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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark one) FORM 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended June 30, 1999
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Owens-Illinois, Inc.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9576 22-2781933
- ---------------- ----------- ------------------------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
One SeaGate, Toledo, Ohio 43666
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(Address of principal executive offices) (Zip Code)
419-247-5000
- ------------------------------------------------------------------------------
(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
---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Owens-Illinois, Inc. $.01 par value common stock - 155,848,339
shares at July 31, 1999.
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2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Condensed Consolidated Financial Statements presented herein are unaudited
but, in the opinion of management, reflect all adjustments necessary to
present fairly such information for the periods and at the dates indicated.
Since the following unaudited condensed consolidated financial statements have
been prepared in accordance with Article 10 of Regulation S-X, they do not
contain all information and footnotes normally contained in annual
consolidated financial statements; accordingly, they should be read in
conjunction with the Consolidated Financial Statements and notes thereto
appearing in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998.
3
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Three months ended June 30, 1999 and 1998
(Millions of dollars, except share and per share amounts)
1999 1998
Revenues: -------- --------
Net sales $1,423.1 $1,385.0
Royalties and net technical assistance 7.2 7.1
Equity earnings 4.5 4.5
Interest 7.7 8.6
Other 73.1 27.1
-------- --------
1,515.6 1,432.3
Costs and expenses:
Manufacturing, shipping, and delivery 1,068.4 1,031.6
Research and development 10.1 8.9
Engineering 8.2 8.4
Selling and administrative 72.6 64.7
Interest 103.8 99.1
Other 64.0 35.1
-------- --------
1,327.1 1,247.8
-------- --------
Earnings before items below 188.5 184.5
Provision for income taxes 72.2 62.0
Minority share owners' interests in earnings
of subsidiaries 5.4 7.5
-------- --------
Earnings before extraordinary items 110.9 115.0
Extraordinary charges from early extinguishment
of debt, net of applicable income taxes (14.1)
-------- --------
Net earnings $ 110.9 $ 100.9
======== ========
Basic earnings per share of common stock:
Earnings before extraordinary items $ 0.68 $ 0.76
Extraordinary charges (0.10)
-------- --------
Net earnings $ 0.68 $ 0.66
======== ========
Weighted average shares outstanding (thousands) 155,873 148,278
======= =======
Diluted earnings per share of common stock:
Earnings before extraordinary items $ 0.67 $ 0.75
Extraordinary charges (0.09)
-------- --------
Net earnings $ 0.67 $ 0.66
======== ========
Weighted diluted average shares (thousands) 165,976 153,942
======= =======
See accompanying notes.
4
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
Six months ended June 30, 1999 and 1998
(Millions of dollars, except share and per share amounts)
1999 1998
Revenues: -------- --------
Net sales $2,730.1 $2,483.5
Royalties and net technical assistance 14.2 13.2
Equity earnings 9.0 9.2
Interest 13.5 14.5
Other 102.1 70.1
-------- --------
2,868.9 2,590.5
Costs and expenses:
Manufacturing, shipping, and delivery 2,068.2 1,892.7
Research and development 19.7 16.6
Engineering 17.6 16.4
Selling and administrative 139.2 127.1
Interest 209.0 164.3
Other 107.5 71.8
-------- --------
2,561.2 2,288.9
-------- --------
Earnings before items below 307.7 301.6
Provision for income taxes 118.4 90.8
Minority share owners' interests in earnings
of subsidiaries 9.1 15.4
-------- --------
Earnings before extraordinary items 180.2 195.4
Extraordinary charges from early extinguishment
of debt, net of applicable income taxes (14.1)
-------- --------
Net earnings $ 180.2 $ 181.3
======== ========
Basic earnings per share of common stock:
Earnings before extraordinary items $ 1.09 $ 1.33
Extraordinary charges (0.10)
-------- --------
Net earnings $ 1.09 $ 1.23
======== ========
Weighted average shares outstanding (thousands) 155,742 144,470
======= =======
Diluted earnings per share of common stock:
Earnings before extraordinary items $ 1.08 $ 1.32
Extraordinary charges (0.10)
-------- --------
Net earnings $ 1.08 $ 1.22
======== ========
Weighted diluted average shares (thousands) 157,249 148,195
======= =======
See accompanying notes.
5
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1999, December 31, 1998, and June 30, 1998
(Millions of dollars)
June 30, Dec. 31, June 30,
1999 1998 1998
--------- --------- ---------
Assets
Current assets:
Cash, including time deposits $ 270.8 $ 271.4 $ 322.5
Short-term investments, at cost which
approximates market 30.5 21.1 23.0
Receivables, less allowances for losses
and discounts ($51.1 at June 30, 1999,
$56.9 at December 31, 1998, and
$44.0 at June 30, 1998) 894.6 877.7 878.3
Inventories 861.5 838.1 815.6
Prepaid expenses 179.6 168.8 165.2
--------- --------- ---------
Total current assets 2,237.0 2,177.1 2,204.6
Investments and other assets:
Equity investments 183.1 195.3 142.0
Repair parts inventories 245.5 254.2 254.2
Prepaid pension 732.0 686.1 687.6
Insurance receivable for
asbestos-related costs 212.2 212.8 222.6
Deposits, receivables, and other assets 533.4 383.7 343.9
Net assets held for sale 409.6 535.0
Excess of purchase cost over net assets
acquired, net of accumulated
amortization ($453.8 at June 30,
1999, $405.3 at December 31, 1998,
and $348.0 at June 30, 1998) 3,329.8 3,314.9 3,148.2
--------- --------- ---------
Total other assets 5,236.0 5,456.6 5,333.5
Property, plant, and equipment, at cost 5,419.8 5,394.1 5,168.4
Less accumulated depreciation 2,055.2 1,967.1 1,807.1
--------- --------- ---------
Net property, plant, and equipment 3,364.6 3,427.0 3,361.3
--------- --------- ---------
Total assets $10,837.6 $11,060.7 $10,899.4
========= ========= =========
6
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CONDENSED CONSOLIDATED BALANCE SHEETS -- continued
June 30, Dec. 31, June 30,
1999 1998 1998
--------- --------- ---------
Liabilities and Share Owners' Equity
Current liabilities:
Short-term loans and long-term debt
due within one year $ 226.0 $ 249.5 $ 238.4
Current portion of asbestos-related
liabilities 85.0 85.0 70.0
Accounts payable and other liabilities 945.8 992.6 944.6
--------- --------- ---------
Total current liabilities 1,256.8 1,327.1 1,253.0
Long-term debt 5,517.4 5,667.2 5,694.1
Deferred taxes 358.2 325.0 305.9
Nonpension postretirement benefits 325.7 338.4 343.5
Other liabilities 635.5 690.4 464.1
Commitments and contingencies
Minority share owners' interests 223.4 240.6 288.4
Share owners' equity:
Convertible preferred stock, par value
$.01 per share, liquidation preference
$50 per share, 9,050,000 shares
authorized, issued and outstanding 452.5 452.5 452.5
Exchangeable preferred stock 12.9 18.3 20.1
Common stock, par value $.01 per share
(156,297,439 shares outstanding
at June 30, 1999; 155,450,173 at
December 31, 1998, and
155,317,512 at June 30, 1998) 1.6 1.5 1.5
Capital in excess of par value 2,192.1 2,183.1 2,180.2
Retained earnings 176.8 7.3 91.0
Accumulated other comprehensive income (315.3) (190.7) (194.9)
--------- --------- ---------
Total share owners' equity 2,520.6 2,472.0 2,550.4
--------- --------- ---------
Total liabilities and share owners' equity $10,837.6 $11,060.7 $10,899.4
========= ========= =========
See accompanying notes.
7
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OWENS-ILLINOIS, INC.
CONDENSED CONSOLIDATED CASH FLOWS
Six months ended June 30, 1999 and 1998
(Millions of dollars)
1999 1998
Cash flows from operating activities: ------- ---------
Earnings before extraordinary items $ 180.2 $ 195.4
Non-cash charges (credits):
Depreciation 198.8 166.5
Amortization of deferred costs 69.6 41.5
Restructuring costs, write-offs of certain
assets and settlement of environmental
litigation 20.8 16.3
Gains on asset sales (40.8) (18.5)
Other (35.4) (26.8)
Change in non-current operating assets (23.3) (12.0)
Asbestos-related payments (68.0) (42.0)
Asbestos-related insurance proceeds .6 16.7
Reduction of non-current liabilities (13.7) (2.7)
Change in components of working capital (154.7) (159.5)
------- ---------
Cash provided by operating activities 134.1 174.9
Cash flows from investing activities:
Additions to property, plant, and equipment (261.4) (242.4)
Acquisitions, net of cash acquired (14.6) (3,523.1)
Net cash proceeds from divestitures 311.7 37.7
------- ---------
Cash provided by (utilized in) investing
activities 35.7 (3,727.8)
Cash flows from financing activities:
Additions to long-term debt 259.1 5,154.0
Repayments of long-term debt (415.0) (2,561.5)
Increase in short-term loans 1.0 52.5
Payment of convertible preferred stock dividends (10.7)
Issuance of common stock 2.3 639.7
Issuance of convertible preferred stock 439.6
Payment of finance fees and debt retirement costs (61.5)
------- ---------
Cash provided by (utilized in) financing
activities (163.3) 3,662.8
Effect of exchange rate fluctuations on cash (7.1) (5.6)
------- ---------
Increase (decrease) in cash (.6) 104.3
Cash at beginning of period 271.4 218.2
------- ---------
Cash at end of period $ 270.8 $ 322.5
======= =========
See accompanying notes.
8
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OWENS-ILLINOIS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Tabular data in millions of dollars,
except share and per share amounts
1. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
- -----------------------------------------------------------------------------
Three months ended
June 30,
----------------------
1999 1998
Numerator: ------ ------
Earnings before extraordinary items $110.9 $115.0
Preferred stock dividends:
Convertible (5.4) (2.4)
Exchangeable (.2) (.3)
- -----------------------------------------------------------------------------
(5.6) (2.7)
Numerator for basic earnings per
share - income available to common
share owners 105.3 112.3
Effect of dilutive securities -
preferred stock dividends 5.6 2.7
- -----------------------------------------------------------------------------
Numerator for diluted earnings per
share - income available to common
share owners after assumed
exchanges of preferred stock
for common stock $110.9 $115.0
=============================================================================
Denominator:
Denominator for basic earnings per
share - weighted average
shares outstanding 155,872,886 148,278,037
Effect of dilutive securities:
Stock options and other 866,715 1,147,374
Exchangeable preferred stock 646,778 646,958
Convertible preferred stock 8,589,355 3,869,929
- -----------------------------------------------------------------------------
Dilutive potential common shares 10,102,848 5,664,261
- -----------------------------------------------------------------------------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
exchanges of preferred stock for
common stock 165,975,734 153,942,298
=============================================================================
Basic earnings per share $0.68 $0.76
=============================================================================
Diluted earnings per share $0.67 $0.75
=============================================================================
9
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Options to purchase 2,924,956 weighted average shares of common stock which
were outstanding during the three months ended June 30, 1999 were not included
in the computation of diluted earnings per share because the options' exercise
price was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
- -----------------------------------------------------------------------------
Six months ended
June 30,
---------------------
1999 1998
Numerator: ------ ------
Earnings before extraordinary items $180.2 $195.4
Preferred stock dividends:
Convertible (10.7) (2.4)
Exchangeable (.5) (.7)
- -----------------------------------------------------------------------------
(11.2) (3.1)
Numerator for basic earnings per
share - income available to common
share owners 169.0 192.3
Effect of dilutive securities -
preferred stock dividends .5 3.1
- -----------------------------------------------------------------------------
Numerator for diluted earnings per
share - income available to common
share owners after assumed
exchanges of preferred stock
for common stock $169.5 $195.4
=============================================================================
Denominator:
Denominator for basic earnings per
share - weighted average
shares outstanding 155,742,442 144,470,231
Effect of dilutive securities:
Stock options and other 754,385 1,114,612
Exchangeable preferred stock 751,961 674,954
Convertible preferred stock 1,934,965
- -----------------------------------------------------------------------------
Dilutive potential common shares 1,506,346 3,724,531
- -----------------------------------------------------------------------------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
exchanges of preferred stock for
common stock 157,248,788 148,194,762
=============================================================================
Basic earnings per share $1.09 $1.33
=============================================================================
Diluted earnings per share $1.08 $1.32
=============================================================================
10
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The Convertible preferred stock was not included in the computation of six
months ended June 30, 1999 diluted earnings per share since the result would
have been antidilutive. Options to purchase 2,929,152 weighted average shares
of common stock which were outstanding during the six months ended June 30,
1999 were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price
of the common shares and, therefore, the effect would be antidilutive.
2. Inventories
Major classes of inventory are as follows:
June 30, Dec. 31, June 30,
1999 1998 1998
-------- -------- --------
Finished goods $634.7 $608.9 $591.9
Work in process 29.7 35.0 35.7
Raw materials 122.9 123.6 119.4
Operating supplies 74.2 70.6 68.6
------ ------ ------
$861.5 $838.1 $815.6
====== ====== ======
11
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3. Long-Term Debt
The following table summarizes the long-term debt of the Company:
- ---------------------------------------------------------------------------
June 30, Dec. 31, June 30,
1999 1998 1998
Bank Credit Agreement: -------- -------- --------
Revolving Credit Facility:
Revolving Loans $2,257.1 $2,207.0 $1,820.0
Offshore Loans:
1.39 billion (1.39 billion at
December 31, 1998 and June 30,
1998) Australian dollars 905.9 874.0 902.7
235 million (333 million at
December 31, 1998 and June 30,
1998) British pounds 380.3 549.8 556.1
111 billion (129 billion and 194
billion at December 31, 1998 and
June 30, 1998, respectively)
Italian lira 59.9 77.0 110.6
Bid Rate Loans 15.0 60.0
Term Loan 342.0
Senior Notes:
7.85%, due 2004 300.0 300.0 300.0
7.15%, due 2005 350.0 350.0 350.0
8.10%, due 2007 300.0 300.0 300.0
7.35%, due 2008 250.0 250.0 250.0
Senior Debentures:
7.50%, due 2010 250.0 250.0 250.0
7.80%, due 2018 250.0 250.0 250.0
Other 270.3 350.6 285.2
- ---------------------------------------------------------------------------
5,588.5 5,758.4 5,776.6
Less amounts due within one year 71.1 91.2 82.5
- ---------------------------------------------------------------------------
$5,517.4 $5,667.2 $5,694.1
===========================================================================
In April 1998, the Company entered into the Second Amended and Restated Credit
Agreement (the "Bank Credit Agreement" or "Agreement") with a group of banks
which expires on December 31, 2001. The Agreement provides for a $4.5 billion
revolving credit facility (the "Revolving Credit Facility"), which includes a
$1.75 billion fronted offshore loan revolving facility (the "Offshore
Facility") denominated in certain foreign currencies, subject to certain
sublimits, available to certain of the Company's foreign subsidiaries. The
Agreement includes an Overdraft Account facility providing for aggregate
borrowings up to $100 million which reduce the amount available for borrowing
under the Revolving Credit Facility. In addition, the terms of the Bank
Credit Agreement permit the Company to request Bid Rate Loans from banks
participating in the Agreement. Borrowings outstanding under Bid Rate Loans
are limited to $750 million and reduce the amount available for borrowing
under the Revolving Credit Facility. The Agreement also provides for the
issuance of letters of credit totaling up to $500 million, which also reduce
12
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the amount available for borrowing under the Revolving Credit Facility. At
June 30, 1999, the Company had unused credit of $831.4 million available under
the Bank Credit Agreement.
Borrowings under the Revolving Loans commitment bear interest, at the
Company's option, at the prime rate or a reserve adjusted Eurodollar rate.
