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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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|X|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 333-31071
Wells Aluminum Corporation
(Exact name of Registrant as Specified in Its Charter)
Maryland
(State or Other Jurisdiction of 35-1139550
Incorporation or Organization) (I.R.S. Employer
Identification No.)
809 Gleneagles Court, Suite 300
Baltimore, Maryland 21286
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (410) 494-4500
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of March 30, 1998, the registrant had 909,005.0 shares of
Common Stock outstanding.
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TABLE OF CONTENTS
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PART I ............................................................................................................1
Item 1. Business ................................................................................................1
Item 2. Properties ..............................................................................................9
Item 3. Legal Proceedings .......................................................................................9
Item 4. Submission of Matters to a Vote of Security Holders ....................................................10
PART II ..........................................................................................................10
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ................................. 10
Item 6. Selected Financial Data ................................................................................10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................11
Item 8. Financial Statements and Supplementary Data ............................................................20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................40
PART III .........................................................................................................40
Item 10. Directors and Executive Officers of the Registrant ..................................................40
Item 11. Executive Compensation ..............................................................................42
Item 12. Security Ownership of Certain Beneficial Owners and Management ......................................45
Item 13. Certain Relationships and Related Transactions ......................................................47
PART IV ..........................................................................................................47
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K ....................................47
SIGNATURES .......................................................................................................49
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PART 1.
ITEM 1. BUSINESS
The following description of Wells Aluminum Corporation ("Wells" or the
"Company"), the aluminum extrusion industry, and the Company's business contains
statements which constitute forward looking statements, and not historical
facts, within the meaning of the Private Securities Litigation Reform Act of
1995. These statements appear in a number of places and include statements
regarding the intent, belief or current expectations of the Company or its
officers primarily with respect to the future prospects, financial condition and
operating performance of the Company. Any such forward looking statements
regarding the Company, the aluminum extrusion industry, and the Company's
business are not guarantees of future performance and involve risks and
uncertainties. A variety of factors could cause actual results to differ
materially from those anticipated in the Company's forward looking statements.
THE COMPANY
Wells Aluminum Corporation was incorporated in Maryland in November 1967 as
the successor to an aluminum extrusion business which began in the early 1950's.
Gibbons, Goodwin, van Amerongen ("GGvA") is the sole general partner of Wells
Holdings Limited Partnership, which currently owns 61.6% of the outstanding
shares of the Company's common stock. As a result, GGvA has the controlling
interest in the Company and has the power to elect a majority of the directors
of the Company and to control all matters submitted to the stockholders of the
Company, including approving business combinations involving the Company. CVG
Industria Venezolana de Aluminio, C.A. ("Venalum"), a nationally owned company
in Venezuela, has a significant minority interest in the Company, holding 19.8%
of the outstanding shares of the Company's common stock.
Wells is a custom extruder, finisher and fabricator of soft alloy aluminum
products, principally for the building/construction, transportation, consumer
durables and equipment/electrical markets. In addition to the production of mill
finished extrusions, the Company's operations include painting, anodizing and
fabrication, which enables the Company to provide its customers with
assembly-ready aluminum components and assemblies. The Company shipped
approximately 154.9 million pounds of aluminum extrusions in 1997, an increase
of 16.5 million pounds, or 11.9%, over the 1996 shipments of 138.4 million
pounds.
The Company's network of plants consists of seven facilities in six states
in the midwestern and southeastern United States. These facilities contain
twelve extrusion presses, sizes 7" to 10", and are located to meet various
regional demands, minimize transportation costs, balance production requirements
among plants and provide single source reliability to large customers. The
Company also operates its own casting facility for aluminum billet, enabling the
Company to manage its internal billet requirements as well as to recycle its
scrap for use in its extrusion operations. The Company believes that its ability
to cast the majority of its billet needs provides a cost advantage over those
extruders without an internal casting capability.
The Company sells its products to approximately 800 customers primarily in
the building/construction, transportation, consumer durables and
equipment/electrical markets. In 1997, the Company's top ten customers received
approximately 39% of the Company's shipped volume in pounds sold, with the top
twenty-five customers accounting for approximately 59%. For 1997, no single
customer accounted for more that 10% of the Company's net sales measured in
dollars.
