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 June 28, 1998
Commission file number 1-9149
THE INTERLAKE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-3428543
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 Warrenville Road, Lisle, Illinois 60532-4387
(Address of Principal Executive Offices) (Zip Code)
(630) 852-8800
(Registrant's telephone number, including area code)
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 15, 1998, 23,175,142 shares of the registrant's common stock were
outstanding.
<PAGE>
THE INTERLAKE CORPORATION
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following consolidated financial statements as of June 28, 1998 and for the
periods ended June 28, 1998 and June 29, 1997 are unaudited, but include all
adjustments which the Registrant considers necessary for a fair presentation of
results of operations and financial position for the applicable periods. Except
as noted, all adjustments are of a normal, recurring nature. Operating results
for the six month period ended June 28, 1998 are not indicative of the results
that may be expected for the entire 1998 fiscal year. The balance sheet as of
December 28, 1997 has been derived from the audited financial statements of the
Company. The statements included herein should be read in conjunction with the
audited financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 28, 1997.
2
<PAGE>
THE INTERLAKE CORPORATION
Consolidated Statement of Operations
For the Periods Ended
June 28, 1998 and June 29, 1997
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Second Quarter Six Months
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $134,515 $185,845 $268,497 $356,019
Cost of Products Sold 106,016 144,745 212,863 276,577
Selling & Administrative Expense 12,998 25,080 26,391 49,515
-------- -------- -------- --------
Operating Profit 15,501 16,020 29,243 29,927
Non-operating (Income) Expense (225) (78) (1,870) (533)
-------- -------- -------- --------
Earnings Before Interest & Taxes 15,726 16,098 31,113 30,460
Interest Expense 9,206 11,421 18,921 22,961
Interest Income (557) (621) (1,537) (1,389)
-------- -------- -------- --------
Income from Continuing Operations Before Taxes,
Minority Interest and Extraordinary Loss 7,077 5,298 13,729 8,888
Provision for Income Taxes 3,154 3,364 5,837 5,609
-------- -------- -------- --------
Income from Continuing Operations Before Minority
Interest and Extraordinary Loss 3,923 1,934 7,892 3,279
Minority Interest in Net Income of Subsidiaries 1,286 1,266 2,416 2,530
-------- -------- -------- --------
Income from Continuing Operations Before
Extraordinary Loss 2,637 668 5,476 749
Income from Discontinued Operations, Net of
Income Taxes -- -- -- 1,484
Extraordinary Loss, Net of Income Taxes -- -- (220) (1,482)
-------- -------- -------- --------
Net Income $ 2,637 $ 668 $ 5,256 $ 751
======== ======== ======== ========
Comprehensive Income (Loss) $ 2,651 $ (343) $ 5,263 $ (2,508)
======== ======== ======== ========
Income (Loss) Per Share of Common Stock-Basic:
Income from Continuing Operations Before
Extraordinary Loss $.11 $.03 $.24 $.03
Discontinued Operations -- -- -- .06
Extraordinary Loss -- -- (.01) (.06)
---- ---- ---- ----
Net Income $.11 $.03 $.23 $.03
==== ==== ==== ====
Income (Loss) Per Share of Common Stock-Diluted:
Income from Continuing Operations Before
Extraordinary Loss $.08 $.02 $.17 $.02
Discontinued Operations -- -- -- .05
Extraordinary Loss -- -- (.01) (.05)
---- ---- ---- ----
Net Income $.08 $.02 $.16 $.02
==== ==== ==== ====
Average Shares Outstanding - Basic 23,175 23,152 23,191 23,147
====== ====== ====== ======
Average Shares Outstanding - Diluted 33,485 32,458 33,545 32,385
====== ====== ====== ======
</TABLE>
3
<PAGE>
THE INTERLAKE CORPORATION
Consolidated Balance Sheet
June 28, 1998 and December 28, 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
Assets 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 30,449 $ 84,508
Receivables, less allowances for doubtful accounts of
$607 at June 28, 1998 and $542 at December 28, 1997 82,166 78,124
Inventories - Raw materials and supplies 23,938 20,029
- Semi-finished and finished products 22,174 16,700
Other current assets 6,192 5,962
-------- --------
Total Current Assets 164,919 205,323
-------- --------
Other Assets 38,510 41,379
-------- --------
Property, Plant and Equipment, at cost 340,608 315,506
Less - Depreciation and amortization (196,067) (189,142)
-------- --------
144,541 126,364
-------- --------
Total Assets $347,970 $373,066
======== ========
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 44,615 $ 39,097
Accrued liabilities 19,799 20,551
Interest payable 9,805 10,439
Accrued salaries and wages 9,795 11,946
Income taxes payable 36,490 36,887
Debt due within one year 3,150 27,267
-------- --------
Total Current Liabilities 123,654 146,187
-------- --------
Long-Term Debt 291,108 296,365
Other Long-Term Liabilities and Deferred Credits 87,239 89,079
Preferred Stock - 20,000,000 shares authorized Convertible Exchangeable
Preferred Stock - Redeemable par value $1 per share, issued 40,000 shares
(liquidation value $68,044 at June 28, 1998 and $65,114 at
December 28, 1997) 39,155 39,155
Shareholders' Equity (Deficit):
Common stock, par value $1 per share, authorized 100,000,000 shares,
issued 23,530,455 shares at June 28, 1998
and 23,393,695 shares at December 28, 1997 23,530 23,394
Additional paid-in capital 3,039 2,604
Cost of Common stock held in treasury (355,313 shares at
June 28, 1998 and 106,153 shares at December 28, 1997) (3,777) (2,477)
Accumulated deficit (215,978) (221,234)
Accumulated other comprehensive income -- (7)
-------- --------
(193,186) (197,720)
-------- --------
Total Liabilities and Shareholders' Equity (Deficit) $347,970 $373,066
======== ========
</TABLE>
4
<PAGE>
THE INTERLAKE CORPORATION
Consolidated Statement of Cash Flows
For the Periods Ended June 28, 1998 and June 29, 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from (for) operating activities:
<S> <C> <C>
Net income $ 5,256 $ 751
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 8,497 9,851
Nonoperating provision for environmental matters 1,264 --
(Gain) on discontinued operations -- (1,484)
Extraordinary loss 220 1,482
Other operating adjustments (2,230) 1,232
(Increase) decrease in working capital:
Accounts receivable (3,891) 4,269
Inventories (9,381) (634)
Other current assets (230) (810)
Accounts payable 5,517 (3,057)
Other accrued liabilities (5,106) (7,851)
Income taxes payable (230) 2,601
-------- --------
Total working capital change (13,321) (5,482)
-------- --------
Net cash provided (used) by operating activities (314) 6,350
-------- --------
Cash flows from (for) investing activities:
Capital expenditures (25,296) (9,918)
Proceeds from disposal of PP&E -- 70
Acquisitions -- (4,853)
Divestitures -- 1,703
Other investment flows 528 194
-------- --------
Net cash provided (used) by investing activities (24,768) (12,804)
-------- --------
Cash flows from (for) financing activities:
Retirements of long-term debt (29,373) (21,682)
Debt retirement costs -- (1,504)
Other financing flows 396 345
-------- --------
Net cash provided (used) by financing activities (28,977) (22,841)
-------- --------
Effect of exchange rate changes -- (644)
Increase (Decrease) in cash and cash equivalents (54,059) (29,939)
Cash and cash equivalents, beginning of period 84,508 70,228
-------- --------
Cash and cash equivalents, end of period $ 30,449 $ 40,289
======== ========
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Financial Statements
The interim information furnished in these financial statements is unaudited.
The Registrant and its subsidiaries are referred to herein on a consolidated
basis as the Company.
Note 2 -- Extraordinary Loss
In the first quarter of 1998, the Company repurchased $24.0 million in principal
amount of its Senior Subordinated Debentures. Deferred debt issuance costs of
$.3 million related to the repurchased Debentures were written off. An
extraordinary loss of $.2 million related to this repurchase, net of applicable
income taxes, was reported in the quarter.
In the first quarter of 1997, the Company repurchased $14.5 million in principal
amount of its Senior Notes at a premium of $1.5 million. In addition, deferred
debt issuance costs of $.3 million related to the repurchased Notes were written
off. An extraordinary loss of $1.5 million related to this repurchase, net of
applicable income taxes, was reported in the quarter.
Note 3 -- Discontinued Operations
In the first quarter of 1997, the Company received additional proceeds from the
sale in 1996 of its Packaging businesses resulting in income from discontinued
operations of $1.5 million, net of applicable income taxes.
Note 4 -- Computation of Common Share Data
The weighted average number of common shares outstanding used to compute basic
per share amounts was 23,175,000 and 23,152,000 for the second quarters of 1998
and 1997, respectively. For the first six months, the weighted average number of
common shares was 23,191,000 for 1998 and 23,147,000 for 1997. For diluted per
share amounts, the weighted average number of common shares outstanding used was
33,485,000 and 32,458,000 for the second quarters of 1998 and 1997,
respectively. For the first six months, the weighted average number of common
shares was 33,545,000 for 1998 and 32,385,000 for 1997. The effect of the
dilutive Convertible Exchangeable Preferred Stock was to increase the weighted
average number of shares outstanding used in the computation of diluted earnings
per share by 10,025,000 and 9,174,000 shares in the second quarters of 1998 and
1997, respectively. For the first six months, the effect of the dilutive
Convertible Exchangeable Preferred Stock was to increase the weighted average
number of shares by 10,020,000 and 9,172,000, respectively. Stock options added
285,000 common shares in the second quarter and 334,000 in the first six months
of 1998 and 132,000 in the second quarter and 66,000 in the first six months of
1997.
Note 5 -- Income Taxes
The effective tax rate on income from continuing operations was 44.6% and 63.5%
for the second quarter of 1998 and 1997, respectively. For the first six months,
the effective rate was 42.5% for 1998 and 63.1% for 1997. In 1998, the Company
provided for U.S. federal and state income taxes as well as for additional
amounts related to open U.S. federal tax return years of 1982 through 1990.
In 1997, because most of the Company's interest expense was borne in the United
States at the parent company level, the Company had substantial taxable income
in foreign and state jurisdictions. Taxes due to foreign authorities were not
offset by U.S. federal income tax benefits.
6
<PAGE>
Note 6 -- Comprehensive Income
In June of 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The
Statement, which the Company adopted in the first quarter of 1998, establishes
standards for reporting and displaying comprehensive income and its components
in a full set of general-purpose financial statements. Where applicable, earlier
periods have been restated to conform to the standards set forth in the
Statement. The Company's Comprehensive Income consists of net income and foreign
currency translation adjustments which are presented before tax. Comprehensive
Income in the second quarter and first six months of 1997 includes $1.0 million
and $3.3 million, respectively, of foreign currency exchange losses relating to
the foreign Handling businesses sold in the fourth quarter of 1997. The Company
does not provide for U.S. income taxes on foreign currency translation
adjustments because it does not provide for such taxes on undistributed earnings
of foreign subsidiaries, some of which were subject to statutory restrictions on
distribution.