Loans under the Offshore Facility bear interest, at the applicable borrower's
option, at the applicable Offshore Base Rate (as defined in the Bank Credit
Agreement). Borrowings under the Revolving Credit Facility also bear a margin
linked to the Company's Consolidated Leverage Ratio, as defined in the
Agreement. The margin is currently .500% and is limited to a range of .275%
to 1.000%. Overdraft Account loans bear interest at the prime rate minus the
facility fee percentage, defined below. The weighted average interest rate on
borrowings outstanding under the Revolving Loans commitment at June 30, 1999,
was 5.57%. The weighted average interest rate on borrowings outstanding under
the Offshore Facility at June 30, 1999, was 5.43%. While no compensating
balances are required by the Agreement, the Company must pay a facility fee on
the Revolving Credit Facility commitments. The facility fee, currently .250%,
is limited to a range of .125% and .500%, based on the Company's Consolidated
Leverage Ratio.
Borrowings outstanding under the Bank Credit Agreement are unsecured. All of
the obligations of the Company's foreign subsidiaries under the Offshore
Facility are guaranteed by the Company. The Company's Senior Notes and Senior
Debentures rank pari passu with the obligations of the Company under the Bank
Credit Agreement. The Bank Credit Agreement, Senior Notes, and Senior
Debentures are senior in right of payment to all existing and future
subordinated debt of the Company.
Under the terms of the Bank Credit Agreement, dividend payments with respect
to the Company's Preferred or Common Stock and payments for redemption of
shares of its Common Stock are subject to certain limitations. The Agreement
also requires, among other things, the maintenance of certain financial
ratios, and restricts the creation of liens and certain types of business
activities and investments.
4. Cash Flow Information
Interest paid in cash aggregated $180.7 million and $149.6 million for the six
months ended June 30, 1999 and June 30, 1998, respectively. Income taxes paid
in cash totaled $22.9 million and $19.4 million for the six months ended
June 30, 1999 and June 30, 1998, respectively. In connection with the sale of
Rockware described in Note 6, the Company received notes of approximately $135
million.
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5. Comprehensive Income
The Company's components of comprehensive income are net earnings and foreign
currency translation adjustments. Total comprehensive income for the three
month periods ended June 30, 1999 and 1998 amounted to $113.4 million and
$101.2 million, respectively. Total comprehensive income for the six month
periods ended June 30, 1999 and 1998 amounted to $55.6 million and $134.4
million, respectively.
6. Acquisition of Worldwide Packaging Businesses of BTR plc and Net Assets
Held for Sale
On April 30, 1998, the Company completed the acquisition of the worldwide
glass and plastics packaging businesses of BTR plc ("BTR Packaging") in an all
cash transaction valued at approximately $3.6 billion (the "Acquisition").
The Acquisition is being accounted for under the purchase method of
accounting. The total purchase cost of approximately $3.6 billion will be
allocated to the tangible and identifiable intangible assets and liabilities
based upon their respective fair values. Such allocations will be based upon
valuations which have not been finalized. Accordingly, the allocation of the
purchase consideration included in the accompanying Condensed Consolidated
Balance Sheets is preliminary.
In connection with the Acquisition, the Company committed to sell BTR's United
Kingdom glass container manufacturer ("Rockware") obtained in the transaction.
Early in the second quarter of 1999, the Company completed the sale of
Rockware to a subsidiary of Ardagh plc, the Irish glass container manufacturer
based in Dublin, Ireland, for total consideration of 240 million pounds
sterling (approximately $390 million). The accompanying Condensed
Consolidated Results of Operations exclude Rockware and related financing
costs. The carrying value was based upon estimated future cash flows
associated with the assets. Proceeds from the sale of Rockware were used for
the reduction of debt and for general corporate purposes.
14
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7. Pro Forma Information - Acquisition of BTR Packaging
Had the acquisition of BTR Packaging described in Note 6 and the related
financing occurred on January 1, 1998, unaudited pro forma consolidated net
sales, net earnings, and net earnings per share of common stock would have
been as follows:
Six Months ended June 30, 1998
----------------------------------------------------
As BTR Packaging Financing Pro Forma
Reported Adjusted Adjustments As Adjusted
-------- ------------- ----------- -----------
Net Sales $2,483.5 $384.1 $2,867.6
======== ========
Net Earnings $195.4 $31.9 $(33.2) $194.1
====== ======
Basic net earnings per
share of common stock $1.33 $1.18
===== =====
Basic weighted average
shares outstanding
(thousands) 144,470 155,190
Diluted net earnings per
share of common stock $1.32 $1.17
===== =====
Diluted weighted average
shares outstanding
(thousands) 148,195 156,980
Shares of common stock issuable upon conversion of the Convertible preferred
stock in the pro forma period were not included in the computation of pro
forma diluted earnings per share because the effect would have been
antidilutive.
The pro forma data does not purport to represent what the results of
operations would actually have been if the Acquisition and the related
financing had in fact occurred on the date indicated, or to project results of
operations for any future period.
8. Extraordinary Charges from Early Extinguishment of Debt
During the second quarter of 1998, the Company used proceeds from the May 1998
sale of shares of common stock, convertible preferred stock, and the issuance
of debt for the early retirement of debt incurred in connection with the
Acquisition. As a result, the Company recorded extraordinary charges for the
write-off of unamortized deferred finance fees totaling $22.8 million, net of
applicable income taxes of $8.7 million.
15
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9. Contingencies
The Company is one of a number of defendants (typically 10 to 20) in a
substantial number of lawsuits filed in numerous state and federal courts by
persons alleging bodily injury (including death) as a result of exposure to
dust from asbestos fibers. From 1948 to 1958, one of the Company's former
business units commercially produced and sold approximately $40 million of a
high-temperature, clay-based insulating material containing asbestos. The
Company exited the insulation business in April 1958. The traditional
asbestos personal injury lawsuits and claims relating to such production and
sale of asbestos material typically allege various theories of liability,
including negligence, gross negligence and strict liability and seek
compensatory and punitive damages in various amounts (herein referred to as
"asbestos claims"). As of June 30, 1999, the Company estimates that it is a
named defendant in asbestos claims involving approximately 18,000 plaintiffs
and claimants.
The Company is also a defendant in other asbestos-related lawsuits or claims
involving maritime workers, medical monitoring claimants, co-defendants and
property damage claimants. Based on its past experience, the Company believes
that the foregoing categories of claims will not involve any material
liability and they are not included in the above description of pending
claims.
In 1984, the Company initiated litigation in New Jersey against the Company's
insurers, including its wholly-owned captive insurer Owens Insurance Limited
("OIL"), and certain other parties for the years 1977 through 1985 in which
the Company sought damages and a declaration of coverage for both asbestos
bodily injury and property damage claims under insurance policies in effect
during those years (Owens-Illinois, Inc. v. United Insurance Co., et al,
Superior Court of New Jersey, Middlesex County, November 30, 1984). Beginning
in December 1994 and continuing intermittently for approximately one year
thereafter, the Company entered into settlements for approximately $240
million of its coverage claim against OIL to the extent of reinsurance
provided to OIL by the settling reinsurance companies. Following such
settlements, a settlement agreement (the "OIL Settlement") was reached with
OIL. The OIL Settlement called for the payment of remaining non-settled
reinsurance at 78.5% of applicable reinsurance limits, increasing to 81% on
approximately March 1, 1996 and accruing interest thereafter at 10% per annum.
In December 1995, the presiding judge in the United Insurance case entered a
Consent Judgment approving the OIL Settlement, and specifically finding that
it was a good faith settlement which was fair and reasonable as to OIL and all
of OIL's non-settling reinsurers.
In November 1995, a reinsurer of OIL during the years affected by the United
Insurance case brought a separate suit against OIL seeking a declaratory
judgment that it had no reinsurance obligation to OIL (Employer's Mutual v.
Owens-Insurance Limited, Superior Court of New Jersey, Morris County, December
1995). The Company was not a named party to this cause of action but was
subsequently joined in it as a necessary party defendant.
16
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Subsequent to the entry of the Consent Judgment Order in the United Insurance
case described above, OIL gave notice of the OIL Settlement to all non-
settling reinsurers affected by the United Insurance case, informing all such
reinsurers of the terms of the OIL Settlement and demanding timely payment
from such reinsurers pursuant to such terms. Since the date of the OIL
Settlement, 27 previously non-settling reinsurers have made the payments
called for under the OIL Settlement or otherwise settled their obligations
thereunder. Other non-settling solvent reinsurers, all of which are parties
to the Employers Mutual case described above, have not, however, made the
payments called for under the OIL Settlement.
As a result of payments and commitments that have been made by reinsurers
pursuant to the OIL Settlement and the earlier settlement agreements described
above in the United Insurance case and certain other available insurance, the
Company has to date confirmed coverage for its asbestos-related costs of
approximately $314.5 million. Of the total amount confirmed to date, $297.8
million had been received through June 30, 1999; and the balance of
approximately $16.7 million will be received throughout 1999 and the next
several years. The remainder of the insurance asset of approximately $195.5
million relates principally to the reinsurers who have not yet paid, and
continue to contest, their reinsurance obligations under the OIL Settlement.
The Company believes, based on the rulings of the trial court, the Appellate
Division and the New Jersey Supreme Court in the United Insurance case, as
well as its understanding of the facts and legal precedents and based on
advice of counsel, McCarter & English L.L.P., that it is probable substantial
additional payments will be received to cover the Company's asbestos-related
claim losses.
The Company believes that its ultimate asbestos-related contingent liability
(i.e., its indemnity or other claim disposition costs plus related litigation
expenses) is difficult to estimate with certainty. However, in 1993, the
Company established a liability of $975 million to cover what it then
estimated would be the total indemnity payments and legal fees associated with
the resolution of then outstanding and all expected future asbestos lawsuits
and claims. As part of its continual monitoring of asbestos-related matters,
the Company in 1998 conducted a comprehensive review to determine if
adjustments of asbestos-related assets or liabilities were appropriate. As a
result of that review, the Company established an additional liability of $250
million to cover what it now estimates will be the total indemnity payments
and legal fees associated with the resolution of outstanding asbestos personal
injury lawsuits and claims and asbestos personal injury lawsuits and claims
filed during the succeeding five years, after which any remaining liability is
not expected to be material in relation to the Company's Consolidated
Financial Statements.
17
<PAGE>
Based on all the factors and matters relating to the Company's asbestos-
related litigation and claims, the Company presently believes that its
asbestos-related costs and liabilities will not exceed by a material amount
the sum of the available insurance reimbursement the Company believes it has
and will have principally as a result of the United Insurance case, and the
OIL Settlement, as described above, and the amount of the charges for
asbestos-related costs previously recorded.
Other litigation is pending against the Company, in many cases involving
ordinary and routine claims incidental to the business of the Company and in
others presenting allegations that are nonroutine and involve compensatory,
punitive or treble damage claims as well as other types of relief. The
ultimate legal and financial liability of the Company in respect to the
lawsuits and proceedings referred to above, in addition to other pending
litigation, cannot be estimated with certainty. However, the Company
believes, based on its examination and review of such matters and experience
to date, that such ultimate liability will not be material in relation to the
Company's Consolidated Financial Statements.
10. Segment Information
The Company operates in the rigid packaging industry. The Company has two
reportable product segments within the rigid packaging industry: (1) Glass
Containers and (2) Plastics Packaging. The Plastics Packaging segment
consists of three business units -- plastic containers, closure and specialty
products, and prescription products. The Other segment consists primarily of
the Company's labels and carriers products business unit.
The Company evaluates performance and allocates resources based on earnings
before interest income, interest expense, provision for income taxes, minority
share owners' interests in earnings of subsidiaries, extraordinary charges,
(collectively "EBIT") and unusual items. EBIT for product segments includes
an allocation of corporate expenses based on both a percentage of sales and
direct billings based on the costs of specific services provided.
18
<PAGE>
Financial information for the three month periods ended June 30, 1999 and 1998
regarding the Company's product segments is as follows:
- -----------------------------------------------------------------------------
Elimina-
tions
Total and Consoli-
Glass Plastics Product Other dated
Containers Packaging Other Segments Retained Totals
- -----------------------------------------------------------------------------
Net sales:
June 30, 1999 $962.2 $441.3 $19.6 $1,423.1 $1,423.1
June 30, 1998 976.7 385.2 23.1 1,385.0 1,385.0
=============================================================================
EBIT, excluding unusual items:
June 30, 1999 $171.5 $ 86.4 $ 2.0 $ 259.9 $4.7 $ 264.6
June 30, 1998 193.3 75.0 5.0 273.3 1.7 275.0
=============================================================================
Unusual items:
June 30, 1999:
Gains related
to the sales of
two manufactur-
ing facilities $ 40.8 $ 40.8 $ 40.8
Charges related
principally to
restructuring
costs and write-
offs of certain
assets in
Europe and
South America (20.8) (20.8) (20.8)
=============================================================================
The reconciliation of EBIT to consolidated totals for the three month periods
ended June 30, 1999 and 1998 is as follows:
- -----------------------------------------------------------------------------
June 30, 1999 June 30, 1998
- -----------------------------------------------------------------------------
EBIT:
EBIT, excluding unusual items for
reportable segments $259.9 $273.3
Unusual items excluded from reportable
segment information 20.0
Eliminations and other retained 4.7 1.7
Net interest expense (96.1) (90.5)
- -----------------------------------------------------------------------------
Earnings before income taxes, minority
share owners' interests in earnings of
subsidiaries, and extraordinary items $188.5 $184.5
=============================================================================
19
<PAGE>
Financial information for the six month periods ended June 30, 1999 and 1998
regarding the Company's product segments is as follows:
- -----------------------------------------------------------------------------
Elimina-
tions
Total and Consoli-
Glass Plastics Product Other dated
Containers Packaging Other Segments Retained Totals
- -----------------------------------------------------------------------------
Net sales:
June 30, 1999 $1,835.3 $856.6 $38.2 $2,730.1 $2,730.1
June 30, 1998 1,789.1 647.8 46.6 2,483.5 2,483.5
=============================================================================
EBIT, excluding unusual items:
June 30, 1999 $ 311.8 $166.1 $ 3.7 $ 481.6 $1.6 $ 483.2
June 30, 1998 317.1 120.8 8.1 446.0 3.2 449.2
=============================================================================
Unusual items:
June 30, 1999:
Gains related
to the sales of
two manufactur-
ing facilities $ 40.8 $ 40.8 $ 40.8
Charges related
principally to
restructuring
costs and write-
offs of certain
assets in
Europe and
South America (20.8) (20.8) (20.8)
June 30, 1998:
Gain on ter-
mination of
license
agreement $18.5 18.5 18.5
Charges for
restructuring
costs at
certain
international
affiliates (7.8) (7.8) (7.8)
Settlement of
certain
environmental
litigation $(8.5) (8.5)
=============================================================================
20
<PAGE>
The reconciliation of EBIT to consolidated totals for the six month periods
ended June 30, 1999 and 1998 is as follows:
- -----------------------------------------------------------------------------
June 30, 1999 June 30, 1998
- -----------------------------------------------------------------------------
EBIT:
EBIT, excluding unusual items for
reportable segments $481.6 $446.0
Unusual items excluded from reportable
segment information 20.0 10.7
Eliminations and other retained,
excluding unusual items 1.6 3.2
Unusual items excluded from eliminations
and other retained (8.5)
Net interest expense (195.5) (149.8)
- -----------------------------------------------------------------------------
Earnings before income taxes, minority
share owners' interests in earnings of
subsidiaries, and extraordinary items $307.7 $301.6
=============================================================================
21
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations - Second Quarter 1999 compared with Second Quarter 1998
The Company recorded earnings before extraordinary items of $110.9 million for
the second quarter of 1999 compared to $115.0 million for the second quarter
of 1998, a decrease of $4.1 million, or 3.6%. Excluding the effects of the
1999 unusual items discussed below, the Company's second quarter 1999 earnings
before extraordinary items of $101.3 million decreased $13.7 million, or
11.9%, from 1998 second quarter earnings before extraordinary items of $115.0
million. The second quarters of 1999 and 1998 include amounts relating to the
April 30, 1998 acquisition of the worldwide glass and plastics packaging
businesses of BTR plc. Consolidated EBIT for the second quarter of 1999,
excluding unusual items, was $264.6 million, a decrease of $10.4 million, or
3.8%, compared to second quarter of 1998 EBIT of $275.0 million. The decrease
is attributable to lower EBIT for the Glass Containers segment. The decrease
in minority share owners' interests in earnings of subsidiaries resulted from
lower net earnings of certain foreign affiliates, principally the affiliate
located in Colombia. Net earnings of $100.9 million for the second quarter of
1998 reflect $14.1 million of extraordinary charges from the early
extinguishment of debt.