The Company focuses on long-term customer relationships to maintain and
enhance its business prospects. Approximately two-thirds of the Company's 1997
sales in extrusion pounds shipped were made to customers that have been
customers of the Company for more than ten years. The Company believes that its
relatively stable customer base is attributable, in part, to the Company's
ability to provide a high level of customer service, engineering expertise and
quality products at competitive prices.
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PRODUCTS
Through its regional plant system, Wells is able to produce a broad range
of extruded, finished and fabricated aluminum products used by its customers in
the manufacture of their end products. In 1997, over 90% of the products sold by
the Company were designed and manufactured according to individual customer
specifications. The Company believes that the large share of customized products
sold by the Company can be attributed to the Company's product quality, high
level of customer service, the coordination between its sales force and
engineering staff at each plant, engineering design capabilities, and its
extensive extrusion, finishing and fabrication capabilities.
Building/Construction
In the building/construction market, the Company produces extrusions and
fabricated products for residential and commercial window and door frames, storm
doors, vents and louvers, railings, stadium seating systems, patio enclosures
and a variety of architectural specialty applications. The Company also
manufactures and markets a proprietary line of sliding patio doors and a line of
commercial entrance doors and storefront systems. In 1997, shipments to
customers in the building/construction market represented approximately 45% of
the Company's total pounds sold. Of the pounds sold in this market,
approximately 60% were shipped to customers in the residential segment with the
remaining pounds being shipped to customers in the commercial segment.
Transportation
In the transportation market, the Company produces extrusions and
fabricated products for truck cabs, commercial truck trailers, recreational
vehicles, utility trailers and automotive accessories. The Company also produces
a number of complex assemblies, including complete door frames and structural
sub frames for use in Class 8 truck tractors and complete window assemblies for
use in school buses and delivery vans. In 1997, approximately 23% of the
Company's total pounds sold were shipped to customers in the transportation
market.
Consumer Durables
In the consumer durables market, the Company produces extrusions and
fabricated products for a wide variety of applications, including the
manufacture of golf carts, high-end office furniture and pleasure boats. In
1997, shipments to customers in the consumer durables market represented
approximately 9% of the Company's total pounds sold.
Equipment/Electrical
In the equipment/electrical market, the Company produces extrusions and
fabricated products for applications such as electrical distribution and
commercial lighting systems, material handling systems, and industrial guarding
and fixturing systems. In 1997, approximately 9% of the Company's total pounds
sold were shipped to customers in the equipment/electrical market.
Distributors
For the distributor market, the Company produces extruded products which
the distributors then resell to manufacturers, contractors and other industrial
end users. The Company's focus in the distribution market is on producing
application specific components, which are sold via specialty, value added
distributors. The Company does not regularly participate in the stock
shape/metal service center portion of the distribution market. Thus, the Company
believes that the end use of products produced for distributors and then resold
tends to parallel the uses of customers which the Company serves directly. In
1997, shipments to distributors represented approximately 14% of the Company's
total pounds sold.
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MANUFACTURING
Wells' manufacturing processes involve casting, extruding, finishing and
fabricating soft alloy aluminum. The Company's operations and engineering
activities are directed by its Vice President of Operations, from the Company's
corporate headquarters. Management of production activities is structured to
provide strong decentralized plant operations in combination with certain
centralized corporate functions. Each plant location, of which there are seven,
is managed by an operations manager, who in most cases, is supported by a plant
manager. Operations management focuses on plant site issues, such as customer
service, delivery, product quality, productivity, operating costs and labor,
that are directly under operations control.
Casting
The Company has two casting furnaces and ancillary equipment which are used
to produce aluminum billet. The first step in the casting process is to melt
primary aluminum and aluminum scrap in a large furnace. The molten aluminum is
either directly alloyed in this furnace or transferred to another furnace where
the alloying materials are added. The aluminum is then cast into logs of varying
diameters with lengths of up to 16 feet. Next, these logs are heated and then
cooled at a controlled rate to allow the cast aluminum to achieve the optimally
distributed chemical composition for extrusion, a process called homogenization.