Note 7 -- Acquisitions
In the first quarter of 1997, the Company acquired the assets of ARC Metals Inc.
for $5.0 million in cash and a promissory note in the amount of $2.8 million.
Note 8 -- Environmental Matters
In connection with the reorganization of the old Interlake, Inc. (now Acme Steel
Company ("Acme")) in 1986, the Company, then newly-formed, indemnified Acme
against certain environmental liabilities relating to properties which had been
shut down or disposed of by Acme's iron and steel division prior to the 1986
reorganization. After taking a nonoperating charge of $10.5 million in the
fourth quarter of 1997 and $1.3 million in 1998 as discussed below, the
Company's reserves for environmental liabilities totaled $11.0 million as of
June 28, 1998, most of which relates to the Acme indemnification. Of these
amounts, $4.8 million was classified as a current liability as of June 28, 1998.
The nonoperating charges of $10.5 million in the fourth quarter of 1997 and $1.3
million in 1998 related to anticipated liabilities for environmental matters. Of
these amounts, $8.9 million related to anticipated costs of remediation of
certain underwater sediments at the Superfund site on the St. Louis River in
Duluth, Minnesota (the "Duluth Site"). The Company's liability with respect to
the Duluth Site arises out of the Acme indemnification discussed above. In June
1998, the Company submitted to the Minnesota Pollution Control Agency ("MPCA") a
Remedial Investigation/Feasibility Study (RI/FS) recommending a remedy for
certain underwater sediments at the Duluth Site and examining other potential
remedies. The Company believes that, if selected, the recommended remedy could
be implemented at a cost approximating the Company's remaining reserves for the
Duluth Site. Any of the other alternatives reviewed in the RI/FS would cost
more, potentially exceeding the cost of the Company's recommended alternative by
$5 to $25 million. The MPCA, together with other governmental agencies, is
presently reviewing the RI/FS, and is expected to indicate its preferred remedy
in August or September 1998. Although the MPCA has preliminarily indicated that
it does not favor the Company's recommended alternative, the parties are
continuing to discuss potential remediation alternatives.
The Company believes that based on its current estimate of its potential
environmental liabilities, including all contingent liabilities, individually
and in the aggregate, asserted and unasserted, that subject to the remaining
uncertainty with respect to the Duluth Site discussed above, the costs of
environmental matters have been fully provided for or are unlikely to have a
material adverse effect on the Company's business, results of operations,
liquidity or financial condition. In arriving at its current estimate of its
potential environmental liabilities, the Company has relied upon the estimates
and analyses of its environmental consultants and legal advisors, as well as its
own evaluation, and has considered: the probable scope and cost of
investigations and remediations for which the Company expects to have liability;
the likelihood of the Company being found liable for the claims asserted or
threatened against it; and the risk of other responsible parties not being able
to meet their obligations with respect to clean-ups. The Company's estimate has
not been discounted to reflect the time-value of money, although a significant
7
<PAGE>
delay in implementation of certain of the remedies thought to be probable could
result in cost estimates increasing due to inflation.
The Company's current estimates of its potential environmental liabilities do
not reflect any anticipated recoveries from third parties. The Company believes
that the successors to certain coal tar processors at the Duluth Site (the "tar
companies"), who have been named as additional responsible parties for a portion
of the underwater sediments by the MPCA, are the cause of a significant portion
of the underwater contamination at the site. The tar companies have maintained
that their contributions were minimal. In addition, the Company has pending an
action seeking a declaratory judgment and recoveries from insurers under
policies covering various periods during the 1960's, 1970's and 1980's. In the
first half of 1998, the Company's net income benefitted by $1.6 million in
insurance recoveries, net of increases in reserves, all relating to historical
environmental issues.
The Company's current expectation is that cash outlays related to its
outstanding reserves for environmental matters will be made during the period
from 1998 through 2000 with the most significant expenditures expected in 1999
and 2000.
Note 9 -- Commitments and Contingencies
The Company is engaged in certain routine litigation arising in the ordinary
course of business. Based upon its evaluation of available information,
management does not believe that any such matters are likely, individually or in
the aggregate, to have a material adverse effect upon the Company's business,
results of operations, liquidity or financial condition.
On March 10, 1995, SC Holdings, Inc., a subsidiary of Waste Management
International plc ("SC Holdings"), filed a complaint in federal district court
in Trenton, New Jersey, against Hoeganaes Corporation, an Interlake subsidiary,
and numerous other defendants, seeking to recover amounts expended or to be
expended in the remediation of the Cinnaminson Groundwater Contamination Site in
Burlington County, New Jersey. SC Holdings claims to have spent approximately
$10.0 million in investigation and remediation, and estimates the total costs of
investigation and remediation to be approximately $60.0 million. The site is a
broadly- defined Superfund site which encompasses a landfill formerly operated
by SC Holdings and may also include the groundwater under Hoeganaes' Riverton,
New Jersey facility.
Hoeganaes may have shipped certain materials to the landfill. SC Holdings
alleges that Hoeganaes has liability as both an owner/operator and a generator.
On June 1, 1998, the court granted Hoeganaes Corporation's motion for partial
summary judgment, dismissing all claims related to generator liability. Earlier
in 1998, as part of a non-binding mediation process, the mediator had concluded
that Hoeganaes Corporation ought not to be liable as an owner/operator. SC
Holdings and Hoeganaes Corporation are presently engaged in discussions
regarding the settlement of the matter.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
Interlake's foreign Handling businesses were sold in the fourth quarter of 1997.
The results of their operations and cash flow are included in the Company's
consolidated statement of operations and consolidated statement of cash flows
for the 1997 periods, but were excluded for the 1998 periods.
Second Quarter 1998 Compared with Second Quarter 1997
Net sales were $134.5 million in the quarter ended June 28, 1998 compared with
sales of $185.8 million in the prior year period. Net sales without the results
of the sold foreign Handling businesses were $121.4 million in the 1997 quarter.
Sales in the Engineered Materials segment increased 12% to $86.8 million in the
1998 quarter due to increased unit volume at Special Materials and increased
shipments of fabricated components and additional blade repair activity at
Aerospace Components. Handling segment sales declined 56% to $47.7 million in
the 1998 quarter reflecting the sale of the foreign Handling businesses. Sales
at the remaining Handling business in North America increased 7% reflecting
increased volume. Operating profit was $15.5 million in the 1998 quarter
compared to $16.0 million in the prior year period. Excluding the results of the
sold foreign Handling businesses, operating profit in the second quarter of 1997
was $13.3 million. Interest expense was $9.2 million compared to $11.4 million
in the 1997 quarter reflecting lower levels of borrowing after the required
application of proceeds from the sale of the foreign Handling businesses. Net
income of $2.6 million in the second quarter of 1998 compared to $.7 million in
the 1997 quarter.
Segment Results
The Company's businesses are organized into two segments: Engineered Materials
and Handling. Businesses in Engineered Materials are Special Materials (ferrous
metal powders) and Aerospace Components (precision aerospace component
fabrication and aviation repair). The Handling segment includes the North
American operations in the 1998 periods, while the sold foreign Handling
businesses in Europe and Asia Pacific were also included in 1997.
<TABLE>
<CAPTION>
Second Quarter Segment Results
Net Sales Operating Profit
1998 1997 1998 1997
----- ----- ----- -----
(in millions)
Engineered Materials
<S> <C> <C> <C> <C>
Special Materials $ 51.7 $ 50.7
Aerospace Components 35.1 26.7
------ ------
86.8 77.4 $13.8 $13.6
Handling 47.7 108.4 1.7 2.5
------ ------
Corporate Items -- (.1)
Consolidated Totals $134.5 $185.8 $15.5 $16.0
====== ====== ===== =====
</TABLE>
9
<PAGE>
Engineered Materials
Second quarter sales in the Engineered Materials segment increased 12% to $86.8
million, due to higher fabrication shipments and improved blade repair activity
at Aerospace Components and increased metal powder sales at Special Materials.
Operating profit for the segment increased 1% in the 1998 quarter compared to
the 1997 period.
Special Materials' metal powder sales increased 2% compared with the same period
last year due to increased volume which was minimally affected by an auto
industry strike in the current quarter. Earnings declined 2% as increased volume
and improved sales of higher margin products were more than offset by higher
material, freight and manufacturing costs and increased depreciation due to
plant expansion.
Aerospace Components' sales increased 32% from the 1997 second quarter due to
increased fabrication shipments on key commercial and military engine programs
and improved blade repair activity. Earnings for the quarter increased 11%
reflecting increased volume and improved manufacturing performance which were
partially offset by increased administrative costs to respond to growth demands
as well as relatively higher increases in indirect labor, repairs and
maintenance and production supplies for fabricated components.
Order backlogs in this segment were $174.9 million at the end of the quarter
compared to $176.7 million at the end of the 1997 period. Special Materials'
backlog, which is generally short term in nature, declined 12%. Aerospace
Components' backlog increased 2% reflecting continued strong order intake.
The labor strike at General Motors which occurred late in the second quarter has
not had a material effect on the results of operations of Special Materials
through the end of the quarter. However, the strike is ongoing, and the Company
cannot predict when the parties will reach a resolution of the work stoppage. In
the event the strike is prolonged, the results for Special Materials could be
adversely affected in future periods.
Handling
Sales in the Handling segment for the second quarter decreased 56% to $47.7
million, compared with $108.4 million in the 1997 quarter, due to the sale of
the foreign Handling businesses. North American Handling sales increased 7%,
principally from additional volume.
Handling segment operating profit declined 31% to $1.7 million reflecting the
disposition of the foreign Handling businesses. Handling North America's
earnings increased 119% over 1997 reflecting the benefit of favorable pricing,
increased volume, favorable operating variances and lower administrative costs
which were partially offset by the effect of higher sales of lower margin
products.
Order backlogs in this segment were $22.2 million at the end of the second
quarter compared to $121.7 million in 1997 which included the backlog of the
sold foreign Handling businesses. The order backlog at the remaining Handling
business in North America decreased 31% from order backlogs of $32.4 million in
the prior year because of reduced order intake in the 1998 second quarter.
First Half 1998 Compared with First Half 1997
For the first six months of 1998, net sales of $268.5 million were down 25%,
compared with net sales of $356.0 million in the 1997 period. Net sales were
$236.0 million in the first six months of 1997 without the results of the sold
foreign Handling businesses. Sales in the Engineered Materials segment increased
14% to $170.6 million, due to higher unit volume at Special Materials and
increased shipments of fabricated components at Aerospace Components. In the
Handling segment, sales declined 52% to $97.9 million in 1998 reflecting the
sale of the foreign Handling businesses. Sales at the remaining Handling
business in North America increased 13% principally due to increased volume.
