FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JULY 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________________________
Commission file number: 0-3136
RAVEN INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
SOUTH DAKOTA 46-0246171
- ------------------------------------------------- ---------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
205 EAST 6TH STREET
P.O. BOX 5107
SIOUX FALLS, SD 57117-5107
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
605-336-2750
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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 _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF SEPTEMBER 3, 1998
- --------------------------------- -----------------------------------
Common Stock 4,713,803 shares
<PAGE>
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I-FINANCIAL INFORMATION
Consolidated Balance Sheets as of July 31, 1998,
January 31, 1998 and July 31, 1997 3
Consolidated Statements of Income for the three and six months
ended July 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
six months ended July 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-9
PART II-OTHER INFORMATION 10
<PAGE>
PART I - FINANCIAL INFORMATION
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
07/31/98 01/31/98 07/31/97
-------- -------- --------
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents ................................... $ 2,129 $ 2,850 $ 2,645
Accounts and note receivable, less allowance for
doubtful accounts of $407, $390 and $345 .................. 20,066 26,973 18,816
Inventories:
Materials ................................................. 19,493 17,801 18,637
In process ................................................ 6,604 3,882 5,013
Finished goods ............................................ 8,462 4,133 7,937
------- ------- -------
Total inventories ..................................... 34,559 25,816 31,587
Deferred income taxes ....................................... 1,682 1,686 2,064
Prepaid expenses and other current assets ................... 216 506 435
------- ------- -------
Total current assets .................................. 58,652 57,831 55,547
------- ------- -------
Property, plant and equipment ............................... 56,040 53,805 50,339
Less: accumulated depreciation ............................ 36,092 33,988 32,062
------- ------- -------
Net property, plant and equipment ..................... 19,948 19,817 18,277
Note receivable, less current portion ....................... 1,365 1,259
Other assets, net ........................................... 3,482 3,683 5,728
------- ------- -------
TOTAL ASSETS ................................................ $83,447 $82,590 $79,552
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt ........................... 1,682 1,765 757
Accounts payable ............................................ 5,725 7,480 5,789
Accrued liabilities and customer advances ................... 9,960 10,130 10,352
------- ------- -------
Total current liabilities ............................. 17,367 19,375 16,898
Long-term debt, less current portion ........................ 4,584 1,128 2,610
Deferred income taxes ....................................... 524 524 736
Stockholders' equity
Common stock, $1 par value, authorized shares: 100,000,000;
issued: 5,214,406; 5,210,832 and 5,203,395 shares ........ 5,214 5,211 5,203
Paid in capital ........................................... 2,849 2,844 2,758
Retained earnings ......................................... 58,217 57,131 54,257
------- ------- -------
66,280 65,186 62,218
Less treasury stock, at cost:
471,203; 386,403 and 352,403 shares ................... 5,308 3,623 2,910
------- ------- -------
Total stockholders' equity ............................ 60,972 61,563 59,308
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $83,447 $82,590 $79,552
======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Page 3
<PAGE>
PART I - FINANCIAL INFORMATION
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per-share data)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
---------------------- ----------------------
07/31/98 07/31/97 07/31/98 07/31/97
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ................... $ 36,208 $ 34,075 $ 68,370 $ 69,741
Cost of goods sold .......... 30,175 28,000 56,918 56,839
-------- -------- -------- --------
Gross profit .............. 6,033 6,075 11,452 12,902
Operating expenses
Selling ................... 2,030 2,018 4,111 3,954
Administrative ............ 1,620 1,650 3,352 3,253
-------- -------- -------- --------
Operating income ....... 2,383 2,407 3,989 5,695
Interest expense ............ (144) (78) (228) (166)
Other income, net ........... 102 147 180 281
-------- -------- -------- --------
Income before income taxes 2,341 2,476 3,941 5,810
Income taxes ................ 839 874 1,415 2,074
-------- -------- -------- --------
Net income ................ $ 1,502 $ 1,602 $ 2,526 $ 3,736
======== ======== ======== ========
Net income per common share:
Basic .............. $ 0.31 $ 0.33 $ 0.53 $ 0.77
Diluted ............ $ 0.31 $ 0.33 $ 0.52 $ 0.77
Cash dividends paid per share $ 0.160 $ 0.130 $ 0.320 $ 0.031
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Page 4
<PAGE>
PART I - FINANCIAL INFORMATION