Capsule segment results (in millions of dollars) for the second quarter of
1999 and 1998 were as follows:
- ----------------------------------------------------------------------------
Net sales
(Unaffiliated customers) EBIT (a)
- ----------------------------------------------------------------------------
1999 1998 1999 1998
-------- -------- -------- --------
Glass Containers $ 962.2 $ 976.7 $ 191.5(b) $ 193.3
Plastics Packaging 441.3 385.2 86.4 75.0
Other 19.6 23.1 2.0 5.0
- ----------------------------------------------------------------------------
Segment totals 1,423.1 1,385.0 279.9 273.3
Eliminations and other
retained costs 4.7 1.7
- ----------------------------------------------------------------------------
Consolidated totals $1,423.1 $1,385.0 $ 284.6 $ 275.0
============================================================================
(a) EBIT consists of consolidated earnings before interest income, interest
expense, provision for income taxes, minority share owners' interests in
earnings of subsidiaries, and extraordinary items.
(b) EBIT for 1999 includes: (1) gains totaling $40.8 million related to the
sales of a U.S. glass container plant and a mold manufacturing business
in Colombia, and (2) charges totaling $20.8 million related principally
to restructuring costs and write-offs of certain assets in Europe and
South America.
22
<PAGE>
Consolidated net sales for the second quarter of 1999 increased $38.1 million,
or 2.8%, over the prior year. Net sales of the Glass Containers segment
decreased $14.5 million, or 1.5%, from 1998. The combined U.S. dollar sales
of the segment's foreign affiliates decreased over the prior year.
Contributions of the Asia Pacific glass container businesses acquired from BTR
on April 30, 1998 (an increase of approximately $50 million from second
quarter 1998 to second quarter 1999) were more than offset by weak economic
conditions in markets served by the Company's operations in Latin America and
Europe. The effect of foreign currency movements reduced the second quarter
1999 U.S. dollar sales of the segment's foreign affiliates by approximately
$30 million in comparison to second quarter 1998. Domestically, sales from
increased shipments of containers for beer producers partially offset lower
shipments of certain food containers and the adverse year to year comparative
effects resulting from the April 1, 1999 sale of a specialized glass
manufacturing facility. Net sales of the Plastics Packaging segment increased
$56.1 million, or 14.6%, over 1998, reflecting the plastics businesses
acquired on April 30, 1998 from BTR (an increase of approximately $48 million
from second quarter 1998 to second quarter 1999), and increased unit shipments
of closures and health care and personal care containers, partially offset by
the effects of lower resin costs on pass-through arrangements with customers.
Excluding the effect of the 1999 unusual items, segment EBIT for 1999
decreased $13.4 million, or 4.9%, to $259.9 million from 1998 segment EBIT of
$273.3 million. EBIT of the Glass Containers segment, excluding the 1999
unusual items, decreased $21.8 million to $171.5 million, compared to $193.3
million in 1998. EBIT of the Asia Pacific glass container businesses acquired
from BTR on April 30, 1998 increased approximately $9 million from second
quarter 1998 to second quarter 1999. The contributions of the acquired
businesses were more than offset by soft market conditions for most of the
affiliates located in Europe and Latin America. The adverse economic
conditions in Latin America and Eastern Europe and the weaker than normal
conditions in other parts of Europe are continuing into the third quarter. As
a result, third quarter 1999 operating results of the Company's affiliates
located in these geographic areas may be below those reported in the same 1998
period. Domestically, Glass Container EBIT increased from 1998 as a result of
increased shipments of beer, food and liquor containers. The EBIT of the
Plastics Packaging segment increased $11.4 million, or 15.2%, compared to
1998. Contributing to this increase were the plastics businesses acquired on
April 30, 1998 from BTR (an increase of approximately $6 million from second
quarter 1998 to second quarter 1999), increased shipments of closures, and
strong demand for health care and personal care containers.
The second quarter of 1999 results include the following unusual items: (1)
gains totaling $40.8 million ($23.6 million after tax and minority share
owners' interests) related to the sales of a U.S. glass container plant and a
mold manufacturing business in Colombia, and (2) charges totaling $20.8
million ($14.0 million after tax and minority share owners' interests) related
principally to restructuring costs and write-offs of certain assets in Europe
and South America.
23
<PAGE>
First Six Months 1999 compared with First Six Months 1998
For the first six months of 1999, the Company recorded earnings before
extraordinary items of $180.2 million compared to $195.4 million for the first
six months of 1998. Excluding the effects of unusual items for both 1999 and
1998, the Company's first six months of 1999 earnings before extraordinary
items of $170.6 million decreased $8.4 million, or 4.7%, from 1998 first six
months earnings before extraordinary items of $179.0 million. The first six
months of 1999 and 1998 includes amounts relating to the April 30, 1998
acquisition of the worldwide glass and plastics packaging businesses of BTR
plc. Consolidated EBIT, excluding both the 1999 and 1998 unusual items, was
$483.2 million for the first six months of 1999, an increase of $34.0 million,
or 7.6%, compared to $449.2 million for the same 1998 period. The increase is
attributable to higher EBIT for the Plastics Packaging segment. Interest
expense, net of interest income, increased $45.7 million from the 1998 period
due principally to the financings related to the acquisition of the BTR glass
and plastics packaging businesses. The decrease in minority share owners'
interests in earnings of subsidiaries resulted from lowated in Colombia.
The Company's estimated effective tax rate for the first six months of 1999
was 38.5%. This compares with an estimated rate of 35.1% for the first six
months of 1998 and the actual rate of 37.3% for the full year 1998, excluding
the effects of the adjustment to Italy's net deferred income tax liabilities
discussed below and other unusual items. Increased goodwill amortization
resulting from the acquisition of the former BTR packaging businesses is the
primary reason for the 1999 increase. Net earnings of $181.3 million for the
second quarter of 1998 reflect $14.1 million of extraordinary charges from the
early extinguishment of debt.
Capsule segment results (in millions of dollars) for the first six months of
1999 and 1998 were as follows:
- ----------------------------------------------------------------------------
Net sales
(Unaffiliated customers) EBIT (a)
- ----------------------------------------------------------------------------
1999 1998 1999 1998 (c)
-------- -------- -------- --------
Glass Containers $1,835.3 $1,789.1 $ 331.8(b) $ 309.3
Plastics Packaging 856.6 647.8 166.1 120.8
Other 38.2 46.6 3.7 26.6
- ----------------------------------------------------------------------------
Segment totals 2,730.1 2,483.5 501.6 456.7
Eliminations and other
retained costs 1.6 (5.3)
- ----------------------------------------------------------------------------
Consolidated totals $2,730.1 $2,483.5 $ 503.2 $ 451.4
============================================================================
(a) EBIT consists of consolidated earnings before interest income, interest
expense, provision for income taxes, minority share owners' interests in
earnings of subsidiaries, and extraordinary items.
24
<PAGE>
(b) EBIT for 1999 includes: (1) gains totaling $40.8 million related to the
sales of a U.S. glass container plant and a mold manufacturing business
in Colombia, and (2) charges totaling $20.8 million related principally
to restructuring costs and write-offs of certain assets in Europe and
South America. These items were recorded in the second quarter of 1999.
(c) EBIT for 1998 includes: (1) a gain of $18.5 million related to the
termination of a licensing agreement, net of charges for related
equipment writeoffs and capacity adjustments, and (2) charges totaling
$16.3 million for the settlement of certain environmental litigation and
severance costs at certain international affiliates. These items
increased (decreased) EBIT as follows: Glass Containers, $(7.8) million;
Other, $18.5 million; and Eliminations and other retained, $(8.5)
million. These items were recorded in the first quarter of 1998.
Consolidated net sales for the first six months of 1999 increased $246.6
million, or 9.9%, over the prior year. Net sales of the Glass Containers
segment increased $46.2 million, or 2.6%, over 1998. The combined U.S. dollar
sales of the segment's foreign affiliates increased over the prior year,
reflecting the Asia Pacific glass container businesses acquired from BTR on
April 30, 1998 (an increase of approximately $185 million from first six
months 1998 to first six months 1999). This increase was partially offset by
weak economic conditions in markets served by the Company's operations in
Latin America and Europe. The effect of foreign currency movements reduced
the first six months of 1999 U.S. dollar sales of the segment's foreign
affiliates by approximately $55 million in comparison to the first six months
of 1998. Domestically, increased glass container units shipments of
containers for the beer industry partially offset the adverse year to year
comparative effects of the April 1, 1999 sale of a specialized glass
manufacturing facility and lower shipments of food containers. Net sales of
the Plastics Packaging segment increased $208.8 million, or 32.2%, over 1998,
reflecting the plastics businesses acquired on April 30, 1998 from BTR (an
increase of approximately $190 million from first six months 1998 to first six
months 1999), and increased unit shipments of closures and prescription
containers, partially offset by the effects of lower resin costs on pass-
through arrangements with customers.
Segment EBIT for the first six months of 1999, excluding the 1999 and 1998
unusual items, increased $35.6 million, or 8.0%, to $481.6 million from first
six months 1998 segment EBIT of $446.0 million. EBIT of the Glass Containers
segment, excluding the 1999 and 1998 unusual items, decreased $5.3 million to
$311.8 million, compared to $317.1 million in the first six months of 1998.
EBIT of the Asia Pacific glass container businesses acquired from BTR on April
30, 1998 increased approximately $44 million from first six months of 1998 to
first six months of 1999. The contributions of the acquired businesses were
more than offset by soft market conditions for most of the affiliates located
in Europe and Latin America. The adverse economic conditions in Latin America
and Eastern Europe and the weaker than normal conditions in other parts of
Europe are continuing into the third quarter. Domestically, Glass Container
EBIT increased from the first six months of 1998 as a result of increased unit
shipments and an improved cost structure. The EBIT of the Plastics Packaging
segment increased $45.3 million, or 37.5%, compared to the first six months of
25
<PAGE>
1998. Contributing to this increase were the plastics businesses acquired on
April 30, 1998 from BTR (an increase of approximately $28 million from first
six months 1998 to first six months 1999), increased shipments of closures for
beverage and health care products, and strong demand for prescription
packaging, including the new 1-Clic(TM) prescription vial. The Other segment
EBIT comparison to prior year, excluding the 1998 unusual item, was adversely
affected by the end of the first quarter 1998 termination of a license
agreement under which the Company had produced plastic multipack carriers for
beverage cans, and lower shipments of labels.
The first six months of 1998 results include the following unusual items: (1)
a tax benefit of $15.1 million to adjust net deferred income tax liabilities
as a result of a reduction in Italy's statutory income tax rate; (2) a gain of
$18.5 million ($11.4 million aftertax) related to the termination of a license
agreement, net of charges for related equipment writeoffs and capacity
adjustments, under which the Company had produced plastic multipack carriers
for beverage cans; and (3) charges of $16.3 million ($10.1 million aftertax)
for the settlement of certain environmental litigation and severance costs at
certain international affiliates.
Capital Resources and Liquidity
The Company's total debt at June 30, 1999 was $5.74 billion, compared to $5.92
billion at December 31, 1998 and $5.93 billion at June 30, 1998.
At June 30, 1999, the Company had available credit totaling $4.5 billion under
its agreement with a group of banks ("Bank Credit Agreement") expiring in
December 2001, of which $831.4 million had not been utilized. At December 31,
1998, the Company had $731.0 million of credit which had not been utilized
under the Bank Credit Agreement. Cash provided by operating activities was
$134.1 million for the first six months of 1999 compared to $174.9 million for
the first six months of 1998.
The Company anticipates that cash flow from its operations and from utiliza-
tion of credit available through December 2001 under the Bank Credit Agreement
will be sufficient to fund its operating and seasonal working capital needs,
debt service and other obligations. The Company faces additional demands upon
its liquidity for asbestos-related payments. Based on the Company's expecta-
tions regarding favorable trends which should lower its aggregate payments for
lawsuits and claims and its expectation of the collection of its insurance
coverage and reimbursement for such lawsuits and claims, and also based on the
Company's expected operating cash flow, the Company believes that the payment
of any deferred amounts of previously settled or otherwise determined lawsuits
and claims, and the resolution of presently pending and anticipated future
lawsuits and claims associated with asbestos, will not have a material adverse
effect upon the Company's liquidity on a short-term or long-term basis.
In May 1999, the Company announced that its Board of Directors authorized
management to repurchase up to 10 million shares of the Company's common
stock. The Company did not repurchase any of its shares during the second
quarter of 1999, but does intend to repurchase stock from time to time on the
open market depending on market conditions and other considerations. The
26
<PAGE>
Company believes that cash flows from its operations and from utilization of
credit available under the Bank Credit Agreement will be sufficient to fund
such repurchases in addition to the obligations mentioned in the previous
paragraph.
Year 2000
General
- -------
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations or a temporary inability to engage in normal
business activities. The Company uses a significant number of computer
software programs and operating systems across its entire organization,
including applications used in financial business systems, manufacturing, and
various administrative functions. To the extent that the Company's software
applications contain source code that is unable to appropriately interpret the
upcoming calendar year 2000 and beyond, modification, replacement, or retire-
ment of such applications will be necessary. The Company has determined that
it will be required to modify or replace portions of its software and hardware
so that the affected systems will properly utilize dates beyond December 31,
1999.
Project
- -------
The Company has undertaken a Year 2000 Project (the "Project") to identify and
mitigate Year 2000 compliance issues in its critical information technology
("IT") and non-IT systems. Such systems include manufacturing information
systems, process control and embedded systems, business applications, and
information technology infrastructure. The general phases of the Project are:
(1) inventorying/identification of Year 2000 items and issues; (2) assessment
and solution definition; (3) remediation/conversion of Year 2000 items and
issues identified; (4) acceptance testing; and (5) implementation. The
results of the assessment and solution definition phase to date has indicated
that certain of the Company's significant systems are not Year 2000 compliant.
The results have also indicated that certain software and hardware (embedded
chips) used in building and machine maintenance, production, and manufacturing
systems also are at risk.
The Company has completed the inventorying/identification and the assessment
and solution definition phases of the Project. Activities involving the
phases of remediation/conversion and acceptance testing are nearing
completion, while the implementation phase is ongoing and will continue into
the second half of calendar year 1999. The Company expects to have its
critical IT and non-IT systems Year 2000 compliant by October 1999.
The Company relies on numerous third-party vendors and suppliers for a wide
variety of goods and services, including raw materials, transportation, and
utilities such as electricity and natural gas. The Project includes identify-
27
<PAGE>
ing and prioritizing critical suppliers and customers and communicating with
them about their plans and progress in addressing Year 2000 compliance issues.
Information requests have been distributed and replies are being evaluated.
The replies received to date indicate that most suppliers, vendors and
customers will not provide any assurance that they will be Year 2000 compli-
ant. The process of evaluating the Company's critical suppliers is ongoing
and scheduled for completion by September 1999. The Company cannot be certain
when or if suppliers and customers will be Year 2000 compliant. Although it
is not presently expected, the inability of customers and suppliers to
complete their Year 2000 compliance efforts in a timely fashion could
materially impact the Company.
Costs
- -----
The Company is utilizing both internal and external resources to reprogram or
replace, test, and implement the software and equipment for Year 2000 modifi-
cations. The total cost associated with the Project, including certain
previously scheduled replacements of software and equipment which have been
accelerated due to Year 2000 issues, is estimated to be approximately $75
million and is being funded through operating cash flows. The majority of
these costs are attributable to the purchase of new software and operating
equipment, and will therefore, be capitalized. To date, the Company has
incurred approximately $45 million related to all phases of the Project.
