be
entitled to temporary injunctive relief without being required to post a bond
and permanent injunctive relief without the necessity of proving actual damage;
and (B) the Company shall have the right to offset against its obligation to
make any payments to Employee under this Agreement or otherwise to the extent of
any money damages incurred or suffered by the Company and its Affiliates. The
Company may elect to seek one or more of these remedies at its sole discretion
on a case by case basis. Failure to seek any or all remedies in one case shall
not restrict the Company from seeking any remedies in another situation. Such
action by the Company shall not constitute a waiver of any of its rights.
(b) Intent. It is the parties' intent that each of the Restrictive
Covenants be read and interpreted with every reasonable inference given to its
enforceability. However, it is also the parties'
- -------------------
/1/ The scope of this paragraph 6 varies based on the geographic location of
the Employee and the particular line of business in which the Employee is
employed.
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<PAGE>
intent that if any term, provision or condition of the Restrictive Covenants is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the provisions thereof shall remain in full force and effect
and shall in no way be affected, impaired or invalidated. Finally, it is also
the parties' intent that if a court should determine any of the Restrictive
Covenants are unenforceable because of over-breadth, then the court shall modify
said covenant so as to make it reasonable and enforceable under the prevailing
circumstances.
(c) Tolling. In the event of any breach by Employee of any
Restrictive Covenant, the running of the period of restriction shall be
automatically tolled and suspended for the duration of such breach, and shall
automatically recommence when such breach is remedied in order that the Company
shall receive the full benefit of Employee's compliance with each of the
Restrictive Covenants.
(d) Independent Enforcement. Employee agrees that the Restrictive
Covenants shall be enforced independently of any other obligations between the
Company, on the one hand, and Employee, on the other, and that the existence of
any other claim or defense shall not affect the enforceability of the
Restrictive Covenants or the remedies provided herein. The Restrictive
Covenants shall be in addition to and shall not replace any other restrictive
covenant agreement that Employee may currently have (or hereafter enter into)
with the Company or any of its Affiliates.
(e) Survival. The provisions of this Section 8 shall survive the
termination of this Agreement.
9. Certain Defined Terms. For purposes of this Agreement the following
terms and phrases shall have the following meanings:
"Affiliate" means any person or entity who or which, directly or
indirectly, through one or more intermediaries, controls or is controlled by, or
is under common control with, a specified person or entity (the term "control"
for these purposes meaning the ability, whether by ownership of shares or other
equity interests, by contract or otherwise, to elect a majority of the directors
of a corporation, to act as or select the managing or general partner of a
partnership, or otherwise to select, or have the power to remove and then
select, a majority of those persons exercising governing authority over an
entity).
"Cause", with respect to the termination of Employee's employment by the
Company, means (i) the willful and continued refusal by Employee to perform a
lawful and reasonable order, direction or instruction of the Board of Directors
within a reasonable period of time after a written demand for substantial
performance is delivered to Employee by the Board of Directors which demand
specifically identifies the manner in which the Board believes that Employee has
not substantially performed such an order, direction or instruction; or (ii) the
willful misconduct by Employee in the performance of Employee's duties to the
Company or the willful engaging by Employee in conduct which, in either case, is
illegal or materially injurious to the Company. For purposes of this
definition, no act, or failure to act, on Employee's part shall be deemed
"willful" unless done, or omitted to be done, by Employee
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<PAGE>
not in good faith and without reasonable belief that Employee's action or
omission was in the best interest of the Company. In addition, notwithstanding
the foregoing, Employee's employment by the Company shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
Employee a copy of a resolution duly adopted by the affirmative vote of not less
than three-quarters of the entire membership of the Board of Directors at a
meeting of the Board of Directors called and held for such purpose (after
reasonable notice to Employee and an opportunity for Employee, together with
counsel, to be heard before the Board of Directors), finding that in the good
faith opinion of the Board of Directors, Employee was guilty of conduct set
forth above in clauses (i) or (ii) of the first sentence of this definition and
specifying the particulars thereof in detail.