Operating profit was $29.2 million in 1998 compared with $29.9 million in the
prior year period. Excluding the results of the sold foreign Handling
businesses, operating profit in the first half of 1997 was $26.1 million. 1998
non-operating income in the first half includes a $1.6 million benefit from
insurance recoveries, net of increases in reserves, all relating to historical
environmental issues. Interest expense was $18.9 million compared to $23.0
million in the first half of 1997 reflecting lower levels of indebtedness after
the required application of proceeds from the sale of the foreign Handling
businesses. Net income of $5.3 million for the 1998 period includes an
extraordinary loss of $.2 million, net of tax, related to the early retirement
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<PAGE>
of a portion of the Company's debt. Net income of $.8 million in the first half
of 1997 included income from discontinued operations of $1.5 million and an
extraordinary loss of $1.5 million related to early debt retirement.
Segment Results
<TABLE>
<CAPTION>
First Half Segment Results
Net Sales Operating Profit
1998 1997 1998 1997
----- ----- ----- -----
(in millions)
Engineered Materials
<S> <C> <C> <C> <C>
Special Materials $104.4 $101.2
Aerospace Components 66.2 49.0
------ ------
170.6 150.2 $26.2 $25.8
Handling 97.9 205.8 3.1 4.6
------ ------
Corporate Items (.1) (.5)
----- -----
Consolidated Totals $268.5 $356.0 $29.2 $29.9
====== ====== ===== =====
</TABLE>
Engineered Materials
First half 1998 sales in the Engineered Materials segment increased 14%
reflecting increased unit volume at Special Materials and increased fabrication
shipments and improved blade repair activity at Aerospace Components. Operating
profit for the segment increased 2%.
Special Materials' metal powder sales increased 3% due to increased unit volume
in the first half of 1998 as compared to the 1997 period. Earnings in the first
half of 1998 decreased 1% from 1997 as higher volume and improved sales of
higher margin products were more than offset by higher material, freight and
manufacturing costs and increased depreciation due to plant expansion.
Aerospace Components' sales increased 35% compared with the same period in 1997
reflecting increased fabrication shipments on key commercial and military
programs as well as improved blade repair activity. Earnings for the period
increased 14% reflecting increased volume which was partially offset by
additional administrative costs to respond to growth demands and increased
operating costs.
Handling
Sales in the Handling segment in the first half declined 52% to $97.9 million,
compared with $205.8 million in the 1997 first half due to the sale of the
foreign Handling businesses. North American Handling sales increased 13% due to
increased shipments in the 1998 period.
Operating profit decreased 33% to $3.1 million reflecting the disposition of the
foreign units. Handling North America's earnings increased 34% in the 1998
period as the effect of the increased volume, a favorable settlement with a
supplier and favorable operating variances were partially offset by sales
pricing weakness on 1997 bookings shipped in 1998, increased sales of lower
margin products and favorable accrual adjustments recorded in the first quarter
of 1997.
Nonoperating Items
As discussed in Note 8 of Notes to Consolidated Financial Statements, the
Company continues to attempt to resolve certain anticipated liabilities for
environmental matters. If the Company's recommended remedy for certain
underwater sediments at the Duluth Site is accepted, the Company believes that
the costs of environmental matters have been fully provided for or are unlikely
to have a material adverse effect on the Company's business, results of
operations, liquidity or financial condition. However, there is no assurance
that the Company's preferred remedy will be recommended by the relevant
government agencies.
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<PAGE>
Discontinued Operations
In the first quarter of 1997, the Company received additional proceeds in
respect of the October 1996 sale of its Packaging businesses. Income from
discontinued operations of $1.5 million, net of income taxes, was recorded to
reflect the adjustment to the gain.
Extraordinary Loss
During the first quarter of 1998, the Company recorded an extraordinary loss of
$.2 million, net of income taxes, for the write-off of deferred debt issuance
costs related to the repurchase and early retirement of $24.0 million of the
Company's Senior Subordinated Debentures.
During the first quarter of 1997, the Company recorded an extraordinary loss of
$1.5 million, net of income taxes, for the premium incurred and the write-off of
deferred debt issuance costs related to the repurchase and early retirement of
$14.5 million of the Company's Senior Notes.
Financial Condition
The Company's total debt was $294.3 million at the end of the second quarter of
1998, down $29.4 million from the 1997 year-end. Cash and equivalents totaled
$30.4 million at the end of the quarter, compared with $84.5 million at the end
of 1997 reflecting the repurchase of $24.0 million of Senior Subordinated
Debentures, the $4.0 million payoff of the ESOP note, increased working capital
requirements and capital expenditures. Capital expenditures of $25.3 million in
the first half of 1998 compared with $9.9 million in 1997, reflecting increased
spending for expansion, particularly in the Engineered Materials segment. The
Company anticipates that 1998 capital spending will be approximately $55.0
million.
The Company has received commitments for the replacement of its existing bank
credit facilities with a two-year $75 million revolving credit facility. It
expects to finalize the documentation of the new facility by the end of July
1998. Were it unable to finalize the new facility, and its current bank group
did not agree to extend the existing facility, the Company would not have
adequate liquidity to fund its operations and carry out its 1998 capital
spending plan.
The Company has substantial debt repayment requirements in the years 2001 and
2002.
Hedging Activities
On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999 (beginning of
fiscal year 2000 for the Company). SFAS 133 requries that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are to be recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
Management of the Company has not yet determined the impact that the adoption of
SFAS 133 will have on its earnings or statement of financial position. However,
management anticipates that, due to its limited use of derivative instruments,
the adoption of SFAS 133 will not have a significant effect on the Company's
results of operations or its financial position.
Forward Looking Statements
This Form 10-Q contains "forward looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995, including (without limitation)
statements as to expectations, beliefs and future financial perforamnce and
assumptions underlying the foregoing relating to the adequacy of the Company's
future liquidity, the selection of and cost of implementing environmental
remedial activities and the effects of current labor strikes affecting certain
customers. Actual results or outcomes could differ materially from those
discussed in the particular forward looking statement based on a number of
factors, including (i) the Company's future operating results and its ability to
put in place new or replacement credit facilities, (ii) government actions or
initiatives with respect to environmental matters either generally or with
respect to specific instances involving the Company, particularly with respect
to the MPCA's remediation recommendation at the Duluth Site, (iii)the Company's
ability to resolve legal proceedings on favorable terms and (iv) the length and
severity of work stoppages currently affecting certain domestic automotive
manufacturing customers.
12
<PAGE>
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The nature of the Company's business is such that it is regularly involved in
legal proceedings incidental to its business. None of these proceedings is
material within the meaning of regulations of the Securities and Exchange
Commission.
The Company is a party in certain litigation and a proceeding before a
governmental agency which relate to the contamination of the environment. These
matters are described in Note 8 and Note 9 of Notes to Consolidated Financial
Statements included herein. Reference is also made to the Company's Annual
Report on Form 10-K for the fiscal year ended December 28, 1997, Part I, Item
3--Legal Proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 23, 1998, at the annual meeting of the Corporation, John E. Jones and
W. Robert Reum were reelected as directors to serve until the year 2001 annual
meeting of the Corporation. The vote tally was:
Election of Directors For Withheld Broker non-votes
John E. Jones 19,644,196 492,261 0
W. Robert Reum 19,674,636 461,821 0
On April 23, 1998, at the annual meeting of the Corporation, the 1998 Stock
Incentive Program was approved. The vote tally was:
For Against Abstain
19,232,899 793,074 110,484
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4.1 Extension Amendment, dated as of June 24, 1998, to the
Second Amended and Restated Credit Agreement
Exhibit 10.1 Form of Stock Option Agreement Under the 1989 Stock
Incentive Program dated as of June 25, 1998
Exhibit 10.2 1998 Stock Incentive Program
Exhibit 10.3 First Amendment to Trust Agreement dated as of February
17, 1998 between the Corporation and U.S. Trust Company of
California, N.A. regarding Frederick C.Langenberg
Exhibit 10.4 First Amendment to Trust Agreement dated as of February
17, 1998 between the Corporation and U.S. Trust Company of
California, N.A. regarding The Interlake Corporation
Restated Directors' Post-Retirement Income Plan
Exhibit 27 Financial Data Schedule for the quarter ended June 28,
1998
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
13
<PAGE>
SIGNATURE
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.
THE INTERLAKE CORPORATION
July 23, 1998 /s/STEPHEN GREGORY
Stephen Gregory
Vice President - Finance
and Chief Financial Officer
14
Exhibit 4.1
EXTENSION AMENDMENT
June 24, 1998
To the Banks parties to the
Credit Agreement referred to
below
Ladies and Gentlemen:
We refer to the Second Amended and Restated Credit Agreement dated as of
September 27, 1989, and amended and restated as of December 22, 1997 (the
"Credit Agreement"), among the undersigned, you and The Chase Manhattan Bank, as
Administrative Agent, and The First National Bank of Chicago, as Documentation
Agent. Unless otherwise defined herein, the terms defined in the Credit
Agreement shall be used herein as therein defined.
Section 10.01 of the Credit Agreement is, effective as of the date first above
written, hereby amended by amending the definition of "Maturity Date" in its
entirety to read as follows: "'Maturity Date' shall mean July 31, 1998."
On and after the effective date of this extension amendment, each reference in
the Credit Agreement to "this Agreement," "hereunder," "hereof" or words of like
import referring to the Credit Agreement, and each reference in the Notes and
the Security Documents to "the Credit Agreement," "thereunder," "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended by this extension amendment. The
Credit Agreement, as amended by this extension amendment, is and shall continue
to be in full force and effect and is hereby in all respects ratified and
confirmed.
If you agree to the terms and provisions hereof, please evidence such agreement
by executing this extension amendment below. This extension amendment shall
become effective as of the date first above written when and if counterparts of
this extension amendment shall have been executed by us and all of the Banks and
the consent attached hereto shall have been executed by the Guarantors.
- 1 -
<PAGE>
This extension amendment may be executed in any number of counterparts and by
any combination of the parties hereto in separate counterparts, each of which
counterparts shall be an original and all of which taken together shall
constitute one and the same extension amendment.
Very truly yours,
THE INTERLAKE CORPORATION
By: /s/Stephen Gregory
Title: Vice President
Agreed as of the date first above written:
THE CHASE MANHATTAN BANK,
as a Bank and as Administrative Agent
By:/s/Lenard Weiner
Title: Managing Director
THE FIRST NATIONAL BANK OF CHICAGO,
as a Bank and as Documentation Agent
By: /s/Karen Kizer
Title: Sr. Vice President
- 2 -
<PAGE>
CONSENT
Dated as of June 24, 1998
The undersigned, as Guarantors under the Subsidiary Guaranties, as Assignors
under the Subsidiary Security Agreements and/or as Pledgors under the Subsidiary
Pledge Agreements (the Subsidiary Guaranties, the Subsidiary Security Agreements
and the Subsidiary Pledge Agreements being, collectively, the "Credit
Documents"), hereby consent to the foregoing extension amendment and hereby
confirm and agree that (i) the Credit Documents are, and shall continue to be,
in full force and effect and are hereby ratified and confirmed in all respects
except that, on and after the effective date of the foregoing extension
amendment, each reference in the Credit Documents to "the Credit Agreement,"
"thereunder," "thereof" or words of like import referring to the Credit
Agreement shall mean and be a reference to the Credit Agreement as amended by
the foregoing extension amendment, and (ii) the Subsidiary Security Agreements
and the Subsidiary Pledge Agreements and all of the Collateral described therein
do, and shall continue to, secure the payment of all of the Obligations.