Afterwards, some aluminum logs are cut into shorter lengths called billets, the
main raw material for the production on aluminum extrusions. Aluminum logs and
billets are then transferred to the Company's extrusion plants for subsequent
production of aluminum extrusions.
Extrusion
The Company operates five extrusion plants which have in the aggregate
twelve extrusion presses producing varying sizes of extrusions. Extrusion is a
manufacturing process by which aluminum billet is heated and pushed by a press,
or extruded, through a die to produce a piece of metal in the shape of the die
and at the desired length. Extrusions are then straightened by stretching and
cut to the required lengths which range from 8 to 50 feet. Most extrusions are
hardened by aging in large ovens from 6 to 12 hours. Typically, 75% of the
results of the extrusion process are salable products; the remaining 25% is
aluminum scrap, which is either recast into aluminum billet by the Company or
sold on the open market to metal dealers. Almost all of the Company's dies are
designed to produce aluminum extrusions according to individual customer
specifications.
Finishing
The Company has extensive finishing capabilities with two painting and two
anodizing facilities providing coverage of markets from the East Coast through
the Midwest. In addition, the Company uses contract painters and anodizers to
augment its finishing capabilities. These combined finishing capabilities allow
the Company to provide its customers a single source for components and
assemblies ready for processing. Often additional finishing-related services are
provided, including two-tone painting and taping of painted surfaces for
protection during the customer's manufacturing process. These services enhance
the Company's value to its customers and provide appreciable added income and
profit margin.
Fabrication
The Company has six fabrication operations, of which two are dedicated
fabrication plants. The Company employs a variety of fabrication processes,
including notching, bending, punching, drilling, tight tolerance cutting,
computerized numerical control ("CNC") machining, welding and assembly. These
fabrication operations differ in complexity, ranging from Tier #3 activities,
which include welding, high tolerance machining and assembly, to Tier #1
activities, which involve light punching, manual sawing and drilling, and hand
deburring. Fabricated products may range from a simple cut-to-length extrusion
notched and punched for use as a door threshold, to a
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step assembly for a truck cab, to a curved and fully formed trim cap for use on
an office partition, to a panel van window assembly complete with glass. The
Company's fabrication operations are attractive to those customers interested in
outsourcing certain manufacturing in order to better control operating costs,
manage inventory, accommodate growth, or more sharply focus their own
operations. The Company's fabrication operations provide additional
opportunities to enhance profit margins and help protect the business from
market penetration by other competitors.
Backlog
Extrusion turnaround time is generally sufficiently short as to permit the
Company to fill customer orders for most of its products in a short time period.
Accordingly, the Company does not consider backlog to have a material effect on
its business.
RAW MATERIALS
Wells' principal raw material for aluminum extrusions is aluminum billet,
the majority of which the Company produces at its own casting facility. The main
materials used in the production of billet are primary aluminum ingot and
aluminum scrap. In 1997, the Company purchased approximately 68% of its primary
aluminum requirements pursuant to a long-term supply agreement with Venalum (the
"Venalum Agreement"). The Company believes that the terms of the Venalum
Agreement, which expired on December 31, 1997, reflected market conditions and
were no less favorable to the Company than could have been obtained from
unrelated companies. Over 60% of the aluminum scrap required in 1997 was sourced
from the Company's own manufacturing processes. The remaining requirements for
primary ingot and scrap were purchased from a variety of metal and scrap brokers
and dealers.
The Company and Venalum were unable to reach agreement on extending the
Venalum Agreement or on entering into a new long-term supply agreement.
Consequently, for 1998, the Company has secured commitments with four North
American suppliers to purchase primary aluminum for its casting requirements at
current market prices at the delivery dates. Over 60% of the aluminum scrap
required for 1998 is expected to be sourced from the Company's own manufacturing
processes. The Company believes that its remaining requirements for primary
ingot and scrap are readily available in the open market from metal and scrap
brokers and dealers.