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
---------------------
07/31/98 07/31/97
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income .......................................... $ 2,526 $ 3,736
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization ................... 2,710 2,660
Provision for losses on accounts receivable ..... 104 101
Deferred income taxes ........................... 4
Equity in earnings of affiliate, net of dividends (100)
Change in accounts receivable ................... 6,803 6,720
Change in inventories ........................... (8,743) (6,462)
Change in other current assets .................. 290 (4)
Change in operating liabilities ................. (1,925) (2,509)
Other ........................................... (103) (11)
------- -------
Net cash provided by operating activities ........... 1,666 4,131
Cash flows from investing activities:
Capital expenditures ................................ (2,680) (2,750)
Other ............................................... 37 166
------- -------
Net cash used in investing activities ............... (2,643) (2,584)
Cash flows from financing activities:
Issuance of short-term debt ......................... 4,000
Payment of short-term debt .......................... (4,000)
Issuance of long-term debt .......................... 5,000
Long-term debt principal payments ................... (1,627) (1,184)
Net proceeds from exercise of stock options ......... 8 100
Dividends paid ...................................... (1,440) (1,257)
Purchase of treasury stock .......................... (1,685)
------- -------
Net cash provided by (used in) financing activities . 256 (2,341)
------- -------
Net decrease in cash and equivalents ................ (721) (794)
Cash and cash equivalents at beginning of period ...... 2,850 3,439
------- -------
Cash and cash equivalents at end of period ............ $ 2,129 $ 2,645
======= =======
Cash paid during the period for:
Interest .......................................... $ 165 $ 181
Income taxes ...................................... $ 1,525 $ 2,693
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
Page 5
<PAGE>
PART I - FINANCIAL INFORMATION
RAVEN INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X of the Securities and Exchange
Commission (SEC). Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three-month and six-month periods ended July
31, 1998 are not necessarily indicative of the results that may be
expected for the year ending January 31, 1999. For further information,
refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended
January 31, 1998.
2. Details of the earnings per share computation are presented below
(dollars in thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
------------------------- -------------------------
07/31/98 07/31/97 07/31/98 07/31/97
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income ...................... $ 1,502 $ 1,602 $ 2,526 $ 3,736
========== ========== ========== ==========
Average common shares outstanding 4,779,070 4,842,691 4,802,925 4,839,833
Dilutive impact of stock options 8,301 54,186 14,890 41,366
---------- ---------- ---------- ----------
Average common and common
equivalent shares outstanding . 4,787,371 4,896,877 4,817,815 4,881,199
========== ========== ========== ==========
Net income per share:
Basic ...................... $ 0.31 $ 0.33 $ 0.53 $ 0.77
Diluted .................... $ 0.31 $ 0.33 $ 0.52 $ 0.77
</TABLE>
3. In May 1998, the company borrowed $5.0 million under a long-term
unsecured note with Norwest Bank South Dakota, N.A. at 8.0 percent
interest. Five $1.0 million principal payments are due under the note
beginning in fiscal year 2000 and continue through fiscal year 2004.
Page 6
<PAGE>
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The company's cash balance was $2.1 million at July 31, 1998, compared with $2.6
million one year earlier. The company obtained additional long-term financing in
the amount of $5.0 million. This was used to repay $4.0 million of short-term
borrowing and provide funds for the potential repurchase of common shares. The
company retains a $5.0 million conditional line of credit. The company
repurchased 84,800 shares of its stock during the second quarter. The average
purchase price was $19.87 per share for a total of $1.7 million. As of July 31,
1998, the company's long-term debt including the current portion was $6.3
million compared with $3.4 million one year earlier. Inventory levels increased
$3.0 million from July 31, 1997, due primarily to later scheduled deliveries in
the Sewn Products segment. The company's capital resources continue to be
sufficient to fund all its activities.
RESULTS OF OPERATIONS
Sales were $36.2 million for the quarter ended July 31, 1998, an increase of
$2.1 million over the second quarter of the prior year. First half sales of
$68.4 million were $1.4 million below the comparable period of the prior fiscal
year. Lower sales in both the Plastics segment and the Sewn Products segment
contributed to this result. Net income of $1.5 million or $0.31 per share
(basic) in the second quarter was $100,000 below the second quarter of fiscal
1998. For the first six months, net income of $2.5 million or $0.53 per share
(basic) was $1.2 million or $0.24 per share lower than one year earlier.