Risks
- -----
The Project undertaken by the Company is expected to significantly reduce the
Company's level of uncertainty about Year 2000 compliance issues. As
previously noted, the Company has not yet completed all necessary phases of
the Project. The failure to correct a Year 2000 compliance issue could result
in an interruption in, or a failure of, certain normal business activities or
operations. Although it is not presently expected, such failures could
materially and adversely affect the Company's results of operations,
liquidity, and financial condition. Due to the general uncertainty inherent
in Year 2000 compliance issues, resulting in part from the uncertainty of Year
2000 readiness of third-party suppliers and customers, the Company is unable
to determine at this time the consequences of Year 2000 failures on the
Company's results of operations, liquidity, or financial condition.
Contingency Plans
- -----------------
The Company is developing contingency plans for certain of its applications.
Those contingency plans involve, among other actions, manual workarounds,
increasing inventories, adjusting staffing strategies, and planned shutdowns
of non-critical equipment prior to January 1, 2000. Actions related to the
development of contingency plans have not been completed as the necessity of
such contingency plans depend upon the progress of Year 2000 compliance
efforts.
28
<PAGE>
The foregoing statements as to costs and dates relating to the Project are
forward looking and are made in reliance on the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. They are based on the
Company's best estimates which may be updated as additional information
becomes available. The Company's forward looking statements are also based on
assumptions about many important factors, including the availability of
certain resources, the technical skills of employees and independent
contractors, the representations and preparedness of third parties, the
ability of vendors and suppliers to deliver goods or perform services required
by the Company and the collateral effects of Year 2000 compliance issues on
the Company's business partners and customers. While the Company believes its
assumptions are reasonable, it cautions that it is impossible to predict the
impact of certain factors that could cause actual costs or timetables to
differ materially from the expected results. No assurance can be given that
these estimates will be achieved, or that there will not be a delay in, or
increased costs associated with, the Project.
Introduction of Euro Currency
On January 1, 1999, a new currency called the "euro" was introduced in eleven
of the fifteen Economic and Monetary Union ("EMU") countries. The Company has
affiliates located in the following countries which participated in the euro
introduction: Finland, Italy, the Netherlands, and Spain. In addition, the
Company transacts business in other countries in which the euro has been
introduced. The Company has initiated an assessment of the potential impact
that the euro introduction will have on its information systems, financial
reporting, banking facilities, purchases and the sale of its products. Based
upon the assessment to date, the Company does not believe the conversion to
the euro and the cost of implementing required system changes will be material
to the Company's consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
The Bank Credit Agreement provides, among other things, a $1.75 billion
offshore revolving loan facility which is available to certain of the
Company's foreign subsidiaries and denominated in certain foreign currencies.
For further information about the facility and related foreign currency loan
amounts outstanding, see Note 3 to the financial statements.
Cautionary Statement Concerning Forward-Looking Statements.
Management's Discussion and Analysis of Financial Condition and Results of
Operations may contain forward looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
projected. Forward looking statements are necessarily projections which are
subject to change upon the occurrence of events that may affect the business.
In addition, acquisitions involve a number of risks that can cause actual
results to be materially different from expected results.
29
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
(a) Contingencies. Note 9 to the Condensed Consolidated Financial
Statements, "Contingencies," that is included in Part I of this Report, is
incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Owens-Illinois' share owners was held on May 12, 1999.
Each of the three nominees for a three-year term on the Company's Board of
Directors was elected by vote of the share owners as follows:
Broker
Name For Withheld Abstention Non-Votes
- --------------------- ----------- --------- ---------- ---------
Edward A. Gilhuly 141,383,535 2,242,161 1,930,853 -
Robert J. Lanigan 134,446,948 9,178,748 1,930,853 -
John J. McMackin, Jr. 141,688,549 1,937,147 1,930,853 -
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit 10.1 Amended and Restated 1997 Equity Participation
Plan of Owens-Illinois, Inc.
Exhibit 10.2 Form of Restricted Stock Agreement for use under
the Amended and Restated 1997 Equity
Participation Plan of Owens-Illinois, Inc.
Exhibit 10.3 Form of Phantom Stock Agreement for use under the
Amended and Restated 1997 Equity Participation
Plan of Owens-Illinois, Inc.
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
and Earnings to Combined Fixed Charges and
Preferred Stock Dividends.
Exhibit 23 Consent of McCarter & English, LLP.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant
during the second quarter of 1999.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OWENS-ILLINOIS, INC.
Date August 13, 1999 By /s/ David G. Van Hooser
--------------- ----------------------------------------------
David G. Van Hooser, Senior Vice President and
Chief Financial Officer (Principal Financial
Officer)
31
<PAGE>
INDEX TO EXHIBITS
Exhibits
- --------
10.1 Amended and Restated 1997 Equity Participation Plan of Owens-
Illinois, Inc.
10.2 Form of Restricted Stock Agreement for use under the Amended and
Restated 1997 Equity Participation Plan of Owens-Illinois, Inc.
10.3 Form of Phantom Stock Agreement for use under the Amended and
Restated 1997 Equity Participation Plan of Owens-Illinois, Inc.
12 Computation of Ratio of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends
23 Consent of McCarter & English, LLP
27 Financial Data Schedule
32
<PAGE>
Exhibit 10.1
AMENDED AND RESTATED
1997 EQUITY PARTICIPATION PLAN
OF
OWENS-ILLINOIS, INC.
OWENS-ILLINOIS, INC., a Delaware corporation, hereby amends and
restates in its entirety the 1997 Equity Participation Plan of Owens-Illinois,
Inc. (the "Plan"), which was adopted effective May 14, 1997 and amended
effective December 19, 1997. The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of
the Company by providing additional incentives to certain of its key Employees
(as defined hereunder) who have been or will be given responsibility for the
management or administration of the Company's business affairs, by assisting
them to become owners of capital stock of the Company and thus to benefit
directly from its growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
the type of professional, technical and managerial employees considered
essential to the long-range success of the Company by providing and offering
them an opportunity to become owners of capital stock of the Company under
options, including options that are intended to qualify as "incentive stock
options" under Section 422 of the Code (as defined hereunder).
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter and the
singular shall include the plural, where the context so indicates.
Section 1.1 - Additional Option
"Additional Option" means an Option granted to an Optionee to
purchase a number of shares of Common Stock equal to the number of shares of
Common Stock tendered or relinquished by the Optionee in payment of the
exercise price upon exercise of an Option and/or the number of shares of
Common Stock tendered or relinquished in payment of the amount to be withheld
under applicable federal, state and local income tax laws in connection with
the exercise of an option as described in Article VI.
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Section 1.2 - Additional Option Feature
"Additional Option Feature" means a feature of an Option that
provides for the automatic grant of an Additional Option in accordance with
the provisions described in Article VI.
Section 1.3 - Award
"Award" shall mean an Option, Restricted Stock or Phantom Stock
Unit granted under this Plan.
Section 1.4 - Award Limit
"Award Limit" shall mean 500,000 shares of Common Stock or, as the
context may require, Options to acquire 500,000 shares of Common Stock or
Phantom Stock Units which, when vested, would result in the issuance of
500,000 shares of Common Stock.
Section 1.5 - Board
"Board" shall mean the Board of Directors of the Company.
Section 1.6 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.7 - Committee
"Committee" shall mean the Compensation Committee of the Board,
appointed as provided in Section 9.1
Section 1.8 - Common Stock
"Common Stock" shall mean the Company's common stock, $.01 par
value.
Section 1.9 - Company
"Company" shall mean Owens-Illinois, Inc. In addition, "Company"
shall mean any corporation assuming, or issuing new employee stock options in
substitution for, Incentive Stock Options, outstanding under the Plan, in a
transaction to which Section 424(a) of the Code applies.
Section 1.10 - Director
"Director" shall mean a member of the Board.
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Section 1.11 - Employee
"Employee" shall mean any employee (as defined in accordance with
the regulations and revenue rulings then applicable under Section 3401(c) of
the Code) of the Company, or of any corporation which is then a Parent
Corporation or a Subsidiary, whether such employee is so employed at the time
this Plan is adopted or becomes so employed subsequent to the adoption of this
Plan.
Section 1.12 - Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.13 - Fair Market Value
"Fair Market Value" of a share of the Company's stock as of a
given date shall be: (i) the closing price of a share of the Company's stock
on the principal exchange on which shares of the Company's stock are then
trading, if any, on the day previous to such date, or, if shares were not
traded on the day previous to such date, then on the next preceding trading
day during which a sale occurred; or (ii) if such stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, (1) the last
sales price (if the stock is then listed as a National Market Issue under the
NASD National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on the
day previous to such date as reported by NASDAQ or such successor quotation
system; or (iii) if such stock is not publicly traded on an exchange and not
quoted on NASDAQ or a successor quotation system, the mean between the closing
bid and asked prices for the stock, on the day previous to such date, as
determined in good faith by the Committee; or (iv) if the Company's stock is
not publicly traded, the fair market value established by the Committee acting
in good faith.
Section 1.14 - Incentive Stock Option
"Incentive Stock Option" shall mean an Option which qualifies
under Section 422 of the Code and which is designated as an Incentive Stock
Option by the Committee.
Section 1.15 - Non-Qualified Option
"Non-Qualified Option" shall mean an Option which is not an
Incentive Stock Option and which is designated as a Non-Qualified Option by
the Committee.
Section 1.16 - Officer
"Officer" shall mean an officer of the Company, as defined in
Rule 16a-1(f) under the Securities Exchange Act of 1934, as such Rule may be
amended in the future.
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Section 1.17 - Option
"Option" shall mean an option to purchase capital stock of the
Company, granted under the Plan. "Options" includes both Incentive Stock
Options and Non-Qualified Options.
Section 1.18 - Optionee
"Optionee" shall mean an Employee to whom an Option or Restricted
Stock, as the case may be, is granted under the Plan.
Section 1.19 - Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken
chain of corporations ending with the Company if each of the corporations
other than the Company then owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
Section 1.20 - Phantom Stock Units
"Phantom Stock Units" shall mean units of Phantom Stock awarded
under Article VIII of this Plan.
Section 1.21 - Phantom Stock Agreement
"Phantom Stock Agreement" shall mean Phantom Stock Agreement as
provided in Section 8.2.
Section 1.22 - Plan
"Plan" shall mean this 1997 Equity Participation Plan of Owens-
Illinois, Inc.
Section 1.23 - Restricted Stock
"Restricted Stock" shall mean Common Stock awarded under Article
VII of this Plan.
Section 1.24 - Restricted Stock Agreement
"Restricted Stock Agreement" shall mean Restricted Stock Agreement
as provided in Section 7.2.
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Section 1.25 - Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended in the future.
Section 1.26 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.27 - Section 162(m) Participant
"Section 162(m) Participant" shall mean any key Employee
designated by the Committee as a key Employee whose compensation for the
fiscal year in which the key Employee is so designated or a future fiscal year
may be subject to the limit on deductible compensation imposed by Section
162(m) of the Code.
Section 1.28 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.29 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. "Subsidiary" shall also mean any
partnership in which the Company and/or any Subsidiary owns more than 50% of
the capital or profits interests.
Section 1.30 - Termination of Employment
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee or holder of Restricted
Stock or Phantom Stock Units and the Company, a Parent Corporation or a
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
total disability or retirement, but excluding (i) terminations where there is
a simultaneous reemployment by the Company, a Parent Corporation or a
Subsidiary or (ii) except with respect to an Incentive Stock Option,
terminations where the Optionee or holder of Restricted Stock or Phantom Stock
Units continues a relationship (e.g., as a director or as a consultant) with
the Company, a Parent Corporation or a Subsidiary. The Committee, in its
absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment resulted from
a discharge for good cause, and all questions of whether particular leaves of
absence constitute Terminations of Employment; provided, however, that, with
respect to Incentive Stock Options, a leave of absence shall constitute a
Termination of Employment if, and to the extent that, such leave of absence
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interrupts employment for the purposes of Section 422(a)(2) of the Code and
the then applicable regulations and revenue rulings under said Section.
Notwithstanding any other provision of this Plan, the Company or any of its
subsidiaries has an absolute and unrestricted right to terminate the
Optionee's or holder of Restricted Stock's or Phantom Stock Units' employment
at any time for any reason whatsoever, with or without cause.
Section 1.31 - Transferable Option
"Transferable Option" means a Non-Qualified Option which by its
terms, as determined by the Committee and set forth in the applicable Option
Agreement (or an amendment thereto), may be transferred by the Optionee, in
writing and with written notice thereof to the Committee, by gift, without the
receipt of any consideration, (i) to such Optionee's spouse; (ii) to any child
or more remote lineal descendant of such Optionee or to the spouse of any such
child or more remote lineal descendant; or (iii) to any trust, custodianship,
or other similar fiduciary relationship maintained for the benefit of any one
or more of such persons, but is otherwise nontransferable except by will or
the applicable laws of descent and distribution.
Section 1.32 - Transferee
"Transferee" shall mean any person or entity to whom or to which
an Optionee has transferred a Transferable Option.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
(a) The shares of stock subject to Options, awards of Restricted
Stock and issuance upon the vesting of Phantom Stock Units shall be shares of
the Company's $.01 par value Common Stock. The aggregate number of such
shares which may be issued upon exercise of such Options or the vesting of
Phantom Stock Units or upon any such awards of Restricted Stock shall not
exceed 10,000,000. For purposes of determining the number of shares of Common
Stock that may be sold under the Plan, such number shall increase by the
number of shares tendered or relinquished to the Corporation (a) in connection
with the exercise of an Option or (b) in payment of federal, state and local
income tax withholding liabilities upon exercise of an Option or award or
vesting of Restricted Stock or Phantom Stock Units.
(b) The maximum number of shares which may be subject to Awards
granted under the Plan to any Employee in any calendar year shall not exceed
the Award Limit.
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Section 2.2 - Unexercised Options
If any Option expires or is cancelled without having been fully
exercised, the number of shares subject to such Option but as to which such
Option was not exercised prior to its expiration or cancellation may again be
granted hereunder, subject to the limitations of Section 2.1. If any
Restricted Stock is repurchased by the Company or forfeited in connection with
a Termination of Employment or otherwise, the number of shares repurchased or
forfeited may again be granted hereunder, subject to the limitations of
Section 2.1.
Section 2.3 - Changes in Company's Shares
In the event that the outstanding shares of Common Stock of the
Company are hereafter changed into or exchanged for a different number or kind
of shares or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, or the number of shares is increased or decreased by reason
of a stock split-up, stock dividend, combination of shares or any other
increase or decrease in the number of such shares of Common Stock effected
without receipt of consideration by the Company (provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration"), the Committee shall
make appropriate adjustments in the number and kind of shares for the purchase
of which Options may be granted, which may be granted as Restricted Stock or
which may be issued upon the vesting of Phantom Stock Units, including
adjustments of the limitations in Section 2.1 on the maximum number and kind
of shares which may be issued on exercise of Options, the vesting of Phantom
Stock Units and for the grants of Restricted Stock, and of the Award Limit set
forth in Section 1.4.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Any key Employee of the Company or of any corporation which is
then a Parent Corporation or a Subsidiary shall be eligible to be granted
Options, except as provided in Section 3.2.
Section 3.2 - Qualification of Incentive Stock Options
No Incentive Stock Option shall be granted unless such Option,
when granted, qualifies as an "incentive stock option" under Section 422 of
the Code.
Section 3.3 - Granting of Options
(a) The Committee shall from time to time, in its absolute
discretion:
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(i) Determine which Employees are key Employees and select
from among the key Employees (including those to whom Options have been
previously granted under the Plan) such of them as in its opinion should
be granted Options; and
(ii) Determine the number of shares to be subject to such
Options granted to such selected key Employees, and determine whether
such Options are to be Incentive Stock Options or Non-Qualified Options;
and
(iii) Determine the terms and conditions of such
Options, consistent with the Plan, including, but not limited to:
(A) such terms and conditions as may be required
in order for such Options to qualify as performance-
based compensation as described in Section 162(m)-
(4)(C) of the Code if the Committee determines that
such Options should so qualify; and/or
(B) such terms and conditions as may be required
in order to make a Non-Qualified Option a Transferable
Option.