CHEM-TRONICS, INC.
GARY STEEL SUPPLY COMPANY
INTERLAKE ARD CORPORATION
INTERLAKE PACKAGING CORPORATION
THE INTERLAKE COMPANIES, INC.
INTERLAKE MATERIAL HANDLING, INC.
By: /s/Stephen R. Smith
Title: Vice President
INTERLAKE DRC LIMITED
By: /s/Stephen Gregory
Title: Vice President
- 3 -
Exhibit 10.1
INCENTIVE STOCK OPTION AGREEMENT
Option Granted June 25, 1998
Under the 1989 Stock Incentive Program
of
The Interlake Corporation
WHEREAS, , (hereinafter called the "Optionee") is a key
employee of , a subsidiary of The Interlake Corporation (hereinafter
called the "Corporation") or a subsidiary thereof;
WHEREAS, the 1989 Stock Incentive Program of the Corporation
("Program"), authorizing the granting to directors, officers and other key
employees of the Corporation and its subsidiaries of options to buy from the
Corporation shares of common stock, par value $1 a share, has been duly adopted
by the Corporation; and
WHEREAS, the execution of a stock option agreement in the form hereof
has been authorized by a resolution of the Management Development and
Compensation Committee (the "Committee") of the Board of Directors of the
Corporation duly adopted on June 25, 1998;
WHEREAS, the option granted hereby is intended to qualify as an
"incentive stock option" within the meaning of that term under Section 422 of
the Internal Revenue Code of 1986, as amended, or any successor provision
thereto;
NOW, THEREFORE, the Corporation hereby grants to the Optionee an option
to purchase shares of common stock, par value $1 a share, of the Corporation (or
any security into which such shares may be changed by reason of any transaction
or event described in Paragraph 15(a) of the Program) at a price of Four and
Twenty-One Thousand Eight Hundred and Seventy-Five Hundred Thousandths Dollars
($4.21875) per share, upon the terms and conditions hereinafter set forth.
1. Until terminated, as hereinafter provided, this option may be
exercised in whole or in part from time-to-time as follows:
(a) In full, upon a "change in control," as hereinafter
defined, while the Optionee is employed by the Corporation and/or any
subsidiary;
(b) Unless exercisable in full by reason of a change in
control, to the extent of the numbers of shares as of the dates set
forth below, so long as the Optionee shall have been in the continuous
employ (which for purposes of this
<PAGE>
sub-paragraph includes leaves of absence approved by the Committee and
for illness, military or government service, or other reason) of the
Corporation and/or any subsidiary from the date hereof to such date
June 25, 1999 shares [25%]
June 25, 2000 shares [50%]
June 25, 2001 shares [75%]
June 25, 2002 shares [100%]; and
(c) If an Optionee's employment terminates by reason of his
"retirement" or "disability," as hereinafter defined, or by reason of
death, and if an installment would have become exercisable within one
year subsequent to such event had the Optionee remained in the
continuous employ of the Corporation and/or any subsidiary, to the
extent of the sum of the number of shares purchasable pursuant to
paragraph 1(b) above and such additional installment.
2. The option price may, at the election of the Optionee, be paid (i)
in cash or by check acceptable to the Corporation or (ii) by transfer to the
Corporation of shares of common stock of the Corporation owned by the Optionee
and having a market value (valued as set forth in the Program) equal to the
total option price, or (iii) any combination of whole shares owned by the
Optionee and funds equal to the total option price. In addition, the Optionee
shall pay the Corporation an amount in cash or by check equal to applicable
federal and other withholding taxes. Upon receipt of the payments referred to in
the two preceding sentences, the Corporation agrees to cause certificates for
any shares purchased hereunder to be delivered to the Optionee. For purposes of
this Section 2, the requirement of payment in cash shall be deemed satisfied if
the Optionee makes arrangements satisfactory to the Corporation with a broker to
sell on the exercise date a number of shares being purchased and such broker
undertakes to deliver the option price to the Corporation after settlement of
such sale. Notwithstanding any other provision of this Section 2, the right of
the Optionee to make payment of the option price by means of delivery of shares
shall be subject to the Corporation not being prohibited from accepting such
shares for such purpose by the terms of any financing agreement or instrument to
which it is then subject.
3. This option shall terminate on the earliest of the following dates:
(a) On the date upon which the Optionee ceases to be an
employee of the Corporation or a subsidiary by reason of termination of
employment for cause;
(b) Three months after the Optionee ceases to be an employee
of the Corporation or a subsidiary, unless he ceases to be an employee
by reason of death, retirement or disability as hereinafter defined, or
as described in (a) above;
<PAGE>
(c) One year after the termination of the Optionee's
employment by reason of "retirement" or "disability" as hereinafter
defined, or by reason of death; or
(d) June 25, 2008.
In the event the Optionee shall intentionally commit an act materially inimical
to the interests of the Corporation or a subsidiary, this option shall terminate
upon a finding by the Committee to that effect, notwithstanding any other
provision of this agreement. Nothing contained in this option shall limit
whatever right the Corporation or a subsidiary might otherwise have to terminate
the employment of the Optionee.
4. This option is not transferrable by the Optionee otherwise than by
will or the laws of descent and distribution, and is exercisable, during the
lifetime of the Optionee, only by the Optionee or by the Optionee's legal
guardian or legal representative.
5. This option shall not be exercisable if such exercise would involve
a violation of any applicable federal or state securities laws. The Corporation
hereby agrees to make reasonable efforts to comply with any applicable
securities laws.
6. The Committee shall make or provide for such adjustments in the
number of shares of common stock covered by this stock option, in the option
price applicable to this stock option, and in the kind of securities covered
thereby, as the Committee in its sole discretion, exercised in good faith,
determines is equitably required to prevent dilution or enlargement of the
rights of Optionees that otherwise would result from (a) any stock dividend,
stock split, combination of shares, recapitalization or other change in the
capital structure of the Corporation, or (b) any merger, consolidation,
spin-off, reorganization, partial or complete liquidation, repurchase or
exchange of shares, issuance of rights or warrants to purchase securities, or
(c) any other corporate transaction or event having an effect similar to any of
the foregoing. Moreover, in the event of any such transaction or event, the
Committee, in its discretion, may provide in substitution for this stock option
such alternative consideration as it in good faith may determine to be equitable
in the circumstances and may require in connection therewith the surrender of
this stock option. No adjustment provided in this Paragraph 6 shall require the
Corporation to sell any fractional shares.
7. The term "subsidiary," as used in this agreement, has the meaning
ascribed to it in the Program. For purposes of this agreement, the continuous
employ of the Optionee with the Corporation or a subsidiary shall not be deemed
interrupted, and the Optionee shall not be deemed to have ceased to be an
employee of the Corporation or any subsidiary, by reason of the transfer of his
employment among the Corporation and its subsidiaries.
8. The term "disability," as used in this agreement, means the
termination of
<PAGE>
an Optionee's employment under such circumstances as entitle him to Long Term
Disability Benefits under the Corporation's Salaried Employees Group Insurance
Plan, or a long term disability plan of the subsidiary by which he is employed,
and in which he participates at the time the disability occurs. If an Optionee
does not participate in a long term disability plan, "disability" means the
termination of an Optionee's employment under such circumstances as would
entitle him to long term disability benefits if he were a participant in the
Corporation's Salaried Employees Group Insurance Plan. The term " retirement,"
as used in this agreement, means the termination of the Optionee's employment by
reason of retirement on or after the Optionee's 65th birthday.
9. The term "change in control," as used in this agreement, means the
occurrence of any of the following events while the Optionee is employed by the
Corporation or a subsidiary:
(a) The Corporation is merged or consolidated or reorganized
into or with another corporation or other legal person and as a result
of such merger, consolidation or reorganization less than 75% of the
outstanding voting securities or other capital interests of the
surviving, resulting or acquiring corporation or other legal person are
owned in the aggregate by the stockholders of the Corporation
immediately prior to such merger, consolidation or reorganization;
(b) The Corporation sells all or substantially all of its
business and/or assets to any other corporation or other legal person,
less than 75% of the outstanding voting securities or other capital
interests of which are owned in the aggregate by the stockholders of
the Corporation, directly or indirectly, immediately prior to or after
such sale;
(c) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report) each 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 promulgated under the
Exchange Act) of 25% or more of the issued and outstanding shares of
voting securities of the Corporation; or
(d) During any period of two consecutive years, individuals
who at the beginning of any such period constitute the directors of the
Corporation cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by the
Corporation's stockholders, of each new director of the Corporation was
approved by a vote of at least two-thirds of such directors of the
Corporation then still in office who were directors of the Corporation
at the beginning of any such period.
<PAGE>
10. The holder of this Option shall not be, nor have any of the rights
or privileges of, a holder of the Corporation's Common Stock in respect of any
shares purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Corporation
to such holder.
11. The Corporation shall not be required to issue any fractional
shares of Common Stock pursuant to this option.
Executed at Lisle, Illinois, as of June 25, 1998.
THE INTERLAKE CORPORATION
By:/s/W. Robert Reum
Chairman of the Board,
President and Chief
Executive Officer
Receipt Acknowledged and Incentive Stock Option Agreement Accepted this
day of , 1998.
Signed:
Exhibit 10.2
THE INTERLAKE CORPORATION
1998 STOCK INCENTIVE PROGRAM
1. Purpose. The purpose of The Interlake Corporation 1998 Stock
Incentive Program (the "Program") is to attract and retain outstanding
individuals as directors, officers and key employees of The Interlake
Corporation (the "Corporation") and its Subsidiaries (as defined herein) and to
furnish incentives for superior performance by providing such persons
opportunities ("Benefits") to acquire shares of the Corporation's common stock,
$1 par value, or any security into which such shares may be changed by reason of
any transaction or event of the type described in Paragraph 15(a) hereof
("Common Stock").
2. Administration. The Program will be administered by the Management
Development and Compensation Committee (the "Committee") of the Corporation's
Board of Directors (the "Board"). The Committee shall consist of not less than
three directors as the Board may designate from time to time, each of whom shall
be a "Non-Employee Director" within the meaning of Rule 16b-3 of the Securities
and Exchange Commission and an "Outside Director" within the meaning of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The
interpretation and construction by the Committee of any provision of the Program
or of any agreement, notification or document evidencing the grant of any
Benefits and any determination by the Committee pursuant to any provision of
this Program or of any such agreement, notification or document shall be final
and conclusive. No member of the Committee shall be liable for any such action
or determination made in good faith.