Operating income for the first six months was lower in each of the company's
business segments.
Electronics segment sales of $11.5 million in the second quarter were $2.5
million more than the same period the prior year. The second quarter operating
income for the Electronics segment was $1.0 million, more than double from the
comparable period last year. For the first six months, sales totaled $23.2
million, up 10 percent over last year. Operating income for the first half of
the year totaled $2.2 million, which was $247,000 less than the first six months
of fiscal 1998. Second quarter sales of $2.9 million for flow control devices
represented an increase of 4 percent over last year's second quarter. Despite
this result, management expects that the weak agricultural market may have an
unfavorable impact on the sales of flow control devices. Sales of contract
electronics were up, and the margins generated showed a marked improvement over
the first quarter of fiscal 1999. Higher sales of feedmill automation systems,
along with increased margins on this product line, have contributed heavily to
this segment's performance.
Plastics segment sales of $16.8 million for the second quarter were 1 percent
higher than the same period last year. Sales of $33.3 million for the first six
months were 4 percent lower than the first half of fiscal 1998. Continuing weak
sales in the industrial market for plastic storage tanks were offset by a higher
sales volume in engineered films and pickup toppers. Operating income for the
second quarter was $1.1 million, up 10 percent
Page 7
<PAGE>
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
over last year. For the first six months, operating income was $1.6 million
compared with $2.0 million for the same period last year.
Sewn Products segment sales of $7.9 million were 6 percent lower than the $8.4
million recorded in the second quarter of last year. Segment sales totaled $11.8
million in the first half of the year, down 16 percent from the six month
results of fiscal 1998. Major customers have scheduled later deliveries this
year, causing the lower sales. Operating income of $293,000 for the second
quarter was 68 percent lower than the same period last year. The first six
months generated operating income of $121,000, 90 percent below the first half
of last year. The second quarter saw the recovery of the operating loss posted
in the first quarter. Lower margins on deliveries of garments, inflatable
display products and hot air balloons have compounded the results. Historical
deliveries of Sewn Products are low during the first half of the year,
therefore, management expects to see an improvement in the next six months.
Consolidated gross profits were 1 percent lower for the second quarter and 11
percent lower for the first half when compared with the same periods last year.
Second quarter net income of $1.5 million was 6 percent below last year's second
quarter. Year-to-date net income of $2.5 million was 32 percent lower the last
year's first half. These results were due primarily to the delivery of lower
margin products in the Sewn Products and Plastics segments. Selling expenses was
2 percent higher for the second quarter than for the same period the previous
year. For the first half of the year, selling expenses were 5 percent higher
than the previous year's first half. This reflects an increased emphasis on
securing new markets in the Electronics and Plastics segments. Administrative
expenses were approximately the same when compared to last year's figures.
Pretax income of $2.3 million for the second quarter was 5 percent less than the
same period the previous year. The pretax income for the first six months was
$3.9 million, 32 percent lower than last year.
YEAR 2000 STATEMENT
The company is working to resolve the potential impact of the year 2000 date
problem. This date problem occurs when computer programs that use a two-digit
year designation recognize "00" as the year 1900. The company has completed its
assessment of the internal operating software used to run its business and is
mid-way into the process required to correct any of the defects found.
Internally, the Company is in the process of analyzing two additional areas
which are: computerized production equipment and computerized building
equipment. Externally, the company is working with its vendors and its customers
to insure that there is no break in the delivery process either with incoming or
outgoing shipments. Even though the company has not completed all of its
assessments, management believes that the costs of addressing this issue will
not have a material adverse impact on the company's financial position. This
assessment is supported by
Page 8
<PAGE>
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
two factors. First, the diversification of the company mitigates the impact of
any business risk. Second, the company obtains a wide variety of raw materials
from numerous sources, and alternative sources of supply are generally
available. However, if the company and the third parties upon which it relies
are unable to address this issue in a timely manner, it could result in a
material adverse risk to the company.