"Change in Control" means the occurrence of any one of the following
events:
(i) there is an acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the combined voting power of the
then outstanding voting securities of the Company entitled to vote
generally in the election of directors;
(ii) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director (other than a director
designated by a person who has entered into an agreement with the Company
to effect a transaction described in paragraphs (i) or (iii) of this
definition) whose election by the Board of Directors of the Company or
nomination for election by the Company's stockholders was approved by a
vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof; or
(iii) the stockholders of the Company approve (A) a merger
or consolidation of the Company with any other entity, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or through the surviving entity) at least 50% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or (B) a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all the Company's assets.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means all software, trade secrets, work products
created by Employee for the Company or any of its Affiliates, know-how, ideas,
techniques, theories, discoveries, formulas, plans, charts, designs, drawings,
lists of current or prospective clients, business plans and proposals, current
or prospective business opportunities, financial records, research and
development,
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<PAGE>
marketing strategies and programs and reports and other proprietary information
created or obtained by Employee for the benefit of the Company or any of its
Affiliates during the course of employment by the Company.
"Disability" means the inability of Employee to perform substantially all
Employee's duties and responsibilities to the Company by reason of a physical or
mental illness or infirmity for either (i) a continuous period of six months or
(ii) 180 days during any consecutive twelve-month period.
"Employment Period" means the date commencing on the Effective Date and
terminating on the Termination Date.
"EVA Plan" means the Economic Value Added Improvement Incentive Plan
adopted by the Company, as the same may be amended, modified, supplemented or
restated from time to time (including any successor thereto or replacement
therefor).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Good Reason" means the occurrence, without the express written consent of
Employee, of any one of the following events, unless such circumstances are
fully corrected prior to the Termination Date specified in the applicable notice
of termination delivered pursuant to Section 2(b):
(i) the assignment to Employee of any duties inconsistent
with Employee's position and status with the Company as set forth on
attached Schedule A or a substantial adverse alteration in the nature or
status of Employee's employment responsibilities from those in existence on
the date hereof;
(ii) the relocation of Employee's office or job location to
a location not within thirty-five miles of Employee's present office or job
location, except for required travel on the Company's business to an extent
substantially consistent with Employee's present business travel
obligations;
(iii) the failure by the Company to pay to Employee any
portion of the compensation required hereunder or under any compensation
plan or program of the Company, within ten business days of the date such
compensation is due;
(iv) the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement,
as contemplated in Section 4(e) hereof; or
(v) any purported termination of Executive's employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of Section 2.
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<PAGE>
"Non-Compete Period" means the period commencing on the date upon which
Employee ceases to be employed by the Company or any Affiliate thereof and
terminating as specified on Section 9 of attached Schedule A thereafter.
"Termination Date" means
(i) if Employee's employment is terminated for Disability,
30 days after Notice of Termination is given (provided that Employee shall
not have returned to the full-time performance of Employee's duties during
such 30 day period); and
(ii) if Employee's employment is terminated pursuant to
Section 2(b) for any other reason (other than death or Disability), the
date specified in the Notice of Termination (which, in the case of a
termination for Cause shall not be less than 30 days, and in the case of a
termination for Good Reason shall not be less than 15 nor more than 60
days, respectively, from the date such Notice of Termination is given);
provided; however, that if prior to the Termination Date (as determined without
regard to this provision), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, the
Termination Date shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding arbitration
award, or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided;
further, however, that the Termination Date shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence. During
the pendency of any such dispute, the Company will continue to pay Employee's
full compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary) and continue Employee as a
participant in all compensation, benefit and insurance plans in which Employee
was participating when the notice giving rise to the dispute was given, until
the dispute is finally resolved in accordance with this definition. Amounts
paid under this paragraph are in addition to all other amounts due under this
Agreement and shall not be offset against or reduce any other amounts due under
this Agreement.