Aluminum Cost Recovery
Aluminum is subject to extensive price volatility in the world market,
reflecting both domestic and international economic demand. The Company seeks to
reduce its exposure to the volatility in aluminum prices by fixing the cost of
metal by hedging against committed fixed price sales or by passing cost
increases through to customers by systematic market indexed sales pricing. The
Company limits its hedging activities to committed sales and does not engage in
speculative hedging. As a further control technique, the Company maintains its
inventory at levels consistent with operating needs (35 days on hand) through
centralized purchasing and logistics, and sells any excess primary aluminum in
the open market, closely matching the cost of metal purchased to the price of
such metal sold. Notwithstanding, any increase in the cost of aluminum purchases
could have an adverse effect on the Company's financial condition and operations
if the Company is unable to pass such increases to its customers or it does not
effectively hedge against such aluminum price changes.
CAPITAL IMPROVEMENTS
Capital expenditures for 1997 totaled $3.0 million, with expenditures of
$1.4 million on extrusion press upgrades, $0.8 million on cast house
improvements, and $0.4 million on additional fabrication capabilities. Since the
middle of 1995, the Company has focused its capital investment on technology and
productivity improvements in extrusion and casting that support the Company's
marketing initiatives. These investments generally have
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expected paybacks of less than 18 months and have increased capacity without
requiring the acquisition of major new equipment. The Company has also made
extensive investments in automated, centralized information systems with all
facilities on-line on a real time basis. The capabilities include automated
order entry and pricing, automated die selection and billet requirements
planning, automated production scheduling and detailed job costing.
The Company plans to make capital expenditures of $4.5 million in 1998 and
$3.5 million annually from 1999 through 2002. The Company intends to continue to
expand capacity by upgrading its equipment rather than purchasing expensive new
equipment. Over the next five years, the Company plans to update and modernize
two extrusion presses per year, increasing extrusion capacity by 10% per press
and reducing scrap generated in the process by 1.5%. The Company believes that
by upgrading its extrusion presses, the Company receives 90% of the productivity
benefits realized by replacing equipment but at 50% of the capital investment
required. In 1998, the Company will upgrade and modernize the homogenizing ovens
at its casting facility which is expected to expand capacity by 5% and improve
the metallurgical properties of the aluminum billet cast. Improved billet
quality will improve extrusion press productivity and reduce the quantity of
scrap generated in the extrusion process. The Company is also investing
selectively in advanced computer isothermal control equipment. The Company
estimates that this technology improvement can increase extrusion press capacity
by 11%.
SALES AND MARKETING
Wells' sales and marketing activities and its field sales force are
directed by its Senior Vice President, Sales and Marketing, from the corporate
headquarters. The centralized sales and marketing organization is accountable
for market research and all product and market development activities, including
promotional materials and activities. These activities include the development
and implementation of customer strategies and the strict maintenance of pricing
discipline throughout the Company. All extrusion pricing is centrally managed
and administered by the Vice President, Sales and Product Management, who
reports to the Senior Vice President, Sales and Marketing.
Two regional sales managers, located in the Southeast and Midwest, have
day-to-day responsibility for directing the sales force and implementing
agreed-to market and customer strategies. The regional sales managers work
hand-in-hand with the operations managers at each plant location to coordinate
customer service and tailor their sales activities to meet the business needs of
the plants. This arrangement allows field sales and operations personnel to
react to changing market conditions, while facilitating a uniform approach to
the market and the reassignment of production requirements among plants when
warranted to maintain customer service or plant utilization. The Company employs
12 direct sales persons and utilizes 10 independent manufacturers'
representatives for its extrusion and fabrication businesses. The Company also
utilizes a number of specialty representatives for its patio door and commercial
doors businesses. Compensation for the direct sales force is comprised of salary
plus performance-based bonuses.
The Company has implemented a program to upgrade its field sales
organization, which is expected to be completed in 1998. Key elements include
increasing the responsibility of sales managers and representatives for account
strategy development and forecasting, providing easy access to the Company's
central data bases via portable laptop computers, adding additional employed
sales personnel, and tying sales manager compensation to account profitability.