3. Participants. Participants in the Program will consist of such
directors, officers or key employees of the Corporation or any Subsidiary (or
any person who has agreed to commence serving in any of such capacities within
90 days following the granting of Benefits to such person) as the committee in
its sole discretion may designate from time to time to receive Benefits
hereunder (each a "Participant"). The Committee's designation of a Participant
at any time shall not require the Committee to designate such person to receive
a Benefit at any other time, or, if so designated, to receive the same type or
amount of Benefit at any other time, or as may be received by any other
Participant at any time. The Committee shall consider such factors as it deems
pertinent in selecting Participants and in determining the type and amount of
their respective Benefits.
4. Types of Benefits. Benefits under the Program may be granted in
any one or a combination of (a) Stock Options, (b) Restricted Shares, and (c)
Shares in Lieu of Certain Cash Payments, all as described below in Paragraphs 6
through 9 hereof.
5. Shares Reserved Under the Program. (a) Subject to adjustment as
provided in Section 15(a) of this Program, the number of shares of Common Stock
that may be issued or transferred (i) upon the exercise of Stock Options, (ii)
as Restricted Shares and released from substantial risks of forfeiture thereof,
or (iii) as Shares in Lieu of Certain Cash Payments shall not exceed in the
aggregate 1,150,000 shares plus any shares relating to Benefits that expire or
are forfeited or cancelled. Such shares may be shares of original issuance or
treasury shares or a combination of the
<PAGE>
foregoing. Upon the payment of any Option Price by the transfer to the
Corporation of shares of Common Stock or upon satisfaction of any withholding
amount by means of transfer or relinquishment of shares of Common Stock, there
shall be deemed to have been issued or transferred under this Program only the
net number of shares of Common Stock actually issued or transferred by the
Corporation.
(b) Notwithstanding anything in this Section 5, or elsewhere in this
Program, to the contrary, the aggregate number of shares of Common Stock
actually issued or transferred by the Corporation upon the exercise of Incentive
Stock Options shall not exceed 1,150,000 shares, subject to adjustments as
provided in Section 15(a) of this Program. Further, no Participant shall be
granted Stock Options for more than 575,000 shares of Common Stock during any
three year period, subject to adjustments as provided in Section 15(a) of this
Program.
(c) Notwithstanding any other provision of this Program to the
contrary, in no event shall any Participant in any calendar year receive more
than 100,000 Restricted Shares, subject to adjustments as provided in Section
15(a) of this Program.
6. Definitions. As used in the Program,
(a) The term "Date of Grant" means the date specified by the
Committee on which a grant of a Stock Option, Restricted Shares or
Shares in Lieu of Certain Cash Payments shall become effective (which
date shall not be earlier than the date on which the Committee takes
action with respect thereto).
(b) The term "Effective Date" shall be the date on which the
1998 Stock Incentive Program is approved by the stockholders of the
Corporation in accordance with Section 18.
(c) The term "Incentive Stock Options" means Stock Options
that are intended to qualify as "incentive stock options" under
Section 422 of the Code or any successor provision.
(d) The term "Management Objectives" means measurable
performance objectives established by the Committee pursuant to this
Program for Participants who have received, when so determined by the
Committee, Stock Options or Restricted Shares. Management Objectives
may be described in terms of Corporation-wide objectives or
objectives that are related to the performance of the Common Stock,
the individual Participant or of the Subsidiary, division,
department, region or function within the Corporation or Subsidiary
in which the Participant is employed. The Management Objectives may
be made relative to the performance of other corporations. If the
Committee determines that a change in the business, operations,
corporate structure or capital structure of the Corporation, or the
manner in which it conducts its business, or other events or
circumstances render the Management Objectives unsuitable, the
Committee may in its discretion modify such Management Objectives, in
whole or in part, as the Committee deems appropriate and equitable.
(e) The term "Market Value per Share" means, at any date,
the average of the high and low price of the Common Stock on that
date (or, if there are no sales on that date,
2
<PAGE>
the last preceding date on which there was a sale) on (i) the New
York Stock Exchange Composite Transactions or (ii) any national
securities exchange on which the Common Stock is traded if it is not
traded on the New York Stock Exchange or (iii) The Nasdaq Stock
Market if the Common Stock is listed thereon and is not traded on any
national securities exchange, in each case as reported by The Wall
Street Journal, corrected for reporting errors.
(f) The term "Optionee" means the optionee named in an
agreement evidencing an outstanding Stock Option.
(g) The term "Option Price" means the purchase price per
share payable on exercise of a Stock Option.
(h) The term "Restricted Shares" means an award of shares of
Common Stock granted pursuant to Paragraph 8 of the Program.
(i) The term "Shares in Lieu of Certain Cash Payments" means
shares of Common Stock granted pursuant to Paragraph 9 hereof.
(j) The term "Stock Option" means an option to purchase
Common Stock granted pursuant to Paragraph 7 of the Program.
(k) The term "Subsidiary" means a corporation, company or
other entity (i) more than 50 percent of whose outstanding shares or
securities (representing the right to vote for the election of
directors or other managing authority) are, or (ii) which does not
have outstanding shares or securities (as may be the case in a
partnership, joint venture or unincorporated association), but more
than 50 percent of whose ownership interest representing the right
generally to make decisions for such other entity is, now or
hereafter, owned or controlled, directly or indirectly, by the
Corporation except that for purposes of determining whether any
person may be a Participant for purposes of any grant of Incentive
Stock Options, "Subsidiary" means any corporation in which at the
time the Corporation owns or controls, directly or indirectly, more
than 50 percent of the total combined voting power represented by all
classes of stock issued by such corporation.
7. Stock Options. The Committee may, from time to time and upon such
terms and conditions as it may determine, authorize the granting to Participants
of options to purchase shares of Common Stock. Each such grant may utilize any
or all the authorizations, and shall be subject to all of the limitations,
contained in the following provisions:
(a) Each grant shall specify the number of shares of Common
Stock to which it pertains, subject to limitations set forth in
Section 5 of this Program.
(b) Each grant shall specify an Option Price which shall not
be less than the Market Value per Share on the Date of Grant.
(c) Each grant shall specify that the Option Price shall be
payable at the time of exercise in cash or by check acceptable to the
Corporation. Any grant may also provide for payment of the Option
Price by the transfer to the Corporation of (i) shares of Common
Stock owned by the Optionee and having a Market Value at the time of
exercise equal to the
3
<PAGE>
total Option Price or (ii) a combination of cash and shares of Common
Stock owned by the Optionee and having a combined Market Value equal
to the total Option Price.
(d) The Committee may also determine, at or after the Date
of Grant, that payment of the Option Price of any option (other than
an Incentive Stock Option) may also be made in whole or in part in
the form of Restricted Shares or other shares of Common Stock that
are forfeitable or subject to restrictions on transfer (based, in
each case, on the Market Value per Share on the date of exercise) or
other Stock Options (based on the difference (the "Spread") between
the Market Value and the exercise price of such option on the date of
exercise). Unless otherwise determined by the Committee at or after
the Date of Grant, whenever any Option Price is paid in whole or in
part by means of any of the forms of consideration specified in this
paragraph, the shares of Common Stock received upon the exercise of
the Stock Options shall be subject to such risks of forfeiture or
restrictions on transfer as may correspond to any that apply to the
consideration surrendered, but only to the extent of (i) the number
of shares so surrendered, or (ii) the Spread of any unexercisable
portion of Stock Options.
(e) Any grant may provide for deferred payment of the Option
Price from the proceeds of sale through a bank or broker on a date
satisfactory to the Corporation of some or all of the shares to which
such exercise relates.
(f) Successive grants may be made to the same Participant
whether or not any Stock Options previously granted to such
Participant remain unexercised.
(g) Each grant shall specify the period or periods of
continuous employment by the Optionee with the Corporation or of
continuous service by the Optionee as a director of the Corporation
which is necessary before a Stock Option or any installment thereof
will become exercisable and may provide that the exercise of a Stock
Option or any installment thereof will be accelerated for any reason
stated therein. Any grant may specify Management Objectives that must
be achieved as a condition to the exercise of such Stock Option.
(h) Stock Options granted under the Program may be (i)
options which are intended to qualify under particular provisions of
the Code (including Incentive Stock Options), (ii) options which are
not intended to so qualify, or (iii) combinations of the foregoing.
(i) No Stock Option shall be exercisable more than ten years
from the Date of Grant.
(j) Each grant of Stock Options shall be evidenced by an
agreement executed on behalf of the Corporation by an officer thereof
and delivered to the Optionee and containing such terms and
provisions, consistent with the Program, as the Committee may
approve.
8. Restricted Shares. The Committee may from time to time and upon
such terms and conditions as it may determine, authorize the granting to
Participants of Restricted Shares. A Restricted Share constitutes an immediate
transfer of ownership of Common Shares to the Participant in consideration of
the performance of services, entitling such Participant to voting, dividend and
other ownership rights, but subject to the substantial risk of forfeiture and
restrictions on transfer hereinafter
4
<PAGE>
referred to. Each grant may utilize any or all of the authorizations, and shall
be subject to all of the limitations, contained in the following provisions:
(a) Subject to the provisions of Section 5, each such grant
shall specify the number of shares of Common Stock to which it
relates.
(b) Each such grant or sale may be made without additional
consideration or in consideration of a payment by such Participant
that is less than Market Value per Share at the Date of Grant.
(c) Each such grant shall be subject to such conditions,
limitations, restrictions and other matters, and shall be subject to
forfeiture or lapse in such circumstances, as the Committee may
prescribe; provided, however, that all or a portion of the shares of
Common Stock covered by such grant shall be subject, for a period to
be determined by the Committee at the Date of Grant, to a substantial
risk of forfeiture within the meaning of Section 83 of the Code or
any successor or substitute provision thereof and of the regulations
issued thereunder. Any grant of Restricted Shares may specify
Management Objectives which, if achieved, will result in termination
or early termination of the restrictions applicable to such shares.
The Committee shall have authority to cause a grant of Restricted
Shares to provide that termination of restrictions applicable to such
Restricted Shares or any installment thereof will be accelerated for
any reason stated therein.
(d) Each such grant shall specify that the Committee may at
any time amend, suspend or terminate the Restricted Share grant
covered thereby, provided that, in the case of an amendment, the
amended grant of Restricted Shares shall conform to the provisions of
the Program.
(e) Each such grant or sale shall provide that during the
period for which such substantial risk of forfeiture is to continue,
the transferability of the Restricted Shares shall be prohibited or
restricted in the manner and to the extent prescribed by the
Committee at the Date of Grant (which restrictions may include,
without limitation, rights of repurchase or first refusal in the
Corporation or provisions subjecting the Restricted Shares to a
continuing substantial risk of forfeiture in the hands of any
transferee).