10. Miscellaneous.
(a) Amendment. This Agreement may be amended, modified or
supplemented but only in writing signed by each of the parties hereto.
(b) Waivers. The failure of a party hereto at any time or times to
require performance of any provision hereof shall in no manner affect its right
at a later time to enforce the same. No waiver by a party of any condition or
of any breach of any term, covenant, representation or warranty contained in
this Agreement shall be effective unless in writing, and no waiver in any one or
more instances shall be deemed to be a further or continuing waiver of any such
condition or breach in
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<PAGE>
other instances or a waiver of any other condition or breach of any other term,
covenant, representation or warranty.
(c) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.
(d) Forum Selection and Consent to Jurisdiction. EACH OF THE COMPANY
AND EMPLOYEE AGREE THAT ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER,
OR IN CONNECTION WITH THIS AGREEMENT BETWEEN OR AMONG SUCH PARTIES, SHALL BE
BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF ILLINOIS
LOCATED IN COOK COUNTY, ILLINOIS, OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF ILLINOIS. EACH OF THE COMPANY AND EMPLOYEE HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE
OF ILLINOIS LOCATED IN COOK COUNTY, ILLINOIS, OR IN THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF ILLINOIS. EACH OF THE COMPANY AND EMPLOYEE
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT
ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(e) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) Interpretation. The headings preceding the text of Articles and
Sections included in this Agreement are for convenience only and shall not be
deemed part of this Agreement or be given any effect in interpreting this
Agreement. The use of the masculine, feminine or neuter gender herein shall not
limit any provision of this Agreement. The use of the terms "including" or
"include" shall in all cases herein mean "including, without limitation" or
"include, without limitation," respectively.
(g) Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. No
assignment of any rights or obligations shall be made by any party without the
written consent of each other party.
(h) No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and, to the extent provided herein, their
respective affiliates, directors, officers, employees, agents, heirs and
representatives, and no provision of this Agreement shall be deemed to confer
upon other third parties any remedy, claim, liability, reimbursement, cause of
action or other right.
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<PAGE>
(i) Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
(j) Remedies Cumulative. The remedies provided in this Agreement
shall be cumulative and shall not preclude the assertion or exercise of any
other rights or remedies available by law, in equity or otherwise.
(k) Entire Understanding. This Agreement, together with attached
Schedule A, sets forth the entire agreement and understanding of the parties
hereto with respect to the matters set forth herein and supersedes any and all
prior agreements, arrangements and understandings among the parties; provided,
however, that any agreements and understandings between the Company and Employee
relating to employment and severance shall continue in full force and effect
until the occurrence of a Change in Control.
(l) Conflicts With Existing Agreements. Subject to Section 10(k), in
the event that any term or provision of this Agreement conflicts with or differs
from any term or provision of other existing agreement, understanding or plan
(the "Existing Agreements") between the Company and Employee or to which
Employee is a participant, such term or provision of this Agreement shall govern
for all purposes and respects. Except as expressly set forth herein, this
Agreement does not constitute a waiver or modification of any provision of any
Existing Agreement. Except as expressly modified hereby, the Existing
Agreements shall continue in full force and effect in accordance with the
provisions thereof on the date hereof.
(m) Attorneys' Fees and Other Costs. In the event a dispute arises
between the parties hereto and suit is instituted, the prevailing party or
parties in such litigation shall be entitled to recover reasonable attorneys'
fees and other costs and expenses from the non-prevailing party or parties,
whether incurred at the trial level or in any appellate proceeding. Unless
Employee otherwise elects, expenses incurred by Employee in connection with any
dispute described in this Section will be paid by the Company in advance of the
final disposition of such dispute within 20 days after presentation by Employee
of written documentation therefor reasonably satisfactory to the Company if
Employee furnishes the Company a written undertaking to repay any amounts
advanced if it is ultimately determined that Employee is not entitled to
attorneys' fees and other costs pursuant to this Section (which written
undertaking will provide that the Company shall be entitled to collect its
attorneys' fees and other out-of-pocket costs incurred in connection with the
enforcement of such undertaking).