(b) Upon the selection of a key Employee to be granted an Option,
the Committee shall instruct the Secretary to issue such Option and may impose
such conditions on the grant of such Option as it deems appropriate. Without
limiting the generality of the preceding sentence, the Committee may, in its
discretion and on such terms as it deems appropriate, require as a condition
on the grant of an Option to an Employee that the Employee surrender for
cancellation some or all of the unexercised Options which have been previously
granted to him. An Option the grant of which is conditioned upon such
surrender may have an Option price lower (or higher) than the Option price of
the surrendered Option, may cover the same (or a lesser or greater) number of
shares as the surrendered Option, may contain such other terms as the
Committee deems appropriate and shall be exercisable in accordance with its
terms, without regard to the number of shares, price, Option period or any
other term or condition of the surrendered Option.
ARTICLE IV
TERMS OF OPTIONS
Section 4.1 - Option Agreement
Each Option shall be evidenced by a written Stock Option
Agreement, which shall be executed by the Optionee and an authorized Officer
of the Company and which shall contain such terms and conditions as the
Committee shall determine, consistent with the Plan, including, but not
limited to such terms and conditions as may be required in order for such
Option to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code if the Committee determines that such Option should
so qualify. Stock Option Agreements evidencing Incentive Stock Options shall
contain such terms and conditions as may be necessary to qualify such Options
as "incentive stock options" under Section 422 of the Code. Stock Option
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Agreements evidencing Transferable Options shall contain (or may be amended to
contain) such terms and conditions as may be necessary to meet the definition
of a Transferable Option under Section 1.31 hereof.
Section 4.2 - Option Price
The price of the shares subject to each Option shall be set by the
Committee; provided, however, that the price per share shall be not less than
100% of the Fair Market Value of such shares on the date such Option is
granted; provided, further, that, in the case of an Incentive Stock Option,
the price per share shall not be less than 110% of the Fair Market Value of
such shares on the date such Option is granted in the case of an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10%
of the total combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation.
Section 4.3 - Commencement of Exercisability
(a) No Option may be exercised in whole or in part during the
first year after such Option is granted, except as may be provided in Sections
4.3(c) and 4.6.
(b) Subject to the provisions of Sections 4.3(a), 4.3(c), 4.3(d),
4.6 and 10.4, Options shall become exercisable at such times and in such
installments (which may be cumulative) as the Committee shall provide in the
terms of each individual Option; provided, however, that by a resolution
adopted after an Option is granted the Committee may, on such terms and
conditions as it may determine to be appropriate and subject to Sections
4.3(a), 4.3(c), 4.3(d), 4.6 and 9.4, accelerate the time at which such Option
or any portion thereof may be exercised.
(c) No portion of an Option which is unexercisable at Termination
of Employment shall thereafter become exercisable; provided, however, that
provision may be made that such Option shall become exercisable in the event
of a Termination of Employment because of the Optionee's retirement or total
disability (each as determined by the Committee in accordance with Company
policies) or death; and provided further, that in the event the Committee
extends the right of an Optionee to exercise his or her Option pursuant to
Section 4.4(a)(vii) below, the Committee may also provide that such Option
shall become exercisable immediately, or in accordance with the schedule of
exercisability which would be applicable to such Option but for the Optionee's
Termination of Employment, or in accordance with any other schedule determined
in the Committee's discretion.
(d) To the extent that the aggregate Fair Market Value of stock
with respect to which "incentive stock options" (within the meaning of Section
422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year (under
the Plan and all other incentive stock option plans of the Company, any
Subsidiary and any Parent Corporation) exceeds $100,000, such options shall be
taxed as Non-Qualified Options. The rule set forth in the preceding sentence
shall be applied by taking options into account in the order in which they
were granted. For purposes of this Section 4.3(d), the Fair Market Value of
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stock shall be determined as of the time the option with respect to such stock
is granted.
Section 4.4 - Expiration of Options
(a) No Option may be exercised to any extent by anyone after the
first to occur of the following events:
(i) In the case of an Incentive Stock Option, (A) the
expiration of ten years from the date the Option was granted, or (B) in
the case of an Optionee owning (within the meaning of Section 424(d) of
the Code), at the time the Option was granted, more than 10% of the
total combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation, the expiration of five years from
the date the Option was granted; or
(ii) In the case of a Non-Qualified Option, the expiration
of ten years and one day from the date the Option was granted; or
(iii) Except as provided in clauses (iv) through (viii)
below, the date of the Optionee's Termination of Employment; or
(iv) In the case of an Optionee who is totally disabled
(within the meaning of Section 22(e)(3) of the Code for purposes of an
Incentive Stock Option, or otherwise as determined by the Committee in
accordance with Company policies), the expiration of one year from the
date of the Optionee's Termination of Employment by reason of his or her
disability unless the Optionee dies within said one-year period; or
(v) In the case of an Optionee who retires after reaching
the Company's normal retirement age or who takes early retirement, the
expiration of three months from the date of Optionee's Termination of
Employment by reason of such retirement, or in the case of any such
retiring Optionee whose right to exercise his or her Option is extended
by the Committee, which extension shall not exceed three years from the
date of Optionee's Termination of Employment, the date upon which such
extension expires; or
(vi) The expiration of one year from the date of the
Optionee's death; or
(vii) In the case of an Optionee who is discharged not for
good cause, the expiration of three months from the Optionee's
Termination of Employment unless the Optionee dies within said three-
month period; or
(viii) In the case of any Optionee whose right to exercise
his or her Option is extended by the Committee, which extension shall
not exceed three years from the date of Optionee's Termination of
Employment, the date upon which such extension expires.
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(b) Subject to the provisions of Section 4.4(a), the Committee
shall provide, in the terms of each individual Option, when such Option
expires and becomes unexercisable; and (without limiting the generality of the
foregoing) the Committee may provide in the terms of individual Options that
said Options expire immediately upon a Termination of Employment; provided,
however, that provision may be made that such Option shall become exercisable
in the event of a Termination of Employment because of the Optionee's
retirement (as determined by the Committee in accordance with Company
policies), total disability (within the meaning of Section 22(e)(3) of the
Code for purposes of an Incentive Stock Option, or otherwise as determined by
the Committee in accordance with Company policies) or death; and provided
further, that in the event the Committee extends the right of an Optionee to
exercise his or her Option pursuant to Section 4.4(a)(vii) above, the
Committee may also provide that such Option shall become exercisable
immediately, or in accordance with the schedule of exercisability which would
be applicable to such Option but for the Optionee's Termination of Employment,
or in accordance with any other schedule determined in the Committee's
discretion.
Section 4.5 - Consideration
In consideration of the granting of an Option, the Optionee shall
agree, in the written Stock Option Agreement, to remain in the employ of the
Company, a Parent Corporation or a Subsidiary for a period of at least one
year after the Option is granted. Nothing in this Plan or in any Stock Option
Agreement hereunder shall confer upon any Optionee any right to continue in
the employ of the Company, any Parent Corporation or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company, its Parent
Corporations and its Subsidiaries, which are hereby expressly reserved, to
discharge any Optionee at any time for any reason whatsoever, with or without
cause.
Section 4.6 - Merger, Consolidation, Acquisition, Liquidation or Dissolution
Notwithstanding the provisions of Section 10.3, in its absolute
discretion, and on such terms and conditions as it deems appropriate, the
Committee may provide by the terms of any Option that such Option cannot be
exercised after the merger or consolidation of the Company with or into
another corporation, the acquisition by another corporation or person
(excluding any employee benefit plan of the Company or any trustee or other
fiduciary holding securities under an employee benefit plan of the Company) of
all or substantially all of the Company's assets or 51% or more of the
Company's then outstanding voting stock, or the liquidation or dissolution of
the Company; and if the Committee so provides, it may, in its absolute
discretion and on such terms and conditions as it deems appropriate, also
provide, either by the terms of such Option or by a resolution adopted prior
to the occurrence of such merger, consolidation, acquisition, liquidation or
dissolution, that, for some period of time prior to such event, such Option
shall be exercisable as to all shares covered thereby, notwithstanding
anything to the contrary in Section 4.3(a), Section 4.3(b) and/or any
installment provisions of such Option.
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Section 4.7 - No Right to Continued Employment
Nothing in this Plan or in any Non-Qualified Stock Option
Agreement, Phantom Stock Agreement or Restricted Stock Agreement hereunder
shall confer upon any Optionee any right to continue in the employ of the
Company, any Parent Corporation or any Subsidiary or shall interfere with or
restrict in any way the rights of the Company, its Parent Corporations and its
Subsidiaries, which are hereby expressly reserved, to terminate or discharge
any Optionee at any time for any reason whatsoever, with or without cause.
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Persons Eligible to Exercise
During the lifetime of the Optionee, only he or his Transferee, if
any, may exercise an Option (or any portion thereof) granted to him. After
the death of the Optionee, any exercisable portion of an Option may, prior to
the time when such portion becomes unexercisable under the Plan or the
applicable Stock Option Agreement, be exercised by his Transferee, if any, or
by his personal representative or any other person empowered to do so under
the deceased Optionee's will or under the then applicable laws of descent and
distribution. All of the terms and conditions of any Option in the hands of
the Optionee during his lifetime shall be and remain fully applicable and
binding on his Transferee, if any, and on any other person who may become
eligible to exercise such Option.
Section 5.2 - Partial Exercise
At any time and from time to time prior to the time when any
exercisable Option or exercisable portion thereof becomes unexercisable under
the Plan or the applicable Stock Option Agreement, such Option or portion
thereof may be exercised in whole or in part; provided, however, that the
Company shall not be required to issue fractional shares and the Committee
may, by the terms of the Option, require any partial exercise to be with
respect to a specified minimum number of shares.
Section 5.3 - Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such Option or such portion becomes
unexercisable under the Plan or the applicable Stock Option Agreement:
(a) Notice in writing signed by the Optionee or other
person then entitled to exercise such Option or portion, stating that
such Option or portion is exercised, such notice complying with all
applicable rules established by the Committee; and
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(b) (i) Full payment (in cash or by check) for the shares
with respect to which such Option or portion is thereby exercised; or
(ii) With the consent of the Committee, (A) shares of
the Company's Common Stock owned by the Optionee duly endorsed for
transfer to the Company, or, (B) shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option, with a Fair Market
Value on the date of Option exercise equal to the aggregate Option price
of the shares with respect to which such Option or portion is thereby
exercised; or
(iii) With the consent of the Committee, a full
recourse promissory note bearing interest (at least such rate as shall
then preclude the imputation of interest under the Code or any successor
provision) and payable upon such terms as may be prescribed by the
Committee. The Committee may also prescribe the form of such note and
the security to be given for such note. No Option may, however, be
exercised by delivery of a promissory note or by a loan from the Company
when or where such loan or other extension of credit is prohibited by
law; or
(iv) With the consent of the Committee, any
combination of the consideration provided in the foregoing subsections
(i), (ii) and (iii); and
(c) The payment to the Company (or other employer
corporation) of all amounts which it is required to withhold under
federal, state or local law in connection with the exercise of the
Option; with the consent of the Committee, (i) shares of the Company's
Common Stock owned by the Optionee duly endorsed for transfer, or, (ii)
shares of the Company's Common Stock issuable to the Optionee upon
exercise of the Option, valued at Fair Market Value as of the date of
Option exercise, may be used to make all or part of such payment;
(d) Such representations and documents as the Committee, in
its absolute discretion, deems necessary or advisable to effect
compliance with all applicable provisions of the Securities Act and any
other federal or state securities laws or regulations. The Committee
may, in its absolute discretion, also take whatever additional actions
it deems appropriate to effect such compliance including, without
limitation, placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars; and
(e) In the event that the Option or portion thereof shall
be exercised pursuant to Section 5.1 by any person or persons other than
the Optionee, appropriate proof of the right of such person or persons
to exercise the Option or portion thereof.
Section 5.4 - Conditions to Issuance of Stock Certificates
The shares of stock issuable and deliverable upon the exercise of
an Option, or any portion thereof, may be either previously authorized but
unissued shares or issued shares which have then been reacquired by the
Company. The Company shall not be required to issue or deliver any
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certificate or certificates for shares of stock purchased upon the exercise of
any Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other
qualification of such shares under any state or federal law or under the
rulings or regulations of the Securities and Exchange Commission or any
other governmental regulatory body, which the Committee shall, in its
absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from
any state or federal governmental agency which the Committee shall, in
its absolute discretion, determine to be necessary or advisable; and
(d) The payment to the Company (or other employer
corporation) of all amounts which it is required to withhold under
federal, state or local law in connection with the exercise of the
Option; and
(e) The lapse of such reasonable period of time following
the exercise of the Option as the Committee may establish from time to
time for reasons of administrative convenience.
Section 5.5 - Rights as Stockholders
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect to any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
holders.
Section 5.6 - Transfer Restrictions
The Committee, in its absolute discretion, may impose such
restrictions on the transferability of the shares purchasable upon the
exercise of an Option as it deems appropriate. Any such other restriction
shall be set forth in the respective Stock Option Agreement and may be
referred to on the certificates evidencing such shares. The Committee may
require the Employee to give the Company prompt notice of any disposition of
shares of stock, acquired by exercise of an Incentive Stock Option, within two
years from the date of granting such Option or one year after the transfer of
such shares to such Employee. The Committee may direct that the certificates
evidencing shares acquired by exercise of an Option refer to such requirement
to give prompt notice of disposition.
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ARTICLE VI
ADDITIONAL OPTIONS
Section 6.1 - Additional Options
(a) The Committee may, at or after the date of grant of an
Option, grant Additional Options. Additional Options may be granted with
respect to any outstanding Option.
(b) If, with consent of the Committee pursuant to Section
5.3(b)(ii), an Optionee exercises an Option that has an Additional Option
Feature by tendering or relinquishing shares of Common Stock and/or when
shares of Common Stock are tendered or relinquished in payment for the amount
to be withheld under applicable federal, state and local income tax laws in
connection with the exercise of an option, the Optionee shall automatically be
granted an Additional Option. The Additional Option shall be subject to the
following provisions:
(i) The Additional Option shall cover the number of shares
of Common Stock equal to the sum of (A) the number of shares of Common
Stock tendered or relinquished as consideration upon the exercise of the
Option to which such Additional Option Feature relates and (B) the
number of shares of Common Stock tendered or relinquished in payment of
the amount to be withheld under applicable federal, state and local
income tax laws in connection with the exercise of the option to which
such Additional Option Feature relates;
(ii) The Additional Option will not have an Additional
Option Feature unless the Committee directs otherwise;
(iii) The Additional Option exercise price shall be 100% of
the Fair Market Value per share on the date the employee tenders or
relinquishes shares of Common Stock to exercise the Option that has the
Additional Option Feature and/or tenders or relinquishes shares of
Common Stock in payment of income tax withholding on the exercise of an
Option that has the Additional Option Feature; and
(iv) The Additional Option shall have the same termination
date and other termination provisions as the underlying Option that had
the Additional Option Feature.
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ARTICLE VII
AWARDS OF RESTRICTED STOCK
Section 7.1 - Award of Restricted Stock
(a) The Committee may from time to time, in its absolute discretion:
(i) Select from among the key Employees (including Employees who
have previously received Options under this Plan) such of them as in its
opinion should be awarded Restricted Stock;
(ii) Determine the term of the restrictions placed on the
Restricted Stock, provided, the term of such restrictions shall not be less
than three (3) years, subject to the right of the Committee to grant
Restricted Stock with a restriction period of less than three (3) years, but
not less than one (1) year, if (A) the grant of the Restricted Stock is
performance based, or (B) the total number of shares of non-performance based
Restricted Stock granted under the Plan with a restriction period of less than
three (3) years does not exceed five percent (5%) of the aggregate number of
shares which may be issued under the Plan; and
(iii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with this Plan.
Section 7.2 - Restricted Stock Agreement
Restricted Stock shall be issued only pursuant to a written
Restricted Stock Agreement, which shall be executed by the selected key
Employee and an authorized officer of the Company and which shall contain such
terms and conditions as the Committee shall determine, consistent with this
Plan.