(f) Any such grant or sale of Restricted Shares may require
that any or all dividends or other distributions paid thereon during
the period of such restrictions be automatically deferred and
reinvested in additional Restricted Shares, which may be subject to
the same restrictions and substantial risks of forfeiture as the
underlying award.
(g) Each grant or sale of Restricted Shares shall be
evidenced by an agreement executed on behalf of the Corporation by
any officer and delivered to and accepted by the Participant and
shall contain such terms and provisions, consistent with this
Program, as the Committee may approve. Unless otherwise directed by
the Committee, all certificates representing Restricted Shares shall
be held in custody by the Corporation until all restrictions thereon
shall have lapsed, together with a stock power executed by the
Participant in whose name such certificates are registered, endorsed
in blank and covering such Shares.
5
<PAGE>
9. Shares in Lieu of Certain Cash Payments. The Committee may also
authorize the granting of shares of Common Stock in lieu of cash which would
otherwise be payable as a bonus, pursuant to any incentive compensation plan or
otherwise, to Participants. Each such grant may utilize any or all of the
authorizations, and shall be subject to all of the limitations, contained in the
following provisions:
(a) The proportion of any such bonus to be paid in shares of
Common Stock shall be as determined by the Committee.
(b) The number of whole shares to be delivered in lieu of
cash shall be determined by dividing the value of the portion of the
bonus to be paid in shares of Common Stock by the Market Value per
Share as of a date selected by the Committee. The value of fractional
shares shall be added to the cash portion of the bonus.
(c) None of the shares of Common Stock granted pursuant to
this Paragraph 9 shall be subject to a substantial risk of forfeiture
within the meaning of Section 83 of the Code or any successor or
substitute provision thereof and of the regulations issued
thereunder.
(d) Each grant shall be evidenced by a written notification
executed on behalf of the Corporation by an officer thereof and
delivered to the Participant.
(e) Except to the extent provided in this Paragraph 9, no
cash bonus, whether payable pursuant to an incentive compensation
plan or otherwise, shall constitute a part of the Program or be
affected by the Program.
10. Limitation of Transferability. Except as otherwise determined by
the Committee, no Stock Option shall be transferable otherwise than by will or
the laws of descent and distribution and Stock Options shall be exercisable
during the lifetime of the Participant to whom such Stock Option has been
granted only by him or by his guardian or legal representative, and after such
Participant's death shall be exercisable only by his legal representative.
11. Other Provisions. The award of any Benefit under the Program may
also be subject to other provisions (whether or not applicable to the Benefit
awarded to any other Participant) as the Committee determines appropriate,
including, without limitation, restrictions on resale or other disposition, such
provisions as may be appropriate to comply with federal and state securities
laws and stock exchange requirements, and understandings or conditions as to the
Participant's employment, in addition to those specifically provided for under
the Program.
12. Manner of Action by the Corporation. The Secretary of the
Corporation (or such other officer as the Chief Executive Officer of the
Corporation may from time to time designate) shall supervise the maintenance of
records for all Participants in the Program. Any determination of such officer,
if approved by the Committee, shall be binding and conclusive for all purposes.
13. Taxes. To the extent that the Corporation is required to withhold
federal, state, local or foreign taxes in connection with any payment made or
benefit realized by a Participant or other person under this Plan, and the
amounts available to the Corporation for the withholding are insufficient, it
shall be a condition to the receipt of any such payment or the realization of
any such
6
<PAGE>
benefit that the Participant or such other person make arrangements satisfactory
to the Corporation for payment of the balance of any taxes required to be
withheld. At the discretion of the Committee, any such arrangements may include
relinquishment of a portion of any such payment or benefit. The Corporation and
any Participant or such other person may also make similar arrangements with
respect to the payment of any taxes with respect to which withholding is not
required.
14. Tenure. A Participant's right, if any, to continue to serve the
Corporation as a director, officer or employee shall not be enlarged or
otherwise affected by the establishment of the Program or his designation as a
Participant.
15. Adjustment Provisions. (a) The Committee shall make or provide
for such adjustments in the number of shares of Common Stock covered by
outstanding Stock Options granted hereunder, in the Option Price applicable to
such Stock Options, and in the kind of securities covered thereby, as the
Committee in its sole discretion, exercised in good faith, determines is
equitably required to prevent dilution or enlargement of the rights of Optionees
that otherwise would result from (a) any stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure
of the Corporation, or (b) any merger, consolidation, spin-off, reorganization,
partial or complete liquidation, repurchase or exchange of shares, issuance of
rights or warrants to purchase securities, or (c) any other corporate
transaction or event having an effect similar to any of the foregoing. Moreover,
in the event of any such transaction or event, the Committee, in its discretion,
may provide in substitution for any or all outstanding Benefits under this
Program such alternative consideration as it, in good faith, may determine to be
equitable in the circumstances and may require in connection therewith the
surrender of all Benefits so replaced. The Committee shall also make or provide
for such adjustments in the numbers of shares specified in Section 5 of the
Program as the Committee in its sole discretion, exercised in good faith,
determines is appropriate to reflect any transaction or event described in the
preceding sentence.
(b) Notwithstanding any other provision of the Program, and without
affecting the number of shares available hereunder, the Committee may authorize
the issuance or assumption of Benefits in connection with any merger,
consolidation, acquisition of property or stock, or reorganization upon such
terms and conditions as it may deem appropriate.
16. Fractional Shares. The Corporation shall not be required to issue
any fractional shares of Common Stock pursuant to this Program. The Corporation
may provide for the elimination of fractions or for the settlement of fractions
in cash.
17. Amendment and Termination of Benefits and the Program. (a) The
Committee may at any time and from time to time amend, suspend or terminate the
Program; provided, however, that any amendment which must be approved by the
stockholders of the Corporation in order to comply with applicable law or the
rules of the principal national securities exchange upon which the shares of
Common Stock are traded or quoted shall not be effective unless and until such
approval has been obtained. No Benefit shall be granted pursuant to the Program
after the tenth anniversary of the Effective Date.
(b) The Committee may, with the concurrence of the affected Optionee,
amend or cancel any agreement evidencing Stock Options granted under this
Program; provided, however, that no such amendment will lower the exercise price
of any outstanding option, and no such amendment will cause any Stock Option to
cease to qualify as "performance-based" within the meaning of Section 162(m) of
7
<PAGE>
the Code. In the event of cancellation, the Committee may authorize the granting
of new Stock Options (which may or may not cover the same number of shares which
had been the subject of the prior agreement) in such manner, at such Option
Price, and subject to the same terms, conditions and descriptions, as under the
Program would have been applicable had the cancelled Stock Options not been
granted; provided, however, that in the event of a cancellation of a holders'
Stock Options, such Stock Options may not be reissued to such holder at a lower
price.
(c) In case of termination of employment or cessation of services as
a director, in each case by reason of death, disability or retirement under a
retirement plan of the Corporation or any Subsidiary or in the case of hardship
or other special circumstances of a Participant who holds a Stock Option not
immediately exercisable in full, or any Restricted Shares as to which a
condition, limitation, restriction or substantial risk of forfeiture has not
lapsed, the Committee may, in its sole discretion, accelerate the time at which
such Stock Option may be exercised or the time at which such condition,
limitation, restriction or substantial risk of forfeiture will lapse.
(d) Presentation of the Program or any amendment to the Program for
stockholder approval is not to be construed to limit the Corporation's authority
to offer similar or dissimilar benefits through plans or programs that are not
subject to stockholder approval.
18. Effective Date. This 1998 Stock Incentive Program shall become
effective on the date (the "Effective Date") that it is approved by the
affirmative vote of a majority of the shares present or represented at an annual
or special meeting of stockholders of the Corporation and entitled to vote on
the subject matter; provided that such stockholder approval is obtained within
12 months after the adoption of this 1998 Stock Incentive Program by the Board.
Exhibit 10.3
FIRST AMENDMENT TO TRUST AGREEMENT
This First Amendment to Trust Agreement (the "First
Amendment") is made as of this 17th day of February, 1998, by and
between The Interlake Corporation, a Delaware corporation
("Interlake"), and U.S. Trust Company of California, N.A. (the
"Trustee").
WITNESSETH:
WHEREAS, Interlake and Continental Illinois National Bank and Trust
Company of Chicago, a national banking association ("Continental Illinois")
established a trust (the "Trust") pursuant to an agreement entitled "TRUST
AGREEMENT" and dated September 30, 1988, under which Frederick C. Langenberg or
certain other beneficiaries are the Trust Beneficiaries (the "Agreement");
WHEREAS, Trustee is the successor trustee to CTC Illinois Trust
Company, a subsidiary of The Bank of New York Company, Inc., which was
substituted for Continental Illinois as trustee of the Trust;
WHEREAS, Interlake has transferred assets to the Trust that are being
held in trust by the Trustee, all pursuant to the terms of the Agreement;
WHEREAS, in accordance with Section 12(a) of the Agreement, Interlake
and the Trustee desire to amend the Agreement in certain respects, as set forth
in this First Amendment;
NOW, THEREFORE, the parties do hereby agree that the Agreement shall be
amended as follows:
1. The introductory paragraph of the preamble of the Agreement is
amended by deleting "(the "Trustee")" at the end thereof and by substituting
therefor the following:
("Continental Illinois"), and amended as of the 17th
day of February, 1998, pursuant to the First Amendment
to Trust Agreement between Interlake and U.S. Trust
<PAGE>
Company of California, N.A. (the "Trustee"), as
Company of California, N.A. (the "Trustee"), as
successor to Continental Illinois.
2. Section 1(a) of the Agreement is amended by adding the
following after the first sentence thereof:
Neither the Trustee nor any Trust Beneficiary shall
have any right or duty to compel such additional
deposits or determine the sufficiency thereof.
3. The first sentence of Section 5 of the Agreement is
amended by adding immediately prior to the phrase "Compensation Committee of the
Interlake Board" the following phrase:
"Management Development and".
4. The third sentence of Section 5 of the Agreement is amended by
deleting the phrase "six months" and substituting therefor the phrase "10
years".
5. Section 5 of the Agreement is amended by adding the following at the
end thereof:
Nothing in this section shall be construed to mean the
Trustee assumes any responsibility for the performance
of any investment made by the Trustee in its capacity
as trustee under this Agreement.
6. The third sentence of Section 7(a) of the Agreement is
amended by deleting "60 calendar days" where it appears and substituting
therefor "90 calendar days".
7. Section 8 of the Agreement is amended by adding at the end thereof
the following:
(j) Interlake shall indemnify and hold the Trustee harmless
from and against all loss or liability (including expenses and
reasonable attorneys' fees), to which it may be subject by reason of
its execution of its duties under this Agreement, or by reason of any
acts taken in good faith in accordance with any directions, or acts
omitted in good faith due to absence of directions, from Interlake or a
Trust Beneficiary unless, and only to the extent, such loss or
liability is due to the Trustee's gross negligence or willful
misconduct.