(n) Notices. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to (i) the
Company at 2200 East Pratt Boulevard, Elk Grove Village, Illinois 60007-5995
and (ii) Employee at the address set forth on attached Schedule A, provided that
all notices to the
- 14 -
<PAGE>
Company shall be directed to the attention of the Board of Directors, with a
copy to the Secretary of the Company, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change in address shall be effective only upon receipt.
- 15 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
THE COMPANY:
-----------
MATERIAL SCIENCES CORPORATION,
a Delaware corporation
By:___________________________________________________
Name: Gerald G. Nadig
Title: Chairman, President and Chief Executive
Officer
EMPLOYEE:
--------
__________________________________________________
Name
- 16 -
<PAGE>
SCHEDULE A
----------
Change in Control Agreement
---------------------------
Employee Name: ________________
Employee Position: ________________
Employee Address: ________________
________________
________________
Section 2(b)(v): [_____] anniversary of the Effective Date (duration of
Employment Period)
Section 3(d)(ii)(A): [_____] (applicable multiple)
Section 3(d): [_____] (maximum outplacement expenses)
Section 6: [_____] (territory)
Section 9: [_____] (duration of Non-Compete Period)
- 1 -
<PAGE>
SCHEDULE B
----------
Addendum to Form of Change in Control Agreement
-----------------------------------------------
Agreements with the following individuals are substantially identical
to the Form in Change of Control Agreement shown here, except for changes in
Schedule A to the Form in Change of Control Agreement as set forth below, and
therefore are not filed as separate documents in reliance upon Securities
Exchange Act of 1934 Rule 12b-31.
<TABLE>
<CAPTION>
Section Section
Employee Name Employee Position 2(b)(v) 3(d)(ii)(A) Section 3(d) Section 6 Section 9
------------- ----------------- --------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Gerald G. Nadig Chairman, President 36 months 3.0 $20,000 North America, including, 3 years
and Chief Executive without limitation, Canada,
Officer the United States and Mexico
Thomas E. Moore Executive Vice 36 months 2.5 $20,000 North America, including, 2.5 years
President and Chief without limitation, Canada,
Operating Officer the United States and Mexico
Frank J. Vice President, 36 months 2.5 $20,000 North America, including, 2.5 years
Lazowski, Jr. Human Resources without limitation, Canada,
the United States and Mexico
James J. Vice President, Chief 36 months 2.5 $20,000 North America, including, 2.5 years
Waclawik, Sr. Financial Officer and without limitation, Canada,
Secretary the United States and Mexico
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
Section Section
Employee Name Employee Position 2(b)(v) 3(d)(ii)(A) Section 3(d) Section 6 Section 9
------------- ----------------- --------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Frank D. Senior Vice 36 months 2.0 $20,000 North America, including, 2 years
Graziano President, without limitation, Canada,
Technology the United States and Mexico
</TABLE>
Eight other officers have Change in Control Agreements with substantially
similar terms, except the applicable multiple ranges from 1.5 to 2.0 and the
duration of the non-compete period ranges from 1.5 years to 2 years.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
Section Section
Employee Name Employee Position 2(b)(v) 3(d)(ii)(A) Section 3(d) Section 6 Section 9
------------- ----------------- --------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
- 4 -
<PAGE>
Exhibit 10.2
------------
AMENDMENT TO THE MATERIAL SCIENCES CORPORATION SUPPLEMENTAL
-----------------------------------------------------------
RETIREMENT PLAN
---------------
WHEREAS, MATERIAL SCIENCES CORPORATION, a Delaware corporation (the
"Company") has established the Material Sciences Corporation Supplemental
Retirement Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan to incorporate certain
change in control provisions; and
WHEREAS, Section 6.01 of the Plan gives the Board of Directors of the
Company the right to amend the Plan and the Board has approved this amendment;
NOW, THEREFORE, the Company hereby amends the Plan by adding the following
new Article to the end thereof:
Article VIII
Change in Control
-----------------
8.01 (a) Change in Control Benefits. If there is a Change in Control (as
defined in Section 8.01(b)(i)) and the Participant's employment by the Company
is terminated for reasons other than Cause (as defined in Section 8.01(b)(ii)),
disability, death or voluntary termination by the Participant, then the
Participant shall be entitled to a Normal Retirement Benefit even though the
Participant may not have yet completed 10 Years of Service and the Participant's
termination shall be deemed to have occurred after the Participant's 65th
birthday and the Participant shall be credited with two additional Years of
Service for purposes of determining the amount of the Participant's Normal
Retirement Benefit under Section 3.01 and the date on which such benefit shall
begin to be paid to the Participant pursuant to Section 4.01.