Customer Service
Wells seeks to provide high quality customer service for the markets it
serves by capitalizing on its marketing experience, manufacturing flexibility
and technical expertise. The Company believes that its strategic network of
facilities and the integration among marketing, sales and manufacturing provide
it with a competitive advantage by allowing it to respond quickly to customer
demands. Customer service organizations are located at each of the
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Company's plants, reporting to the operations manager, in order to ensure
sensitivity and facilitate quick response to customer needs and inquiries.
Customer service representatives are responsible for order entry, and in
coordination with the field sales force, routinely initiate day-to-day contact
with long-standing customers. The Company believes that this close, local
contact between experienced customer service personnel and its established
customers is a critical factor in maintaining strong customer relationships.
Pricing and Hedging Programs
The Company offers its customers three basic pricing alternatives: forward
sales contracts, formula pricing, and market pricing. These alternatives can be
tailored to meet a customer's specific market and risk management requirements.
Forward sales contracts, which accounted for approximately 40% of total
pounds sold by the Company in 1997, are "take or pay" agreements negotiated with
long-standing customers. These contracts fix the sales price at which the
Company agrees to sell and the customer agrees to purchase a specified quantity
of aluminum extrusions in the future. These contracts typically cover a
substantial portion of the customer's requirements for a three to six month
period. The fixed sales price is based on the price at which aluminum can be
hedged for future delivery plus a conversion spread to cover operating costs and
provide a profit margin.
The Company also offers to long-standing customers a formula pricing
mechanism which adjusts pricing monthly based on aluminum price movements.
Monthly price changes are based on the Midwest Transaction Price Average (the
"MWTP"), plus a negotiated spread covering conversion costs and profit margin.
Formula pricing allows the Company to stay current with the aluminum market,
balancing upward and downward movements on a monthly basis. In 1997,
approximately 40% of total pounds sold were sold by the Company using the
formula pricing mechanism.
The Company also quotes individual orders, based on the MWTP in the
previous month, for its remaining open market accounts. Profit margins on such
market accounts are generally significantly higher than on forward sales
contracts or formula priced accounts, due to the reduced leverage held by these
typically smaller accounts. In addition, the Company's exposure to aluminum
price movements is nominal since such orders are based on 30 day delivery,
enabling the Company to manage its metal cost.
Fabricated components and assemblies, including the Company's patio door
and commercial door product lines, are typically priced quarterly utilizing a
formula mechanism based on the previous quarter's average metal cost. Aluminum
costs are generally a less significant element of such product costs, which
typically include purchased parts and substantial fabrication and assembly
labor. Pricing, however, is tightly controlled via a quote process during which
purchased parts are quoted and internal costs are established and then
appropriate burden rates and target profit margins are added. The quarterly
metal price adjustments allow for a "natural" hedge in the first month, which
minimizes the risk of changes in metal prices. In certain cases, the Company
will enter into aluminum futures contracts to hedge against price volatility in
the second and third months based on expected purchases, although such hedges
have certain risks because customers are not bound to purchase fixed volumes.
The Company takes forward positions in the aluminum market, but only when
supported by forward sales contracts or by firm orders for fabricated products.
As a matter of corporate policy, the Company does not engage in speculative
hedging activities regarding future aluminum price movements.
Product Delivery
Wells distributes approximately 80% of its products through its own fleet
of 30 tractors and 142 trailers. All of the Company's tractors are leased
whereas all of its trailers are owned. The Company believes that its selected
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use of its tractor-trailer fleet enhances the level of service to its
long-standing customers by enabling more timely delivery with less damage. The
Company also uses motor common carriers for certain hauls, such as partial truck
loads and situations where no back haul of aluminum scrap is available, when
cost effective.
COMPETITION
The U.S. aluminum extrusion market is fragmented and highly competitive in
that there are over 100 extruders who operate more than 170 extrusion plants
with more than 450 extrusion presses. The Company believes that competition is
regionally oriented and that aluminum extrusion end users are typically looking
for "local" plants with a strong focus on customer service and a reputation for
fair market pricing. In addition, competition is based on delivery time, quality
and specialty engineering/design/production capabilities. The Company also
believes that a regional network of plants is important to large end users in
order to meet the needs of their multi-plant locations and to ensure continuity
of sourcing.