Section 7.3 - Rights as Stockholders
Upon delivery of the shares of Restricted Stock to the escrow
holder pursuant to Section 7.8, the holder of Restricted Stock shall have,
unless otherwise provided by the Committee, all the rights of a stockholder
with respect to said shares, subject to the restrictions in his Restricted
Stock Agreement, including voting rights and the right to receive all
dividends and other distributions paid or made with respect to the shares;
provided, however, that in the discretion of the Committee, any extraordinary
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 7.4.
Section 7.4 - Restrictions
All shares of Restricted Stock issued under this Plan (including
any shares received by holders thereof with respect to shares of Restricted
Stock as a result of stock dividends, stock splits or any other form of
recapitalization) shall, in the terms of each individual Restricted Stock
Agreement, be subject to such restrictions as the Committee shall provide,
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which restrictions may include, without limitation, restrictions concerning
voting rights and transferability and restrictions based on duration of
employment with the Company, Company performance and individual performance.
Restricted Stock may not be sold or encumbered until all restrictions are
terminated or expire. Unless provided otherwise by the Committee, if no
consideration was paid by the holder of Restricted Stock upon issuance, a
holder of Restricted Stock's rights in unvested Restricted Stock shall lapse
upon Termination of Employment.
Section 7.5 - Provisions Applicable to Section 162(m) Participants
Notwithstanding anything in the Plan to the contrary, the
Committee may grant any performance or incentive awards of Restricted Stock
described in this Article VII to a Section 162(m) Participant that vest or
become exercisable upon the attainment of performance targets for the Company
which are related to one or more of the following performance goals: (i) pre-
tax income, (ii) operating income, (iii) cash flow, (iv) earnings per share,
(v) earnings before any one or more of the following items: interest, taxes,
depreciation or amortization, (vi) return on equity, (vii) return on invested
capital or assets and (viii) cost reductions or savings.
(b) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
performance or incentive awards described in this Article VII which may be
granted to one or more Section 162(m) Participants, no later than ninety (90)
days following the commencement of any fiscal year in question or any other
designated fiscal period (or such other time as may be required or permitted
by Section 162(m) of the Code), the Committee shall, in writing, (i) designate
one or more Section 162(m) Participants, (ii) select the performance goal or
goals applicable to the fiscal year or other designated fiscal period, (iii)
establish the various targets and bonus amounts which may be earned for such
fiscal year or other designated fiscal period and (iv) specify the
relationship between performance goals and targets and the amounts to be
earned by each Section 162(m) Participant for such fiscal year or other
designated fiscal period. Following the completion of each fiscal year or
other designated fiscal period, the Committee shall certify in writing whether
the applicable performance targets have been achieved for such fiscal year or
other designated fiscal period. In determining the amount earned by a Section
162(m) Participant, the Committee shall have the right to reduce (but not to
increase) the amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or other
designated fiscal period.
Section 7.6 - Repurchase of Restricted Stock
The Committee may provide in the terms of each individual
Restricted Stock Agreement that the Company shall have the right to repurchase
from the holder of Restricted Stock the Restricted Stock then subject to
restrictions under the Restricted Stock Agreement immediately upon a
Termination of Employment between the holder of Restricted Stock and the
Company, at a cash price per share equal to the price paid by the holder of
Restricted Stock for such Restricted Stock; provided, however, that provision
may be made that no such right of repurchase shall exist in the event of a
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Termination of Employment without cause, or following a change in control of
the Company or because of the holder of the Restricted Stock's retirement,
death or disability, or otherwise, and provided further that provisions may be
made that the right of repurchase may be exercised at a price less than the
price paid by the holder of Restricted Stock in the event of termination for
cause, voluntary termination or otherwise.
Section 7.7 - Tax Withholding
The Company shall be entitled to require payment in cash or deduction
from other compensation payable to each holder of Restricted Stock of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting or exercise of any Restricted Stock. The Committee may in
its discretion and in satisfaction of the foregoing requirement allow such
holder of Restricted Stock to elect to have the Company withhold shares of
Common Stock otherwise issuable under such award (or allow the return of
shares of Common Stock) having a Fair Market Value equal to the sums required
to be withheld.
Section 7.8 - Escrow
The Secretary of the Company or such other escrow holder as the
Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Restricted Stock Agreement with respect to the shares evidenced by such
certificate expire or shall have been removed.
Section 7.9 - Legend
In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee shall cause a legend or legends to
be placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Restricted Stock Agreements, which legend
or legends shall make appropriate reference to the conditions imposed thereby.
ARTICLE VIII
AWARDS OF PHANTOM STOCK UNITS
Section 8.1 - Award of Phantom Stock Units
(a) The Committee may from time to time, in its absolute discretion:
(i) Select from among the key Employees (including Employees who
have previously received Phantom Stock Units under this Plan) such of them as
in its opinion should be awarded Phantom Stock Units;
(ii) Determine the term of the vesting period placed on the
Phantom Stock Units, provided, the term of such vesting period shall not be
less than three (3) years, subject to the right of the Committee to grant
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Phantom Stock Units with a vesting period of less than three (3) years, but
not less than one (1) year, if (A) the grant of the Phantom Stock Unit is
performance based, or (B) the total number of shares of represented by Phantom
Stock Units, when combined with the total number of non-performance based
Restricted Stock granted under the 1997 Plan with a restriction period of less
than three (3) years does not exceed five percent (5%) of the aggregate number
of shares which may be issued under the 1997 Plan; and
(iii) Determine the purchase price, if any, and other terms and
conditions applicable to such Phantom Stock Units, consistent with this Plan.
Section 8.2 - Phantom Stock Agreement
Phantom Stock Units shall be issued only pursuant to a written
Phantom Stock Agreement, which shall be executed by the selected key Employee
and an authorized officer of the Company and which shall contain such terms
and conditions as the Committee shall determine, consistent with this Plan.
Section 8.3 - Restrictions
All Phantom Stock Units issued under this Plan (including any units
received by holders thereof with respect to Phantom Stock Units as a result of
stock dividends, stock splits or any other form of recapitalization) shall, in
the terms of each individual Phantom Stock Agreement, be subject to such
restrictions as the Committee shall provide, which restrictions may include,
without limitation, restrictions concerning vesting and transferability and
restrictions based on duration of employment with the Company, Company
performance and individual performance. Phantom Stock Units may not be sold
or encumbered until fully vested. Unless provided otherwise by the Committee,
if no consideration was paid by the holder of Phantom Stock Unit upon
issuance, a holder of Phantom Stock Units' rights in unvested Phantom Stock
Units shall lapse upon Termination of Employment.
Section 8.4 - Provisions Applicable to Section 162(m) Participants
(a) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any performance or incentive awards of Phantom Stock Units
described in this Article VIII to a Section 162(m) Participant that vest or
become exercisable upon the attainment of performance targets for the Company
which are related to one or more of the following performance goals: (i)
pre-tax income, (ii) operating income, (iii) cash flow, (iv) earnings per
share, (v) earnings before any one or more of the following items: interest,
taxes, depreciation or amortization, (vi) return on equity, (vii) return on
invested capital or assets and (viii) cost reductions or savings.
(b) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect to
performance or incentive awards described in this Article VIII which may be
granted to one or more Section 162(m) Participants, no later than ninety (90)
days following the commencement of any fiscal year in question or any
other designated fiscal period (or such other time as may be required or
permitted by Section 162(m) of the Code), the Committee shall, in writing, (i)
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designate one or more Section 162(m) Participants, (ii) select the performance
goal or goals applicable to the fiscal year or other designated fiscal period,
(iii) establish the various targets and bonus amounts which may be earned for
such fiscal year or other designated fiscal period and (iv) specify the
relationship between performance goals and targets and the amounts to be
earned by each Section 162(m) Participant for such fiscal year or other
designated fiscal period. Following the completion of each fiscal year or
other designated fiscal period, the Committee shall certify in writing whether
the applicable performance targets have been achieved for such fiscal year or
other designated fiscal period. In determining the amount earned by a Section
162(m) Participant, the Committee shall have the right to reduce (but not to
increase) the amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or other
designated fiscal period.
Section 8.5 - Termination of Phantom Stock
The Committee may provide in the terms of each individual Phantom
Stock Agreement that the Company shall have the right to terminate any
unvested Phantom Stock Unit immediately upon a Termination of Employment
between the holder of Phantom Stock Unit and the Company, at a cash price per
share equal to the price paid by the holder of Phantom Stock Unit for such
Phantom Stock Unit; provided, however, that provision may be made that no such
right of termination shall exist in the event of a Termination of Employment
without cause, or following a change in control of the Company or because of
the holder of the Phantom Stock Unit's retirement, death or disability, or
otherwise, and provided further that provisions may be made that the right of
termination may be exercised at a price less than the price paid by the holder
of Phantom Stock Unit in the event of termination for cause, voluntary
termination or otherwise.
Section 8.6 - Tax Withholding
The Company shall be entitled to require payment in cash or deduction from
other compensation payable to each holder of Phantom Stock Units of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance or vesting of the Phantom Stock Units or upon the issuance of
certificates of Common Stock following such vesting. The Committee may in its
discretion and in satisfaction of the foregoing requirement allow such holder
of Phantom Stock Units to elect to have the Company withhold shares of Common
Stock otherwise issuable under such award (or allow the return of shares of
Common Stock) having a Fair Market Value equal to the sums required to be
withheld.
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ARTICLE IX
ADMINISTRATION
Section 9.1 - Compensation Committee
The Compensation Committee shall consist of two or more Directors,
appointed by and holding office at the pleasure of the Board. Appointment of
Committee members shall be effective upon acceptance of appointment.
Committee members may resign at any time by delivering written notice to the
Board. Vacancies in the Committee shall be filled by the Board.
Section 9.2 - Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the Options, Restricted Stock
and Phantom Stock Units awarded hereunder and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of the Plan to grant "incentive stock
options" within the meaning of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and
all rights and duties of the Committee under this Plan except with respect to
matters which under Rule 16b-3 or Section 162(m) of the Code, or any
regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee.
Section 9.3 - Majority Rule
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
Section 9.4 - Compensation; Professional Assistance; Good Faith Actions
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities incurred by members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee may
employ attorneys, consultants, accountants, appraisers, brokers or other
persons. The Committee, the Company and its Officers and Directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all Optionees, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to the Plan or the Options, Restricted Stock and Phantom
Stock Units awarded hereunder, and all members of the Committee shall be fully
protected by the Company in respect to any such action, determination or
interpretation.
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ARTICLE X
OTHER PROVISIONS
Section 10.1 - Options Not Transferable
No Award or interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Optionee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy), and any attempted disposition thereof shall be null
and void and of no effect; provided, however, that nothing in this Section
10.1 shall prevent any transfer of a Transferable Option in accordance with
its terms or any transfer by will or by the applicable laws of descent and
distribution.
Section 10.2 - Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Committee.
However, without approval of the Company's stockholders given within twelve
months before or after the action by the Committee, no action of the Committee
may, except as provided in Section 2.3, increase any limit imposed in
Section 2.1 on the maximum number of shares which may be issued on exercise of
Options or the vesting of Phantom Stock Units or awarded as Restricted Stock,
modify the Award Limit, materially modify the eligibility requirements of
Section 3.1, 7.1 or 8.1, reduce the minimum Option price requirements of
Section 4.2, extend the limit imposed in this Section 10.2 on the period
during which Awards may be granted or amend or modify the Plan in a manner
requiring stockholder approval under Rule 16b-3 or Section 162(m) of the Code.
Neither the amendment, suspension nor termination of the Plan shall, without
the consent of the holder of an Award alter or impair any rights or
obligations under any Award theretofore granted. No Award may be granted
during any period of suspension nor after termination of the Plan, and in
no event may any Award be granted under this Plan after the first to occur of
the following events:
(a) The expiration of ten years from the date the
Plan is adopted by the Board; or
(b) The expiration of ten years from the date the
Plan is approved by the Company's stockholders under Section
10.4.
Section 10.3 - Adjustments in Outstanding Awards
In the event that the outstanding shares of Common Stock subject to
Awards are changed into or exchanged for a different number or kind of shares
of the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, or the number of shares is
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increased or decreased by reason of a stock split-up, stock dividend,
combination of shares or any other increase or decrease in the number of such
shares of Common Stock effected without receipt of consideration by the
Company (provided, however, that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration"), the Committee shall make appropriate adjustments in the
number and kind of shares as to which all outstanding Awards, or portions
thereof then unexercised or unvested, shall be exercisable or granted upon any
Awards, to the end that after such event the Award holder's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustment in an outstanding Award shall be made without change in the total
price applicable to the Award or the unexercised portion of an Option (except
for any change in the aggregate price resulting from rounding-off of share
quantities or prices) and with any necessary corresponding adjustment in Award
price per share; provided, however, that, in the case of Incentive Stock
Options, each such adjustment shall be made in such manner as not to
constitute a "modification" within the meaning of Section 424(h)(3) of the
Code. Any such adjustment made by the Committee shall be final and binding
upon all holders of Awards, the Company and all other interested persons.
Section 10.4 - Approval of Plan by Stockholders
This Plan will be submitted for the approval of the Company's
stockholders within twelve months after the date of the Board's initial
adoption of the Plan. Awards may be granted prior to such stockholder
approval; provided, however, that such Awards shall not be exercisable prior
to the time when the Plan is approved by the stockholders; provided, further,
that if such approval has not been obtained at the end of said twelve-month
period, all Awards previously granted under the Plan shall thereupon be
cancelled and become null and void, provided that the Company will return to
the holder of the cancelled Award any purchase price previously paid therefor.
The Company shall take such actions with respect to the Plan as may be
necessary to satisfy the requirements of Rule 16b-3(b).
Section 10.5 - Effect of Plan Upon Other Option and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of the
Company, any Parent Corporation or any Subsidiary (a) to establish any other
forms of incentives or compensation for employees of the Company, any Parent
Corporation or any Subsidiary or (b) to grant or assume options or restricted
stock otherwise than under this Plan in connection with any proper corporate
purpose, including, but not by way of limitation, the grant or assumption of
options or restricted stock in connection with the acquisition by purchase,
lease, merger, consolidation or otherwise, of the business, stock or assets of
any corporation, firm or association.
Section 10.6 - Titles
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of the Plan.
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Section 10.7 - Conformity to Securities Laws
The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act and the Exchange Act and any and all
regulations and rules promulgated by the Securities and Exchange Commission
thereunder, including without limitation Rule 16b-3. Notwithstanding anything
herein to the contrary, the Plan shall be administered, and Awards shall be
granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the
Plan and Awards granted hereunder shall be deemed amended to the extent
necessary to conform to such laws, rules and regulations.
* * * *
I hereby certify that the 1997 Equity Participation Plan was duly
adopted by the Board of Directors of Owens-Illinois, Inc. on March 27, 1997
and that the foregoing Amended and Restated 1997 Equity Participation Plan was
adopted by the Compensation Committee of the Board of Directors of
Owens-Illinois, Inc. on April 7, 1999.
Executed as of the 7th day of April, 1999.
/s/ James W. Baehren
____________________
Secretary
Corporate Seal
* * * *
I hereby certify that the foregoing Plan was duly approved
by the stockholders of Owens-Illinois, Inc. on May 14, 1997.
Executed as of the 7th day of April, 1999.
/s/ James W. Baehren
____________________
Secretary
<PAGE>
Exhibit 10.2
OWENS-ILLINOIS
1997 EQUITY PARTICIPATION PLAN
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT, dated May 17, 1999 is made by and between
Owens-Illinois, Inc., a Delaware corporation (the "Company") and ____________,
an employee of the Company or a Parent Corporation or a Subsidiary (the
"Employee"):
WHEREAS, the Company has established the Owens-Illinois 1997 Equity
Participation Plan (the "Plan"); and
WHEREAS, the Plan provides for the issuance of shares of the Company's
Common Stock , subject to certain restrictions thereon and to other conditions
stated herein; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Committee") has determined it would be to the advantage and best
interest of the Company and its stockholders to issue the shares of Restricted
Stock provided for herein to the Employee in partial consideration of services
rendered, or to be rendered, to the Company and/or its subsidiaries; and
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below, unless the context clearly indicates to the
contrary. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Plan. The masculine pronoun shall include the
feminine and neuter and the singular the plural, where the context so
indicates.