(b) Definitions.
(i) "Change in Control" means the occurrence of any one of the
following events:
<PAGE>
(A) there is an acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in
the election of directors;
(B) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the
Company and any new director (other than a director designated by a person
who has entered into an agreement with the Company to effect a transaction
described in subparagraphs (A) or (C) of this definition) whose election by
the Board of Directors of the Company or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority
thereof; or
(C) the stockholders of the Company approve (I) a merger or
consolidation of the Company with any other entity, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or through the surviving entity) at least 50% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation, or (II) a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or
substantially all the Company's assets.
(ii) "Cause", with respect to the termination of Participant's
employment by the Company, means (A) the willful and continued refusal by
Participant to perform a lawful and reasonable order, direction or
instruction of the Board of Directors within a reasonable period of time
after a written demand for substantial performance is delivered to
Participant by the Board of Directors which demand specifically identifies
the manner in which the Board believes that Participant has not
substantially performed such an order, direction or instruction; or (B) the
willful misconduct by Participant in
<PAGE>
the performance of Participant's duties to the Company or the willful
engaging by Participant in conduct which, in either case, is illegal or
materially injurious to the Company. For purposes of this definition, no
act, or failure to act, on Participant's part shall be deemed "willful"
unless done, or omitted to be done, by Participant not in good faith and
without reasonable belief that Participant's action or omission was in the
best interest of the Company. In addition, notwithstanding the foregoing,
Participant's employment by the Company shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Participant a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board of
Directors at a meeting of the Board of Directors called and held for such
purpose (after reasonable notice to Participant and an opportunity for
Participant, together with counsel, to be heard before the Board of
Directors), finding that in the good faith opinion of the Board of
Directors, Participant was guilty of conduct set forth above in clauses (A)
or (B) of the first sentence of this definition and specifying the
particulars thereof in detail.
IN WITNESS WHEREOF, the Company has caused this Amendment to be duly
executed on its behalf.
COMPANY:
Material Sciences Corporation
By: _______________________________
Date: __________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Statements of Income and Consolidated Balance Sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> MAY-31-1998
<CASH> 4,709
<SECURITIES> 0
<RECEIVABLES> 48,216
<ALLOWANCES> 4,155
<INVENTORY> 57,280
<CURRENT-ASSETS> 117,731
<PP&E> 366,275
<DEPRECIATION> 113,664
<TOTAL-ASSETS> 406,628
<CURRENT-LIABILITIES> 65,842
<BONDS> 173,551
0
0
<COMMON> 328
<OTHER-SE> 142,567
<TOTAL-LIABILITY-AND-EQUITY> 406,628
<SALES> 112,883
<TOTAL-REVENUES> 112,883
<CGS> 93,773
<TOTAL-COSTS> 93,773
<OTHER-EXPENSES> 13,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,290
<INCOME-PRETAX> 2,663
<INCOME-TAX> 1,025
<INCOME-CONTINUING> 1,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,638
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