Competitors in the U.S. aluminum extrusion market include the extrusion
businesses of primary aluminum producers, such as Aluminum Company of America
Inc., Kaiser Aluminum Corporation, and Alumax, Inc., and sizeable multi-plant
independent extruders, such as Aluminum Shapes, Inc., Easco, Inc., William L
Bonnell Company, Inc., and V.A.W. of America, Inc. Competitors also include
small local operators, such as Elixir Industries, Western Extrusions Corp.,
Jordan Company, and Astro Shapes, Inc., and Canadian and Mexican exporters, such
as Caradon Indalex, Exal Aluminum Inc., and Cuprum S.A. de C.V.
Material Substitution
A factor potentially affecting the Company's future operating performance
is material substitution. Other materials, such as vinyl and rolled steel, may
be used as substitutes for aluminum extrusions in certain markets and under
certain circumstances. In recent years, vinyl, with its penetration of the
residential window and door market, has been the most commonly used substitute
for aluminum extrusions. Industry forecasts indicate that the movement away from
aluminum in this market has slowed and that aluminum should essentially maintain
its unit volume (though not its market share in the window and door market)
through the end of the 1990's. In areas where the Company does significant
business, such as window components for the modular and mobile home segments,
which represented approximately 12% of pounds sold by the Company in 1997, vinyl
is not a good substitute due to cost and strength limitations. Rolled steel may
be another substitute for aluminum when aluminum costs rise to such an extent
that rolled steel becomes a viable economic alternative for certain
manufacturing needs. However, the Company estimates its participation in markets
which may utilize rolled steel to be approximately 2% of the pounds sold by the
Company in 1997. An increase in the use of substitutes for aluminum extrusions
could have a material adverse effect on the financial condition and operations
of the Company.
EMPLOYEES
As of December 31, 1997, Wells employed 1,366 full time employees, 758 of
whom are covered by collective bargaining agreements at five plant locations.
These collective bargaining agreements are with local unions of the United Steel
Workers of America, representing workers at two plant locations, the
International Brotherhood of Teamsters, representing workers at two plant
locations, and the International Union of United Automobile, Aerospace and
Agricultural Implement Workers (the "UAW"), representing workers at one plant
location. The Company's collective bargaining agreements are independently
negotiated at each plant location and expire on a staggered basis.
The Company believes that its labor relationships with employees, union and
non-union, are satisfactory. The Company did not experience any union activities
resulting in work slowdowns or work stoppages during the past five years.
However, in late February 1998, the Company's collective bargaining agreement
with the local union
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of the UAW expired, and shortly thereafter, the local union initiated a work
stoppage at the affected plant. In late March 1998, the Company and the local
union of the UAW reached agreement on a new collective bargaining agreement.
During the work stoppage, the Company operated the affected plant using salaried
personnel from within the Company and temporary employees. The work stoppage did
not have a material adverse effect on the financial performance of the Company.
However, the Company cannot provide assurances that there will be no further
work stoppages in the future which could have a material adverse effect on the
financial performance of the Company.
ENVIRONMENTAL MATTERS
Wells is subject to extensive and evolving environmental laws, regulations
and rules that have been enacted in response to technological advances and
increased concern over environmental issues. These regulations are administered
by the U.S. Environmental Protection Agency and other federal, state and local
environmental, transportation, and health and safety agencies. The Company
believes that over time there will continue to be increased legislation,
regulation and regulatory enforcement actions.
In order to operate its business, the Company must obtain and maintain in
effect one or more permits for each of its facilities and comply with complex
regulations and rules governing air emissions, waste water discharges, the use,
storage, treatment and disposal of solid and hazardous wastes and other items
which might affect environmental quality. As a result, the Company from time to
time is required to make expenditures for pollution control equipment and for
other purposes related to its permits and compliance.