Section 1.1. Cause
"Cause" shall mean dishonesty, disloyalty, misconduct,
insubordination, failure to reasonably devote working time to assigned duties,
failure or refusal to comply with any reasonable rule, regulation, standard or
policy which from time to time may be established by the Company, including,
without limitation, those policies set forth in the Owens-Illinois Policy
Manual in effect from time to time, and failure to fully cooperate with any
investigation of an alleged violation of any such rule, regulation, standard
or policy.
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Section 1.2. Common Stock
"Common Stock" shall mean the common stock of the Company, $.01 par value.
Section 1.3. Competing Business
"Competing Business" shall mean any person, corporation or other entity
engaged in the United States of America or in any other country in which the
Company manufactures or sells its products, in the manufacture or sale of
glass containers, plastic containers, plastic closures, plastic prescription
containers, labels, or multipack plastic carriers for beverage bottles, or any
other products manufactured or sold by the Company within the last two
(2) years prior to the Employee's Termination of Employment.
Section 1.4. Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
Section 1.5. Fair Market Value
"Fair Market Value" of a share of the Company's stock as of a given date
shall be: (i) the closing price of a share of the Company's stock on the
principal exchange on which shares of the Company's stock are then trading, if
any, on the day previous to such date, or, if shares were not traded on the
day previous to such date, then on the next preceding trading day during which
a sale occurred; or (ii) if such stock is not traded on an exchange but
is quoted on NASDAQ or a successor quotation system, (1) the last sales price
(if the stock is then listed as a National Market Issue under the NASD
National Market System) or (2) the mean between the closing representative bid
and asked prices (in all other cases) for the stock on the day previous to
such date as reported by NASDAQ or such successor quotation system; or (iii)
if such stock is not publicly traded on an exchange and not quoted on NASDAQ
or a successor quotation system, the mean between the closing bid and asked
prices for the stock, on the day previous to such date, as determined in good
faith by the Committee; or (iv) if the Company's stock is not publicly traded,
the fair market value established by the Committee acting in good faith.
Section 1.6. Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
Section 1.7. Plan
"Plan" shall mean the Company's 1997 Equity Participation Plan.
Section 1.8. Restrictions
"Restrictions" shall mean the reacquisition and transferability
restrictions imposed upon Restricted Stock under this Agreement.
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Section 1.9. Restricted Stock
"Restricted Stock" shall mean Common Stock issued under this Agreement and
subject to the Restrictions imposed hereunder.
Section 1.10. Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended from time to time.
Section 1.11. Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.12. Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.13. Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. "Subsidiary" shall also
mean any partnership in which the Company and or any Subsidiary owns more than
fifty (50%) percent of the capital or profits interests.
Section 1.14. Termination of Employment
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Employee and the Company, a Parent Corporation or a
Subsidiary is terminated for any reason, with or without Cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment of the Employee by the
Company, a Parent Corporation or any Subsidiary, (b) terminations where the
Employee continues a relationship (e.g., as a director or as a consultant)
with the Company, a Parent Corporation or a Subsidiary. The Committee,
in its absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment resulted from
a discharge for good cause, and all questions of whether a particular leave of
absence constitutes a Termination of Employment. Notwithstanding any
other provision of this Agreement, the Company or any Subsidiary has the
absolute and unrestricted right to terminate the Employee's employment at any
time for any reason whatsoever, with or without Cause.
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ARTICLE II.
ISSUANCE OF RESTRICTED STOCK
Section 2.1. Issuance of Restricted Stock
In consideration of the services rendered or to be rendered to the
Company, a Parent Corporation or a Subsidiary and for other good and valuable
consideration which the Committee has determined to be equal to the par value
of its Common Stock, on the date hereof the Company issues to the Employee
_______ shares of its Common Stock, upon the terms and conditions set
forth in this Agreement.
Section 2.2. No Right to Continued Employment
Nothing in this Agreement or in the Plan shall confer upon the Employee
any right to continue in the employee of the Company, any Parent Corporation
or any Subsidiary or shall interfere with or restrict in any way the rights of
the Company, any Parent Corporation or any Subsidiary, which are hereby
expressly reserved, to discharge the Employee at any time for any reasons
whatsoever, with or without Cause.
ARTICLE III.
RESTRICTIONS
Section 3.1. Reacquisition of Restricted Stock
Until vested, all shares of Restricted Stock issued to the Employee
pursuant to this Agreement are subject to reacquisition by the Company
immediately upon a Termination of Employment other than from death or total
disability (as determined by the Committee in accordance with Company plans
and policies), in which event all shares of Restricted Stock shall immediately
fully vest and all Restrictions with respect to such shares of Restricted
Stock shall immediately expire. Following any reacquisition by the Company
pursuant to this Section 3.1, the Company shall promptly pay to the Employee
an amount equal to the product of $.01 times the number of shares of
Restricted Stock reacquired.
Section 3.2. Lapse of Restrictions.
The Restricted Stock shall fully vest, and all Restrictions thereon shall
immediately expire upon the later to occur of (a) the third anniversary of
this Agreement, and (b) normal retirement (as determined by the Committee in
accordance with Company plans and policies), early retirement with the consent
of the Chief Executive Officer of the Company (or, in the case of the Chief
Executive Officer of the Company, with the consent of the Committee), or a
Termination of Employment that is not initiated by, and not voluntary on the
part of the Employee, other than for Cause. Upon the vesting of the shares
and subject to Section 5.3, the Company shall cause new certificates to be
issued with respect to such vested shares and delivered to the Employee or his
legal representative, free from the legend provided for in Section 3.3 and any
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of the other Restrictions. Such vested shares shall cease to be considered
Restricted Stock subject to the terms and conditions of this Agreement.
Section 3.3. Legend.
Certificates representing shares of Restricted Stock issued pursuant to
this Agreement shall, until all restrictions lapse and new certificates are
issued pursuant to Section 3.2, bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
VESTING REQUIREMENTS AND MAY BE SUBJECT TO REACQUISTION BY THE COMPANY
UNDER THE TERMS OF THAT CERTAIN RESTRICTED STOCK AGREEMENT BY AND
BETWEEN OWENS-ILLINOIS, INC. (THE "COMPANY") AND THE HOLDER OF THE
SECURITIES. PRIOR TO VESTING OF OWNERSHIP IN THE SECURITIES, THEY MAY
NOT BE DIRECTLY OR INDIRECTLY, OFFERED, TRANSFERRED, SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES.
COPIES OF THE ABOVE REFERENCED AGREEMENT ARE ON FILE AT THE OFFICES OF
THE COMPANY AT ONE SEAGATE, TOLEDO, OHIO 43604.
Section 3.4. Merger, Consolidation, Acquisition, Liquidation or Dissolution
Notwithstanding any other provision of this Agreement, upon the merger or
consolidation of the Company into another corporation, the acquisition by
another corporation or person (excluding any employee benefit plan of the
Company or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company) of all or substantially all of the Company's
assets or 51% or more of the Company's then outstanding voting stock, or the
liquidation or dissolution of the Company, the Committee shall then provide by
resolution adopted prior to such event that, at some time prior to the
effective date of such event, all shares of Restricted Stock not previously
reacquired pursuant to Section 3.1 shall fully vest and all Restrictions with
respect to such shares of Restricted Stock shall immediately expire.
Section 3.5. Restrictions on New Shares
In the event that the outstanding shares of the Company's Common Stock are
hereafter changed into or exchanged for a different number of kind of shares
or other securities of the Company or of another corporation pursuant to a
merger of the Company into another corporation, or the exchange of all or
substantially all of the assets of the Company for the securities of another
corporation, or the acquisition by another corporation or person (excluding
any employee benefit plan of the Company or any trustee or other fiduciary
holding securities under an employee benefit plan of the Company) of 51% or
more of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company, or a stock split-up or stock dividend, such new,
additional or different shares or securities which are held or received by the
Employee in his capacity as a holder of Restricted Stock shall be considered
to be Restricted Stock and shall be subject to all of the Restrictions, unless
the Committee provides, pursuant to Section 3.4 for the accelerated vesting
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and expiration of the Restrictions on the shares of Restricted Stock
underlying the distribution of the new, additional or different shares or
securities.
ARTICLE IV.
NON-COMPETITION/NON-SOLICITATION
Section 4.1. Covenant Not to Compete
Employee covenants and agrees that prior to Employee's Termination of
Employment and for a period of three (3) years following the Employee's
Termination of Employment, Employee shall not, in the United States of America
or in any other country in which the Company manufactures or sells it
products, engage, directly or indirectly, whether as principal or as agent,
officer, director, employee, consultant, shareholder or otherwise, alone or
in association with any other person, corporation or other entity, in any
Competing Business.
Section 4.2. Non-Solicitation of Customers
Employee agrees that prior to his Termination of Employment he shall not,
directly or indirectly, solicit the business of, or do business with, any
customer or prospective customer of the Company for any business purpose other
than for the benefit of the Company. Employee further agrees that for three
(3) years following Employee's Termination of Employment, including without
limitation termination by the Company for Cause or without Cause, Employee
shall not, directly or indirectly, solicit the business of, or do business
with, any customers or prospective customers of the Company.
Section 4.3. Non-Solicitation of Employees
Employee agrees that prior to his Termination of Employment and for three
(3) years following Employee's Termination of Employment, including without
limitation termination by the Company for Cause or without Cause, Employee
shall not, directly or indirectly, solicit or induce, or attempt to solicit or
induce, any employee of the Company to leave the employment of the Company for
any reason whatsoever, or hire any employee of the Company except into the
employment of the Company.
Section 4.4. Exception
Notwithstanding anything contained in this Agreement to the contrary, the
restrictions set forth in Section 4.1 above shall lapse and be of no further
effect in the event of a Termination of Employment that is not initiated by,
and not voluntary on the part of the Employee, other than for Cause.
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ARTICLE V.
MISCELLANEOUS
Section 5.1. Administration
The Committee shall have the power to interpret the Plan and this
Agreement, and to adopt such rules for the administration, interpretation, and
application of the Plan as are consistent therewith, to interpret, amend or
revoke any such rules. All action taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Employee, the Company and all other interested persons. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under the Plan or this
Agreement except with respect to matters which under Rule 16b-3, or any
regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee. No member of the Committee or Board shall
be personally liable for any action, determination or interpretation
made in good faith with respect to the Plan or the Restricted Stock, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
Section 5.2. Restricted Stock Not Transferable
No Restricted Stock or any interest or right therein or part thereof shall
be liable for the debts, contracts or engagements of the Employee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, hypothecation, encumbrance, assignment or
any other means, whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any other legal
or equitable proceedings (including bankruptcy), any attempted disposition
thereof shall be null and void and of no effect; provided however, that this
Section 5.2 shall not prevent transfers by will or by the applicable laws of
descent and distribution.
Section 5.3. Conditions to Issuance of Stock Certificates
The Company shall not be required to issue or deliver any certificate or
certificates for shares of stock pursuant to this Agreement prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory
body, which the Committee shall, in its sole discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its sole discretion,
determine to be necessary or advisable; and
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(d) Subject to Section 5.10 the payment by the Employee of all amounts
which, under federal, state or local tax law, the Company (or other employer
corporation) is required to withhold upon issuance of Restricted Stock and/or
the lapse or removal of any of the Restrictions; and
(e) The lapse of such reasonable period of time as the Committee may from
time to time establish for reasons of administrative convenience.
Section 5.4. Escrow
The Secretary or such other escrow holder as the Committee may appoint
shall retain physical custody of the certificates representing Restricted
Stock, including shares of Restricted Stock issued pursuant to Section 3.5,
until all of the Restrictions expire or shall have been removed; provided,
however, that in no event shall the Employee retain physical custody of any
certificates representing Restricted Stock issued to him.
Section 5.5. Notices
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to
be given to the Employee shall be addressed to him at the address given
beneath his signature hereto. By a notice given pursuant to this Section 5.5,
either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Employee
shall, if the Employee is then deceased, be given to the Employee's personal
representative if such representative has previously informed the Company of
his status and address by written notice under this Section 5.5. Any notice
shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.
Section 5.6. Rights as Stockholder
Upon delivery of the shares of Restricted Stock to the escrow holder
pursuant to Section 5.4, the Employee shall have all the rights of a
stockholder with respect to said shares, subject to the restrictions herein
(including the provisions of Section 5.10), including the right to vote the
shares and to receive all dividends or other distributions paid or made with
respect to the shares.
Section 5.7. Titles
Titles are provided her in for convenience only and are not to serve as a
basis for interpretation or construction of this Agreement.
Section 5.8. Conformity to Securities Laws
The Employee acknowledges that the Plan and this Agreement is intended to
conform to the extent necessary with all provisions of the Securities Act and
the Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including, without limitation,
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the applicable exemptive conditions of Rule 16b-3. Notwithstanding anything
herein to the contrary, this Agreement shall be administered, and the
Restricted Stock shall be issued only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, this
Agreement and the Restricted Stock issued hereunder shall be deemed amended
to the extent necessary to conform to such laws, rules and regulations.
Section 5.9. Amendments
This Agreement and the Plan may be amended without the consent of the
Employee provided that such amendment would not impair any rights of the
Employee under this Agreement. No amendment of this Agreement shall, without
the consent of the Employee, impair any rights of the Employee under this
Agreement.
Section 5.10. Tax Withholding
The Company's obligation : (i) to issue or deliver to the Employee any
certificate or certificates for unrestricted shares of stock; or (ii) to pay
to the Employee any dividends or make any distributions with respect to the
Restricted Stock, is expressly conditioned upon receipt from the Employee, on
or prior to the date reasonably specified by the Company of:
(f) Full payment (in cash or by check ) of any amount that must be
withheld by the Company for federal, state and/or local tax purposes; or
(g) Subject to the Committee's consent and Section 5.10(c), full payment
by delivery to the Company of unrestricted shares of the Company's Common
Stock previously owned by the Employee duly endorsed for transfer to the
company by the Employee with an aggregate Fair Market Value (determined, as
applicable, as of the date of the lapse of the restrictions or vesting or as
of the date of the distribution) equal to the amount that must be withheld by
the Company for federal, state and/or local tax purposes; or
(h) With respect to the withholding obligation for shares of Restricted
Stock that become unrestricted shares as of a certain date (the "Vesting
Date"), subject to the committee's consent, full payment by retention by the
Company of a portion of such shares of Restricted Stock which become
unrestricted or vested with an aggregated Fair Market Value (determined on the
Vesting Date) equal to the amount that must be withheld by the Company for
federal, state and/or local tax purposes; or
(i) Subject to the Committee's consent, an combination of payments
provided for in the foregoing subsections (a), (b) or (c).
Section 5.11. Governing Law
This Agreement shall be administered, interpreted and enforced under the
internal laws of the State of Delaware without regard to conflicts of laws
thereof.
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IN WITNESS HEREOF, this Agreement has been executed and delivered by the
parties hereto.
OWENS-ILLINOIS, INC.
By
Its:Executive Vice President
------------------------
EMPLOYEE
Address
Employee's Taxpayer
Identification Number:
<PAGE>
Exhibit 10.3
OWENS-ILLINOIS
1997 EQUITY PARTICIPATION PLAN
PHANTOM STOCK AGREEMENT
THIS PHANTOM STOCK AGREEMENT, dated May 17, 1999 is made by and between
Owens-Illinois, Inc., a Delaware corporation (the "Company") and ____________,
an employee of the Company or a Parent Corporation or a Subsidiary (the
"Employee"):
WHEREAS, the Company has established the Owens-Illinois Phantom Stock
Plan (the "Plan"); and
WHEREAS, the Plan provides for the issuance of phantom stock units,
subject to certain vesting conditions thereon and to other conditions stated
herein; and
WHEREAS, the Compensation Committee of the Board of Directors of the
Company (the "Committee") has determined it would be to the advantage and best
interest of the Company and its stockholders to issue the Units provided for
herein to the Employee in partial consideration of services rendered, or to be
rendered, to the Company and/or its subsidiaries; and
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall have
the meaning specified below, unless the context clearly indicates to the
contrary. Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Plan. The masculine pronoun shall include the
feminine and neuter and the singular the plural, where the context so
indicates.