(k) In the event that the Trustee is named as a defendant in a
lawsuit or proceeding involving the Plan or the Trust fund, the Trustee
shall be entitled to receive payments on a current basis pursuant to
the
<PAGE>
indemnity provisions provided for in this section; provided however,
that if the final judgment entered in the lawsuit or proceeding holds
that the Trustee is guilty of gross negligence or willful misconduct
with respect to the Trust fund, the Trustee shall be required to refund
the indemnity payments that it has received.
(l) All releases and indemnities provided herein shall survive
the termination of this Agreement. 8. The first sentence of Section 10
of the Agreement is
amended by adding at the end thereof the following:
and as set forth from time to time and incorporated
herein by this reference.
9. Section 10 of the Agreement is amended by deleting the second
sentence thereof and substituting therefor the following:
The Trustee shall also be entitled to reimbursement of its reasonable
expenses incurred by it in the performance of its duties hereunder,
including, but not limited to fees and expenses incurred pursuant to
Sections 8(d), 8(e) and 8(g). 10. The first sentence of Section 11(a)
of the Agreement is
amended by adding immediately after the phrase "The Trustee may
be removed at any time" the following phrase: "upon not less than
90 days' notice in writing".
11. The last sentence of Section 11(a) of the Agreement is amended by
deleting ", wherever located, having a capital and surplus of at least
$500,000,000 in the aggregate".
12. Section 11(a) of the Agreement is amended by adding at the end
thereof the following:
If after making reasonable efforts to appoint a successor trustee as
provided above, the Trustee has been unable to do so, the Trustee shall
petition a
court of competent jurisdiction to appoint a successor
trustee.
13. Section 11 of the Agreement is amended by adding at the
end thereof the following:
(c) The successor trustee need not examine the records and
acts of any prior trustee and may retain or dispose of existing Trust
assets. The successor trustee shall not be responsible for, and
Interlake shall indemnify and defend the successor trustee from any
claim or liability resulting from any action or inaction of any prior
trustee or from any other past
<PAGE>
event, or any condition existing at the time it becomes
successor trustee.
14. Sections 12(c) and 13(d) of the Agreement are each
amended by deleting the period at the end thereof and adding the
following:
in such amounts and in the manner instructed by Interlake, whereupon
the Trustee shall be released and discharged from all obligations
hereunder. From and after the date of termination, and until final
distribution of the Trust assets, the Trustee shall continue to have
all of the powers provided herein as are necessary or expedient for the
orderly liquidation and distribution of the Trust. 15. Section 14(c) is
amended by deleting the word
"Illinois" and by substituting therefor the word "California".
16. Section 15(a) is amended in its entirety to read as
follows:
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given when
received:
If to the Trustee, to:
U.S. Trust Company of California, N.A.
515 South Flower Street, Suite 2700
Los Angeles, CA 90071-2291
Attention: Charles E. Wert
Executive Vice President
If to Interlake, to:
The Interlake Corporation
550 Warrenville Road
Lisle, IL 60532
Attention: Secretary
If to the Executive or to the Trust Beneficiaries,
to:
<PAGE>
Frederick C. Langenberg
The Langand Corporation
2535 Washington Road, Suite 1131
Upper St. Clair, PA 15241
provided, however, that if any party or any Trust Beneficiary, or his
or her successors shall have designated a different address by notice
to the other parties, then to the last address so designated.
IN WITNESS WHEREOF, each of Interlake and the Trustee caused this First
Amendment to be executed on its behalf as of the date first above written.
THE INTERLAKE CORPORATION
By: /s/Stephen R. Smith
Title: Vice President, Secretary and General Counsel
U.S. TRUST COMPANY OF CALIFORNIA,
N.A.
By: /s/Robert S. Cummings
Title: Senior Vice President
To signify approval of Paragraph 4 of this First Amendment:
/s/F. C. Langenberg
F. C. Langenberg
-6-
Exhibit 10.4
FIRST AMENDMENT TO TRUST AGREEMENT
This First Amendment to Trust Agreement (the "First
Amendment") is made this 17th day of February, 1998, by and
between The Interlake Corporation, a Delaware corporation
("Interlake"), and U.S. Trust Company of California, N.A. (the
"Trustee").
WITNESSETH:
WHEREAS, Interlake and Continental Illinois National Bank and Trust
Company of Chicago, a national banking association ("Continental Illinois")
established a trust (the "Trust") pursuant to an agreement entitled "TRUST
AGREEMENT" and dated September 30, 1988 (the "Agreement");
WHEREAS, Trustee is the successor to Continental Illinois as
trustee of the Trust;
WHEREAS, Interlake has transferred assets to the Trust that are being
held in trust by the Trustee, all pursuant to the terms of the Agreement;
WHEREAS, in accordance with Section 12(a) of the Agreement, Interlake
and the Trustee desire to amend the Agreement in certain respects, as set forth
in this First Amendment,
NOW, THEREFORE, the parties do hereby agree that the Agreement shall be
amended as follows:
1. The introductory paragraph of the preamble of the Agreement is
amended by deleting "(the "Trustee")" at the end thereof and by substituting
therefor the following:
-1-
<PAGE>
("Continental Illinois"), and amended as of the 17th
day of February, 1998, pursuant to the First Amendment
to Trust Agreement between Interlake and U.S. Trust
Company of California, N.A. (the "Trustee"), as
successor to Continental Illinois.
2. The first paragraph of the preamble of the Agreement is
amended in its entirety to read as follows:
WHEREAS, certain benefits are or may become
payable under the provisions of The Interlake Corporation Restated
Directors' Post-Retirement Income Plan, established as of May 29, 1986,
as the same has been or may hereafter be supplemented, amended or
restated, or any successor thereto (the "Plan"), to certain individuals
listed on Exhibit A hereto ("Directors"); 3. Section 1(a) of the
Agreement is amended by adding the
following after the first sentence thereof:
Neither the Trustee nor any Director or beneficiary
shall have any right or duty to compel such additional
deposits or determine the sufficiency thereof.
4. Section 1(c) of the Agreement is amended by adding the
following at the end thereof:
The purpose of the Trust is to assure that Interlake's obligations to
the Directors pursuant to the Plan are fulfilled. The Trust is neither
intended nor designed to qualify under section 401(a) of the Code or to
be subject to the provisions of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). The Trust established under this
Agreement does not fund and is not intended to fund the Plan or any
other employee benefit plan or program of Interlake. Such Trust is and
is intended to be a depository arrangement with the Trustee for the
setting aside of cash and other assets of Interlake for the meeting of
part or all of its future obligations with respect to Benefits to some
or all of the Directors under the Plan. 5. Section 1 of the Agreement
is amended by adding the
following provisions at the end thereof:
(d) Interlake shall transfer sufficient assets to the Trust on
or prior to the date on which occurs a Change in Control (as that term
is defined in Section 1(e)) so that, in combination with the assets
theretofore held in the Trust, the aggregate assets
-2-
<PAGE>
held in the Trust equals or exceeds (i) an amount sufficient to satisfy
all expenses with respect to the Trust, including, without limitation,
the fees of the Trustee, for a period of at least five years, and (ii)
the amount estimated by Interlake to be necessary to satisfy all
obligations under the Plan.
(e) As used in this Agreement, the term "Change in Control"
shall mean:
(i) Interlake is merged, consolidated or
reorganized into or with another corporation or other legal
person and as a result of such merger, consolidation or
reorganization less than 75% of the combined voting power of
the then-outstanding securities of such other corporation or
person immediately after such transaction are held in the
aggregate by the holders of the then-outstanding securities
entitled to vote generally in the election of directors (the
"Voting Stock") of Interlake immediately prior to such
transaction;
(ii) Interlake sells or otherwise transfers all or
substantially all of its business or assets to any other
corporation or other legal person, and as a result of such
sale or transfer, less than 75% of the combined voting power
of the then-outstanding voting securities of such other
corporation or entity immediately after such sale or transfer
are held in the aggregate by the holders of Voting Stock of
Interlake immediately prior to such sale or transfer;
(iii) A Share Acquisition Date occurs under the
Rights Agreement, dated as of January 26, 1989, by and between
Interlake and The First National Bank of Chicago, as amended,
or under any successor rights agreement to which Interlake is
a party (the "Rights Agreement"); or, if the Rights Agreement
has expired prior to the occurrence of a Share Acquisition
Date, any event that would have caused a Share Acquisition
Date to occur under the Rights Agreement;
(iv) Any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Securities
Exchange Act of 1934 (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
promulgated under the Exchange Act) of securities representing
35% or more of the combined voting power of the Voting Stock
of Interlake;
-3-
<PAGE>
(v) Interlake files a report or proxy statement
with the Securities and Exchange Commission pursuant to the
Exchange Act disclosing in, or in response to, Form 8-K or
Schedule 14A (or any successor schedule, form or report or
item therein) that a change in control of Interlake has or may
have occurred or will occur in the future pursuant to any
then-existing contract or transaction; or
(vi) If during any period of two consecutive years,
individuals who at the beginning of any such period constitute
the directors of Interlake cease for any reason to constitute
at least a majority thereof; provided, however, that for
purposes of this Section 1(e)(vi), each director who is first
elected, or first nominated for election by Interlake's
stockholders, by a vote of at least two-thirds of the
directors of Interlake (or a committee thereof) then still in
office who were directors of Interlake at the beginning of any
such period will be deemed to have been a director of
Interlake at the beginning of such period.
(vii) Notwithstanding the foregoing provisions of
Section 1(e)(iv) or 1(e)(v) hereof, unless otherwise
determined in a specific case by majority vote of the Board of
Directors of Interlake (the "Board"), a Change in Control
shall not be deemed to have occurred for purposes of Section
1(e)(iv) or 1(e)(v) solely because (a) Interlake, (b) an
entity in which Interlake, directly or indirectly,
beneficially owns 50% or more of the voting securities of such
entity (an "Affiliate"), or (c) any Interlake-sponsored
employee stock ownership plan or any other employee benefit
plan of Interlake or any Affiliate either files or becomes
obligated to file a report or a proxy statement under or in
response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule
14A (or any successor schedule, form or report or item
therein) under the Exchange Act, disclosing beneficial
ownership by it of shares of Voting Stock, whether in excess
of 35% or otherwise, or because Interlake reports that a
change in control of Interlake has or may have occurred or
will or may occur in the future by reason of such beneficial
ownership.
(f) In the event that a Change in Control has occurred, the
Chief Executive Officer, Chief Financial Officer or General Counsel of
Interlake shall so notify the Trustee promptly. The Trustee shall be
entitled to rely upon such notice as to whether and when a Change
-4-
<PAGE>
in Control has occurred and shall not be required to
make any independent verification of a Change in
Control.
6. Section 2(a) of the Agreement is amended by adding the
following at the end thereof:
The Trustee shall continue to pay Benefits to the Directors
until the assets of the Trust are depleted, subject to Section
12(b) hereof.
7. The second sentence of Section 3(a) of the Agreement is amended by
deleting the phrase "of Directors ("Board") of Interlake" therefrom.