SAFE HARBOR STATEMENT
THIS REPORT CONTAINS DISCUSSIONS OF ITEMS WHICH MAY CONSTITUTE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF FEDERAL SECURITIES LAWS. ALTHOUGH RAVEN
INDUSTRIES BELIEVES THAT EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE BASED ON REASONABLE ASSUMPTIONS, IT CAN GIVE NO ASSURANCES THAT
ITS EXPECTATIONS WILL BE ACHIEVED. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER FROM EXPECTATIONS INCLUDE GENERAL ECONOMIC CONDITIONS, WEATHER CONDITIONS
WHICH COULD AFFECT CERTAIN OF THE COMPANY'S PRIMARY MARKETS SUCH AS THE
AGRICULTURAL MARKET OR ITS MARKET FOR OUTERWEAR, OR CHANGES IN COMPETITION WHICH
COULD IMPACT ANY OF THE COMPANY'S PRODUCT LINES.
Page 9
<PAGE>
PART II-OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities: None
Item 3. Defaults upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None.
Item 5. Other Information: None
Item 6. (a) Exhibits Filed: Exh. 27-Financial Data schedule (for SEC only).
(b) Reports on Form 8-K: None
(c) Exh. 10.1-Change in Control Agreement between Raven Industries,
Inc. and Thomas Iacarella dated as of August 1, 1998.
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.
RAVEN INDUSTRIES, INC.
/s/ Thomas Iacarella
----------------------------------
Thomas Iacarella
Vice President, Finance, Secretary
and Treasurer (Principal Financial
and Accounting Officer)
DATE: SEPTEMBER 9, 1998
Page 10
Exh 10.1
CHANGE IN CONTROL AGREEMENT
AGREEMENT dated as of August 1, 1998, between RAVEN INDUSTRIES, INC., a
South Dakota corporation (the "Company"), and Thomas Iacarella (the
"Executive").
WITNESSETH:
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the Executive's contribution to the growth and success of the Company and
its subsidiaries has been substantial.
WHEREAS, the Board has determined that it is appropriate and in the
best interests of the Company and its stockholders to reinforce and encourage
the continued attention and dedication of members of the Company's management,
including the Executive, to their assigned duties.
WHEREAS, this Agreement sets forth the severance compensation which the
Company agrees it will pay to the Executive if the Executive's employment with
the Company terminates under one of the circumstances described herein following
a Change in Control (as defined herein).
NOW THEREFORE, in consideration of the mutual covenants and conditions
herein contained and in further consideration of services performed and to be
performed by the Executive for the Company, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following
terms have the meanings indicated:
(a) CHANGE IN CONTROL. A "Change in Control" of the Company
shall occur if:
(i) any person, as defined in Sections 3(a)(9) and
13(d)(3) of the '34 Act, becomes the "beneficial owner" (as
defined in Rule 13d-3 promulgated pursuant to
<PAGE>
the '34 Act), directly or indirectly, of 30% or more of
combined voting power of the Company's then outstanding
securities; or
(ii) the occurrence within any twelve-month period
during the term of the Agreement of a change in the Board with
the result that the Incumbent Members do not constitute a
majority of the Board.
(b) CODE. "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(c) DATE OF TERMINATION. "Date of Termination" shall mean:
(i) if the Executive voluntarily terminates his
employment with the Company, the date on which the Executive
delivers a Notice of Termination to the Company; or
(ii) if the Executive's employment is terminated by
the Company, the date on which the Company delivers a Notice
of Termination to the Executive.
(d) INCUMBENT MEMBERS. "Incumbent Members" in respect of any
twelve-month period, shall mean the members of the Board on the date
immediately preceding the commencement of such twelve-month period,
provided that any person becoming a Director during such twelve-month
period whose election or nomination for election was supported by a
majority of the Directors who, on the date of such election or
nomination for election, comprised the Incumbent Members shall be
considered one of the Incumbent Members in respect of such twelve-month
period.
(e) NOTICE OF TERMINATION. A "Notice of Termination" shall
mean a written notice which shall indicate those specific termination
provisions in this Agreement relied
<PAGE>
upon. Any termination by the Company or the Executive shall be
communicated by a Notice of Termination.
(f) '34 ACT. "'34 Act" shall mean the Securities Exchange Act
of 1934, as amended.
2. TERM. This Agreement shall commence on the date first above written
and shall continue in effect until August 1, 1999. Commencing on August 1, 1999,
and each August 1, thereafter, the term of this Agreement shall automatically be
extended for one additional year to August 1, 2000 and each August 1,
thereafter, unless at least sixty days immediately preceding such August 1, the
Company shall have given the Executive written notice that the Company does not
wish to extend this Agreement; provided that this Agreement shall continue in
effect beyond the term provided herein if a Change of Control shall have
occurred during such term or if any obligation of the Company hereunder remains
unpaid as of such time.