Section 1.1. Cause
"Cause" shall mean dishonesty, disloyalty, misconduct,
insubordination, failure to reasonably devote working time to assigned duties,
failure or refusal to comply with any reasonable rule, regulation, standard or
policy which from time to time may be established by the Company, including,
without limitation, those policies set forth in the Owens-Illinois Policy
Manual in effect from time to time, and failure to fully cooperate with any
investigation of an alleged violation of any such rule, regulation, standard
or policy.
Section 1.2. Common Stock
"Common Stock" shall mean the common stock of the Company, $.01 par
value.
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Section 1.3. Competing Business
"Competing Business" shall mean any person, corporation or other entity
engaged in Australia or in any other country in which the Company manufactures
or sells its products, in the manufacture or sale of glass containers, plastic
containers, plastic closures, plastic prescription containers, labels, or
multipack plastic carriers for beverage bottles, or any other products
manufactured or sold by the Company within the last two (2) years prior to the
Employee's Termination of Employment.
Section 1.4. Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.5. Fair Market Value
"Fair Market Value" of a share of the Company's stock as of a given date
shall be: (i) the closing price of a share of the Company's stock on the
principal exchange on which shares of the Company's stock are then trading, if
any, on the day previous to such date, or, if shares were not traded on the
day previous to such date, then on the next preceding trading day during which
a sale occurred; or (ii) if such stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, (1) the last sales price (if
the stock is then listed as a National Market Issue under the NASD National
Market System) or (2) the mean between the closing representative bid and
asked prices (in all other cases) for the stock on the day previous to such
date as reported by NASDAQ or such successor quotation system; or (iii) if
such stock is not publicly traded on an exchange and not quoted on NASDAQ or a
successor quotation system, the mean between the closing bid and asked prices
for the stock, on the day previous to such date, as determined in good faith
by the Committee; or (iv) if the Company's stock is not publicly traded, the
fair market value established by the Committee acting in good faith.
Section 1.6. Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in such
chain.
Section 1.7. Plan
"Plan" shall mean the Company's Phantom Stock Plan.
Section 1.8. Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act,
as such Rule may be amended from time to time.
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Section 1.9. Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.10. Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.11. Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. "Subsidiary" shall also
mean any partnership in which the Company and or any Subsidiary owns more than
fifty (50%) percent of the capital or profits interests.
Section 1.12. Termination of Employment
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Employee and the Company, a Parent Corporation or a
Subsidiary is terminated for any reason, with or without Cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment of the Employee by the
Company, a Parent Corporation or any Subsidiary, (b) terminations where the
Employee continues a relationship (e.g., as a director or as a consultant)
with the Company, a Parent Corporation or a Subsidiary. The Committee, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of
limitation, the question of whether a Termination of Employment resulted from
a discharge for good cause, and all questions ofwhether a particular leave of
absence constitutes a Termination of Employment. Notwithstanding any other
provision of this Agreement, the Company or any Subsidiary has the absolute
and unrestricted right to terminate the Employee's employment at any time for
any reason whatsoever, with or without Cause.
ARTICLE II.
ISSUANCE OF UNITS
Section 2.1. Issuance of Units
In consideration of the services rendered or to be rendered to the
Company, a Parent Corporation or a Subsidiary and for other good and valuable
consideration which the Committee has determined to be equal to the par value
of its Common Stock, on the date hereof the Company awards to the Employee
_______ Units of Phantom Stock (the "Units"), upon the terms and conditions
set forth in this Agreement.
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Section 2.2. No Right to Continued Employment
Nothing in this Agreement or in the Plan shall confer upon the Employee
any right to continue in the employee of the Company, any Parent Corporation
or any Subsidiary or shall interfere with or restrict in any way the rights of
the Company, any Parent Corporation or any Subsidiary, which are hereby
expressly reserved, to discharge the Employee at any time for any reasons
whatsoever, with or without Cause.
ARTICLE III.
VESTING EXERCISE
Section 3.1. Termination of Units
Until vested, all Units issued to the Employee pursuant to this
Agreement are subject to termination by the Company immediately upon a
Termination of Employment other than from death or total disability (as
determined by the Committee in accordance with Company plans and policies),
in which event all Units shall immediately fully vest.
Section 3.2. Vesting of Units
The Units shall fully vest upon the later to occur of (a) the third
anniversary of this Agreement, and (b) normal retirement (as determined by the
Committee in accordance with Company plans and policies), early retirement
with the consent of the Chief Executive Officer of the Company (or, in the
case of the Chief Executive Officer of the Company, with the consent of the
Committee), or a Termination of Employment that is not initiated by, and not
voluntary on the part of the Employee, other than for Cause. Subject to the
terms of the Plan, the Employee may exercise his right to receive payment on a
vested Unit or Units by delivering written notice to the Company. The notice
should identify the Unit or Units to be exercised. The Employee's right to
receive payment on a vested Unit shall permanently expire three (3) months
after the date on which the Unit vests. Payment by the Company shall be made
in shares of Common Stock. The Company shall issue one share of Common Stock
to the Employee for each vested Unit exercised by the Employee.
Section 3.3. Merger, Consolidation, Acquisition, Liquidation or Dissolution
Notwithstanding any other provision of this Agreement, upon the merger
or consolidation of the Company into another corporation, the acquisition by
another corporation or person (excluding any employee benefit plan of the
Company or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company) of all or substantially all of the Company's
assets or 51% or more of the Company's then outstanding voting stock, or the
liquidation or dissolution of the Company, the Committee shall then provide by
resolution adopted prior to such event that, at some time prior to the
effective date of such event, all outstanding Units not previously terminated
pursuant to Section 3.1 shall fully vest.
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Section 3.4. Adjustments
In the event of any change in the number of outstanding shares of Common
Stock as a result of a stock dividend or stock split, the Company shall make a
corresponding and proportionate adjustment in the number of Units credited to
the Employee. If the outstanding shares of Common Stock are changed into or
exchanged for a different number or kind of securities of the Company other
than by reason of a stock dividend or stock split, the Committee shall
determine a similar appropriate adjustment, and the same shall be made in the
number of Units then credited to the Employee.
ARTICLE IV.
NON-COMPETITION/NON-SOLICITATION
Section 4.1. Covenant Not to Compete
Employee covenants and agrees that prior to Employee's Termination of
Employment and for a period of three (3) years following the Employee's
Termination of Employment, Employee shall not, in Australia or in any other
country in which the Company manufactures or sells it products, engage,
directly or indirectly, whether as principal or as agent, officer, director,
employee, consultant, shareholder or otherwise, alone or in association with
any other person, corporation or other entity, in any Competing Business.
Section 4.2. Non-Solicitation of Customers
Employee agrees that prior to his Termination of Employment he shall
not, directly or indirectly, solicit the business of, or do business with, any
customer or prospective customer of the Company for any business purpose other
than for the benefit of the Company. Employee further agrees that for three
(3) years following Employee's Termination of Employment, including without
limitation termination by the Company for Cause or without Cause, Employee
shall not, directly or indirectly, solicit the business of, or do business
with, any customers or prospective customers of the Company.
Section 4.3. Non-Solicitation of Employees
Employee agrees that prior to his Termination of Employment and for
three (3) years following Employee's Termination of Employment, including
without limitation termination by the Company for Cause or without Cause,
Employee shall not, directly or indirectly, solicit or induce, or attempt to
solicit or induce, any employee of the Company to leave the employment of the
Company for any reason whatsoever, or hire any employee of the Company except
into the employment of the Company.
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Section 4.4. Exception
Notwithstanding anything contained in this Agreement to the contrary,
the restrictions set forth in Section 4.1 above shall lapse and be of no
further effect in the event of a Termination of Employment that is not
initiated by, and not voluntary on the part of the Employee, other than for
Cause.
ARTICLE V.
MISCELLANEOUS
Section 5.1. Administration
The Committee shall have the power to interpret the Plan and this
Agreement, and to adopt such rules for the administration, interpretation, and
application of the Plan as are consistent therewith, to interpret, amend or
revoke any such rules. All action taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Employee, the Company and all other interested persons. In its
absolute discretion, the Board may at any time and from time to time exercise
any and all rights and duties of the Committee under the Plan or this
Agreement except with respect to matters which under Rule 16b-3, or any
regulations or rules issued thereunder, are required to be determined in the
sole discretion of the Committee. No member of the Committee or Board shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Plan or the Units, and all members of the
Committee and the Board shall be fully protected by the Company in respect of
any such action, determination or interpretation.
Section 5.2. Units Not Transferable
No Unit or any interest or right therein or part thereof shall be liable
for the debts, contracts or engagements of the Employee or his successors in
interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, hypothecation, encumbrance, assignment or any other
means, whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), any attempted disposition thereof shall be
null and void and of no effect; provided however, that this Section 5.2 shall
not prevent transfers by will or by the applicable laws of descent and
distribution.
Section 5.3. Conditions to Issuance of Stock Certificates
The Company shall not be required to issue or deliver any certificate or
certificates for shares of stock pursuant to this Agreement prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
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(b) The completion of any registration or other qualification of such
shares under any state or federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory
body, which the Committee shall, in its sole discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its sole discretion,
determine to be necessary or advisable; and
(d) Subject to Section 5.9 the payment by the Employee of all amounts
which, under federal, state or local tax law, the Company (or other employer
corporation) is required to withhold upon issuance of the exercise of a Unit;
and
(e) The lapse of such reasonable period of time as the Committee may
from time to time establish for reasons of administrative convenience.
Section 5.4. Notices
Any notice to be given under the terms of this Agreement to the Company
shall be addressed to the Company in care of its Secretary, and any notice to
be given to the Employee shall be addressed to him at the address given
beneath his signature hereto. By a notice given pursuant to this Section 5.4,
either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Employee shall,
if the Employee is then deceased, be given to the Employee's personal
representative if such representative has previously informed the Company of
his status and address by written notice under this Section 5.4. Any notice
shall be deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States or
Australian Postal Service.
Section 5.5. Dividends
At such times as dividends are paid on the outstanding Common Stock, the
Company shall calculate an equivalent dividend (the "Dividend Equivalent") to
be paid on each Unit. The Company shall pay such Dividend Equivalents to the
Employee in the currency in which the Employee's regular compensation is
customarily paid as soon as administratively feasible after the dividend is
paid on the Common Stock.
Section 5.6. Titles
Titles are provided her in for convenience only and are not to serve as
a basis for interpretation or construction of this Agreement.
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Section 5.7. Conformity to Securities Laws
The Employee acknowledges that the Plan and this Agreement is intended
to conform to the extent necessary with all provisions of the Securities Act
and the Exchange Act and any and all regulations and rules promulgated by the
Securities and Exchange Commission thereunder, including, without limitation,
the applicable exemptive conditions of Rule 16b-3. Notwithstanding anything
herein to the contrary, this Agreement shall be administered only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
Section 5.8. Amendments
This Agreement and the Plan may be amended without the consent of the
Employee provided that such amendment would not impair any rights of the
Employee under this Agreement. No amendment of this Agreement shall, without
the consent of the Employee, impair any rights of the Employee under this
Agreement.
Section 5.9. Tax Withholding
The Company's obligation : (i) to issue or deliver to the Employee any
certificate or certificates for unrestricted shares of stock; or (ii) to pay
to the Employee any dividends or make any distributions with respect to the
Units, is expressly conditioned upon receipt from the Employee, on or prior to
the date reasonably specified by the Company of:
(a) Full payment (in cash or by check ) of any amount that must be
withheld by the Company for federal, state and/or local tax purposes; or
(b) Subject to the Committee's consent, full payment by delivery to
the Company of unrestricted shares of the Company's Common Stock previously
owned by the Employee duly endorsed for transfer to the company by the
Employee with an aggregate Fair Market Value (determined, as applicable, as of
the date of vesting or as of the date of the distribution) equal to the amount
that must be withheld by the Company for federal, state and/or local tax
purposes; or
(c) Subject to the Committee's consent, an combination of payments
provided for in the foregoing subsections (a) or (b).
Section 5.10. Governing Law
This Agreement shall be administered, interpreted and enforced under the
internal laws of the State of Delaware, U.S.A., without regard to conflicts of
laws thereof.
8
<PAGE>
IN WITNESS HEREOF, this Agreement has been executed and delivered by the
parties hereto.
OWENS-ILLINOIS, INC.
By
Its: Executive Vice President
------------------------
EMPLOYEE
Address
Employee's Taxpayer
Identification Number:
<PAGE>
Exhibit 12
OWENS-ILLINOIS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(Millions of dollars, except ratios)
Six Months ended June 30,
-----------------------------------
Pro Forma
As Adjusted For
BTR Packaging
Acquisition
1999 1998 1998
Earnings before income taxes, and ------ ------ ---------------
minority share owners' interests . $307.7 $301.6 $348.8
Less: Equity earnings . . . . . . . (9.0) (9.2) (10.1)
Add: Total fixed charges deducted
from earnings . . . . . . . 223.0 177.2 232.6
Proportional share of pre-tax
earnings (loss) of 50% owned
associates. . . . . . . . . 4.4 3.3 4.6
Dividends received from less
than 50% owned associates . 6.7 2.1 2.1
------ ------ ------
Earnings available for payment
of fixed charges. . . . . . $532.8 $475.0 $578.0
====== ====== ======
Fixed charges (including the Company's
proportional share of 50% owned
associates):
Interest expense. . . . . . . $204.6 $161.1 $211.4
Portion of operating lease rental
deemed to be interest . . . 14.0 12.9 14.6
Amortization of deferred
financing costs and debt
discount expense. . . . . . 4.4 3.2 6.6
------ ------ ------
Total fixed charges deducted from
earnings and fixed charges. $223.0 $177.2 $232.6
Preferred stock dividends (increased to
assumed pre-tax amount). . . . . . 18.2 4.4 16.4
------ ------ ------
Combined fixed charges and preferred
stock dividends. . . . . . . . . . $241.2 $181.6 $249.0
====== ====== ======
Ratio of earnings to fixed charges . 2.4 2.7 2.5
Ratio of earnings to combined fixed
charges and preferred stock
dividends. . . . . . . . . . . . . 2.2 2.6 2.3
EXHIBIT 23
CONSENT OF MCCARTER & ENGLISH, LLP
August 13, 1999
Ladies and Gentlemen:
We consent to the incorporation by reference in this Quarterly Report on
Form 10-Q of Owens-Illinois, Inc. for the quarter ended June 30, 1999, of the
reference to our firm under the caption "Legal Proceedings."
Very truly yours,
/s/McCarter & English, LLP
--------------------------
McCarter & English, LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
June 30, 1999 condensed consolidated balance sheet, and the condensed
consolidated results of operations for the six-month period then ended
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 301,300,000
<SECURITIES> 0
<RECEIVABLES> 894,600,000
<ALLOWANCES> 51,100,000
<INVENTORY> 861,500,000
<CURRENT-ASSETS> 2,237,000,000
<PP&E> 5,419,800,000
<DEPRECIATION> 2,055,200,000
<TOTAL-ASSETS> 10,837,600,000
<CURRENT-LIABILITIES> 1,256,800,000
<BONDS> 5,588,500,000
0
465,400,000
<COMMON> 1,600,000
<OTHER-SE> 2,053,600,000
<TOTAL-LIABILITY-AND-EQUITY> 10,837,600,000
<SALES> 2,730,100,000
<TOTAL-REVENUES> 2,868,900,000
<CGS> 2,068,200,000
<TOTAL-COSTS> 2,068,200,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209,000,000
<INCOME-PRETAX> 307,700,000
<INCOME-TAX> 118,400,000
<INCOME-CONTINUING> 180,200,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180,200,000
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.08
</TABLE>