8. The first sentence of Section 5 of the Agreement is amended by
adding immediately prior to the phrase "Compensation Committee of the Interlake
Board" the following phrase: "Management Development and".
9. The third sentence of Section 5 of the Agreement is amended by
adding immediately after the word "unavailable" the following phrase: "or if a
Change in Control has occurred,".
10. The third sentence of Section 5 of the Agreement is amended by
deleting the phrase "six months" and substituting therefor the phrase "10
years".
11. Section 5 of the Agreement is amended by adding the following at
the end thereof:
Nothing in this section shall be construed to mean the Trustee assumes
any responsibility for the performance of any investment made by the
Trustee in its capacity as trustee under this Agreement.
12. The fourth sentence of Section 8(d) of the Agreement is amended by
deleting the word "Executive" and substituting therefor the word "Director".
-5-
<PAGE>
13. Section 8 of the Agreement is amended by adding at the end thereof
the following:
(j) Interlake shall indemnify and hold the Trustee harmless
from and against all loss or liability (including expenses and
reasonable attorneys' fees), to which it may be subject by reason of
its execution of its duties under this Agreement, or by reason of any
acts taken in good faith in accordance with any directions, or acts
omitted in good faith due to absence of directions, from Interlake or a
Director unless, and only to the extent, such loss or liability is due
to the Trustee's gross negligence or willful misconduct.
(k) In the event that the Trustee is named as a defendant in a
lawsuit or proceeding involving the Plan or the Trust fund, the Trustee
shall be entitled to receive payments on a current basis pursuant to
the indemnity provisions provided for in this section; provided
however, that if the final judgment entered in the lawsuit or
proceeding holds that the Trustee is guilty of gross negligence or
willful misconduct with respect to the Trust fund, the Trustee shall be
required to refund the indemnity payments that it has received.
(l) All releases and indemnities provided herein shall survive
the termination of this Agreement.
14. Section 9(c) of the Agreement is amended in its entirety to read as
follows:
(c) At such times as may in the judgment of Interlake be
appropriate, Interlake shall furnish to the Trustee any amendment to
Exhibit A for the purpose of the deletion of deceased Directors who
have no benefits currently due.
15. The first sentence of Section 10 of the Agreement is amended by
adding at the end thereof the following:
and as set forth from time to time and incorporated
herein by this reference
16. Section 10 of the Agreement is amended by deleting the second
sentence thereof and substituting therefor the following:
The Trustee shall also be entitled to reimbursement of its reasonable
expenses incurred by it in the performance of its duties hereunder,
including, but not
-6-
<PAGE>
limited to fees and expenses incurred pursuant to
Sections 8(d), 8(e) and 8(g).
17. The first sentence of Section 11(a) of the Agreement is amended by
adding immediately after the phrase "The Trustee may be removed at any time" the
following phrase: "upon not less than 90 days' notice in writing".
18. The last sentence of Section 11(a) of the Agreement is amended by
deleting ", wherever located, having a capital and surplus of at least
$500,000,000 in the aggregate".
19. Section 11(a) of the Agreement is amended by adding at the end
thereof the following:
If after making reasonable efforts to appoint a successor trustee as
provided above, the Trustee has been unable to do so, the Trustee shall
petition a court of competent jurisdiction to appoint a successor
trustee.
20. Section 11 of the Agreement is amended by adding at the end thereof
the following:
(c) The successor trustee need not examine the records and
acts of any prior trustee and may retain or dispose of existing Trust
assets. The successor trustee shall not be responsible for, and
Interlake shall indemnify and defend the successor trustee from any
claim or liability resulting from any action or inaction of any prior
trustee or from any other past event, or any condition existing at the
time it becomes successor trustee.
21. The first sentence of Section 12(a) of the Agreement is amended by
inserting immediately prior to the period at the end of the sentence the
following clause:
; and provided, further, that on or after the occurrence of a Change in
Control, any such amendment shall require the consent of a majority of
the Directors
22. Section 12(b) of the Agreement is amended by adding at the end
thereof the following:
-7-
<PAGE>
On or after the occurrence of a Change in Control, the determinations
under the preceding sentence shall be made in the sole judgment of the
Trustee. In addition, the Trust shall terminate at such time as the
Trustee shall have received consents to the termination of the
Agreement from all of the Directors to whom benefits are then due.
23. Sections 12(c) and 13(d) of the Agreement are each amended by
deleting the period at the end thereof and adding the following:
in such amounts and in the manner instructed by Interlake, whereupon
the Trustee shall be released and discharged from all obligations
hereunder. From and after the date of termination, and until final
distribution of the Trust assets, the Trustee shall continue to have
all of the powers provided herein as are necessary or expedient for the
orderly liquidation and distribution of the Trust.
24. Section 13(a)(i) of the Agreement is amended by deleting "the
Employee Retirement Income Security Act of 1974, as amended, or any successor
provision thereto ("ERISA")", and substituting therefor "ERISA".
25. Sections 14(a) and 14(b) of the Agreement are amended in their
entirety to read as follows:
(a) In the event that any provision of this Agreement or the
application thereof to any person or circumstances shall be determined
by a court of competent jurisdiction to be invalid or unenforceable to
any extent, the remainder of this Agreement, or the application of such
provision to persons or circumstances other than those as to which it
is held invalid or unenforceable, shall not be affected thereby, and
each provision of this Agreement shall be valid and enforced to the
maximum extent permitted by law.
(b) The right of any Director to any benefit or to any payment
hereunder may not be anticipated, assigned (either at law or in
equity), alienated or subject to attachment, garnishment, levy,
execution or other legal or equitable process except as required by
law. Any attempt by any Director to anticipate, alienate, assign, sell,
transfer, pledge, encumber or charge the same shall be void. The Trust
assets shall
-8-
<PAGE>
not in any manner be subject to the debts, contracts, liabilities,
engagement or torts of any Director and payments hereunder shall not be
considered an asset of the Director in the event of the insolvency or
bankruptcy of such Director.
26. Section 14(c) is amended by deleting the word "Illinois" and by
substituting therefor the word "California".
27. Section 14 is amended to add the following provisions at the end
thereof:
(e) Interlake shall, at any time and from time to time, upon
the reasonable request of the Trustee, provide information, execute and
deliver such further instruments and do such further acts as may be
necessary or proper to effectuate the purposes of this Trust.
(f) Each Exhibit referred to in this Agreement shall become a
part hereof and is expressly incorporated herein by reference.
(g) This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof and supersedes any
and all prior agreements, arrangements and understandings relating
thereto. This Agreement shall be binding upon and inure to the benefit
of the parties and their respective successors and legal
representatives.
(h) (i) The preamble to this Agreement, including the
definitions provided therein, shall be considered a part of
the agreement of the parties as if set forth in a section of
this Agreement.
(ii) The headings contained in this Agreement are
solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the
meaning or interpretation of this Agreement.
(i) Each Director (and, where applicable, each successor) is
an intended beneficiary under this Trust, and as an intended
beneficiary shall be entitled to enforce all terms and provisions
hereof with the same force and effect as if such person had been a
party hereto.
(j) Notwithstanding any other provision hereof, the parties'
respective rights and obligations under
-9-
<PAGE>
Section 14(i) shall survive any termination or expiration of this
Agreement.
28. Section 15 is amended in its entirety to read as follows: For
all purposes of this Agreement, any communication,
including without limitation, any notice, consent, report, demand or
waiver required or permitted to be given hereunder shall be in writing
and, unless otherwise provided in this Agreement, shall be deemed to
have been duly given when hand delivered or dispatched by telegram or
electronic facsimile transfer (confirmed in writing by mail
simultaneously dispatched), or two business days after having been
mailed by United States registered or certified mail, return receipt
requested, postage prepaid, or one business day after having been
dispatched by a nationally recognized overnight courier service to the
appropriate party at the address specified below:
If to the Trustee, to:
U.S. Trust Company of California, N.A.
515 South Flower Street, Suite 2700
Los Angeles, CA 90071-2291
Attention: Charles E. Wert
Executive Vice President
If to Interlake, to:
The Interlake Corporation
550 Warrenville Road
Lisle, IL 60532
Attention: Secretary
If to the Directors, to the addresses listed on
Exhibit A hereto.
provided, however, that if any party or any Director, or his or her
successors shall have designated a different address by notice to the
other parties, then to the last address so designated.
29. The Agreement is amended to delete all that follows Section 15.
-10-
<PAGE>
30. This First Amendment shall be governed by and construed in
accordance with the laws of the State of California, other than and without
reference to any provisions of such laws regarding choice of laws or conflict of
laws.
31. This First Amendment may be executed in two or more counterparts,
each of which shall be considered an original agreement, but all of which
together shall constitute one agreement.
32. This First Amendment shall be effective as of the date first above
written.
33. Without further action by the parties to this First Amendment, the
Agreement will be amended and restated to incorporate the changes made pursuant
to this First Amendment, and the Agreement, as so amended and restated as set
forth in the Annex to this First Amendment, will thereafter constitute the
Agreement.
-11-
<PAGE>
IN WITNESS WHEREOF, each of Interlake and the Trustee caused
this First Amendment to be executed on its behalf as of the date
first above written.
THE INTERLAKE CORPORATION
By: /s/Stephen R. Smith
Title: Vice President
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
By: /s/Dennis M. Kunisaki
Title:Vice President
-12-
<PAGE>
EXHIBIT A
TO THE
FIRST AMENDMENT TO TRUST AGREEMENT TO
THE INTERLAKE CORPORATION
RESTATED DIRECTORS' POST-RETIREMENT INCOME PLAN
Eugene P. Berg
James C. Cotting
Arthur G. Hansen
John E. Jones
Frederick C. Langenberg
Edward A. Loeser
Reynold C. MacDonald
Quentin C. McKenna
William G. Mitchell
Erwin E. Schulze
Lee C. Shaw
Edward J. Williams
Morris H. Wright
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-END> JUN-28-1998
<CASH> 1291
<SECURITIES> 29158
<RECEIVABLES> 82773
<ALLOWANCES> 607
<INVENTORY> 46112
<CURRENT-ASSETS> 164919
<PP&E> 340608
<DEPRECIATION> 196067
<TOTAL-ASSETS> 347970
<CURRENT-LIABILITIES> 123654
<BONDS> 0
0
39155
<COMMON> 23530
<OTHER-SE> (216716)
<TOTAL-LIABILITY-AND-EQUITY> 347970
<SALES> 268497
<TOTAL-REVENUES> 268497
<CGS> 212863
<TOTAL-COSTS> 239254
<OTHER-EXPENSES> (1870)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18921
<INCOME-PRETAX> 13729
<INCOME-TAX> 5837
<INCOME-CONTINUING> 5476
<DISCONTINUED> 0
<EXTRAORDINARY> (220)
<CHANGES> 0
<NET-INCOME> 5256
<EPS-PRIMARY> .23
<EPS-DILUTED> .16
</TABLE>