3. SEVERANCE COMPENSATION UPON A CHANGE OF CONTROL AND TERMINATION OF
EMPLOYMENT. If (a) a Change of Control of the Company shall have occurred while
the Executive is an employee of the Company, and (b) within two (2) years after
the date of such Change in Control the Company, except in the case of the
Executive's death, terminates the Executive's employment or the Executive shall
voluntarily terminate employment with the Company, then
(a) the Company shall pay the Executive any earned and accrued
but unpaid installment of base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given and
all other unpaid amounts to which the Executive is entitled as of the
Date of Termination under any compensation plan or program of the
<PAGE>
Company, including, without limitation, all accrued vacation time; such
payments to be made in a lump sum on or before the fifth day following
the Date of Termination;
(b) in lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination, the Company shall
pay to the Executive an amount equal to the product of (A) the sum of
(i) the Executive's annual base salary in effect as of the Date of
Termination and (ii) the target or goal amount under the Management
Incentive Plan for the year in which occurs such Date of Termination
and (B) the number 2; such payment to be made in a lump sum on or
before the fifth calendar day following the Date of Termination;
(c) if the payment provided under paragraph (b) above (the
"Contract Payment") or any other portion of the Total Payments (as
defined below) will be subject to the tax (the "Excise Tax") imposed by
section 4999 of the Code, the Company shall pay the Executive on or
before the fifth calendar day following the Date of Termination, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the
Contract Payment and such other Total Payments and any federal and
state and local income tax and Excise Tax upon the payment provided for
by this paragraph, shall be equal to the Contract Payment and such
other Total Payments. For purposes of determining whether any of the
payments will be subject to the Excise Tax and the amount of such
Excise Tax, (A) any other payments or benefits received or to be
received by the Executive in connection with a Change in Control of the
Company or the Executive's termination of employment, whether payable
pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company, its successors, any person whose
actions result in a Change in Control of the Company or any corporation
<PAGE>
affiliated (or which, as a result of the completion of a transaction
causing a Change in Control, will become affiliated) with the Company
within the meaning of Section 1504 of the Code (together with the
Contract Payment, the "Total Payments") shall be treated as "parachute
payments" within the meaning of section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of Section 280G(b)(1)
shall be treated as subject to the Excise Tax, unless in the opinion of
tax counsel selected by the Company's independent auditors and
acceptable to the Executive the Total Payments (in whole or in part) do
not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services
actually rendered within the meaning of section 280G(b)(4) of the Code
either in their entirety or in excess of the base amount within the
meaning of section 280G(b)(3) of the Code, or are otherwise not subject
to the Excise Tax, (B) the amount of the Total Payments that shall be
treated as subject to the Excise Tax shall be equal to the lesser of
(i) the total amount of the Total Payments or (ii) the amount of excess
parachute payments within the meaning of section 280G(b)(1) (after
applying clause (A), above), and (C) the value of any non-cash benefits
or any deferred payment or benefit shall be determined by the Company's
independent auditors in accordance with the principles of sections
280G(d)(3) and (4) of the Code. For purposes of determining the amount
of the Gross-Up Payment, the Executive shall be deemed to pay federal
income taxes at the highest marginal rate of federal income taxation in
the calendar year in which the Gross-Up Payment is to be made and state
and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive's residence on the Date of
Termination, net of the maximum reduction in federal income taxes which
could be
<PAGE>
obtained from deduction of such state and local taxes. In the event
that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company at the
time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such
reduction (plus the portion of the Gross-Up Payment attributable to the
Excise Tax and federal and state and local income tax imposed on the
Gross-Up Payment being repaid by the Executive if such repayment
results in a reduction in Excise Tax and/or a federal and state and
local income tax deduction) plus interest on the amount of such
repayment at the rate provided in section 1274(d) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the Executive's
employment (including by reason of any payment the existence or amount
of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such
excess) at the time that the amount of such excess is finally
determined;
(d) the Company shall maintain in full force and effect for
two (2) years following the Date of Termination, or until the Executive
reaches age 65, whichever occurs first, for the continued benefit of
the Executive, all employee welfare benefit plans and perquisite
programs in which the Executive was entitled to participate immediately
prior to the Date of Termination provided that the Executive's
continued participation is possible under the general terms and
provisions of such plans and programs. In the event that the
Executive's participation in any such plan or program is barred, the
Company shall, at its sole cost and expense, arrange to provide the
Executive with benefits substantially similar
<PAGE>
to those
which the Executive would otherwise have been entitled to receive under
such plans and programs from which his continued participation is
barred; and
(e) the Executive shall, effective the Date of Termination, be
deemed a "Participant" and vested in all respects under the Company's
Executive Post-Retirement Health and Survivor Benefit Plan, dated
February 1, 1989, regardless of whether the Executive otherwise then
satisfies the requirements for eligibility under such Plan; provided
that the benefits specified under such Plan shall (A) not become
payable until the expiration of two (2) years from the Date of
Termination, or when the Executive reaches age 65, whichever occurs
first, and (B) not be provided to the extent such benefits are provided
to the Executive by another employer at no cost to the Executive.
In the event a Change in Control of the Company shall have occurred
while the Executive is an employee of the Company and, within two (2) years
after the date of such Change in Control the Executive shall die while still an
employee of the Company, the amount specified in Subsection 3(a) shall be paid
by the Company to such Executive's estate, and such deceased Executive's spouse
and eligible dependents shall be entitled to all of the benefits specified in
the Company's Executive Post-Retirement Health and Survivor Benefit Plan as if
such deceased Executive had delivered a Notice of Termination to the Company
immediately prior to such death.
4. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS.
(a) The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment
provided for under this Agreement be reduced by any
<PAGE>
compensation earned by the Executive as the result of employment by
another employer after the Date of Termination, or otherwise, except as
provided in Subsection 3(e)(B).
(b) The provisions of this Agreement, and any payment provided
for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would
accrue solely as a result of the passage of time, under any benefit
plan, employment agreement or other contract, plan or arrangement.
5. SUCCESSOR TO THE COMPANY.
(a) The Company will require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company,
by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to
perform this Agreement in the same manner and to the same extent that
the Company would be required to perform it if no such succession or
assignment had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor or assign to
its business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Section 5 or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of
law. If at any time during the term of this Agreement the Executive is
employed by any corporation a majority of the voting securities
of which is then owned by the Company, "Company" as used in this
Agreement shall in addition include such employer. In such event, the
Company agrees that it shall pay or shall cause such employer to pay
any amounts owed to the Executive pursuant to Section 3 hereof.
<PAGE>
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees
and legatees. If the Executive should die while any amounts are still
payable to him hereunder, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to
the Executive's devisee, legatee, or other designee or, if there be no
such designee, to the Executive's estate.
6. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or when mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company:
Raven Industries, Inc.
205 East 6th Street
P.O. Box 5107
Sioux Falls, South Dakota 57117
Attention: President
If to the Executive:
Thomas Iacarella
913 E. 61st Street
Sioux Falls, SD 57108
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
7. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No
<PAGE>
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provision or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement. This Agreement shall be governed
by and construed in accordance with the laws of the State of South Dakota.
8. VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. FEES AND EXPENSES. The Company shall pay all fees and expenses
(including attorney's fees) which the Executive may incur as a result of the
Company's contesting the validity, enforceability or the Executive's
interpretation of, or determinations under, this Agreement, regardless of
whether the Company is successful in such contest.
11. CONFIDENTIALITY. The Executive shall retain in confidence any and
all confidential information known to the Executive concerning the Company and
its business so long as such information is not otherwise publicly disclosed.
12. COMPANY'S RIGHT TO TERMINATE. Notwithstanding anything contained in
this Agreement to the contrary, the Company may terminate the Executive's
employment at any time,
<PAGE>
for any reason or no reason, and no provision contained herein shall affect the
Company's ability to terminate the Executive's employment at any time, with or
without cause. Nothing in this Agreement shall in any way require the Company to
provide any of the benefits specified in this Agreement prior to a Change in
Control, nor shall this Agreement be construed in any way to establish any
policies or other benefits for the Executive or any other employee of the
Company whose employment with the Company is terminated prior to a Change in
Control.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
ATTEST: RAVEN INDUSTRIES, INC.
By /s/ Gary L. Conradi By /s/ David A. Christensen
Gary L. Conradi, Vice President David A. Christensen, President and
Chief Executive Officer
ATTEST:
By /s/ Karen M. Iversen /s/ Thomas Iacarella
Thomas Iacarella
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