Among the laws that may affect the Company are the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") and
analogous state laws that impose joint and several liability, without regard to
fault, on persons that own or operate locations where there has been, or is
threatened to be, a release of any hazardous substances into the environment, as
well as persons who arranged for the disposal of such substances at such
locations. Such persons may become liable for the costs of investigating and
remediating such substances. There are often also substantial legal and
administrative expenses incurred in dealing with remediation claims and
activities.
The Company has been notified by either the U.S. Environmental Protection
Agency or other persons that it is considered to be a "potentially responsible
party" for the costs of investigating and remediating hazardous substances at
several locations owned and operated by third persons. At each such location,
the Company understands that it is one of many "potentially responsible
parties." The Company believes that the volume of hazardous substances, if any,
for which it may be held responsible at each such location is not significant.
While the Company believes that it may have valid defenses to liability claims
at these locations, it has been settling such claims where an opportunity to do
so is presented at a cost which probably would not exceed the expenses of
asserting such defenses through available administrative and judicial processes.
The Company believes that none of these contingencies, individually or in the
aggregate, could have a material adverse impact on the Company's operations or
financial condition.
Environmental Issues
Certain of the Company's manufacturing facilities have been in operation
for several decades and, over such time, these facilities have used substances
and generated and disposed of wastes which are or may be considered hazardous.
For example, certain of these facilities have in the past stored or disposed of
wastewater treatment sludge in on-site catch ponds, lagoons or other surface
impoundments. Although the Company believes that these facilities are in
substantial compliance with current environmental laws and regulations
applicable to such storage and disposal activities, it is possible that
additional environmental issues and related matters may arise relating to such
past activities which could require additional expenditures by the Company.
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In addition, the Company cannot predict what environmental legislation or
regulations will be enacted in the future, how existing or future laws or
regulations will be administered or interpreted, or what environmental
conditions may be found to exist. Enactment or more stringent laws or
regulations or more strict interpretation of existing laws and regulations could
require additional expenditures by the Company, some of which could be material.
PATENTS AND TRADEMARKS
Wells owns certain patents and trademarks but does not believe that its
business is dependent on its intellectual property rights.
ITEM 2. PROPERTIES
Wells has seven production facilities, which enable the Company to serve
customers effectively in markets in the East, Midwest and Southeast, as follows.
None of the owned properties is subject to an encumbrance that is material to
the Company's operations.
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Site Facilities
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Location Operations Acres Own/Lease Sq. Ft. Own/Lease
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Monett, Missouri Extrusion, painting, 21.1 Owned 185,000 Owned
casting 0.3 Leased
Cassville, Missouri Fabrication 9.6 Leased 32,224 Leased
0.5 Owned
North Liberty, Indiana Extrusion, anodizing, 48.9 Owned 215,890 Owned
fabrication
Kalamazoo, Michigan Extrusion, complex 23.3 Owned 132,784 Owned
fabrication
Sidney, Ohio Complex fabrication 3.7 Leased 102,400 Leased
4.8 Owned
Belton, South Carolina Extrusion, painting, 54.5 Owned 165,000 Owned
fabrication
Moultrie, Georgia Extrusion, anodizing, 24.1 Leased 315,352 Leased
fabrication 65.3 Owned
</TABLE>
The Company considers the condition of its properties to be good and the
capacity of its facilities to be adequate for the immediate needs of its
business. The principal executive office of the Company is located at 809
Gleneagles Court, Suite 300, Baltimore, Maryland 21286.
ITEM 3. LEGAL PROCEEDINGS
From time to time, Wells is a party to legal actions in the normal course
of its business. The Company is not currently involved in any legal proceedings
that it believes would have a material adverse effect upon its financial
condition or results of operations.
IRS Audit
The U.S. Internal Revenue Service (the "IRS") has concluded its examination
of the Company's federal income tax returns for its fiscal years ended 1994,
1995 and 1996. The IRS disallowed certain accrued expenses
9
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for the three years involved, and assessed income taxes due plus applicable
interest in an amount which did not materially affect the financial condition of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Wells held its annual meeting of stockholders on December 17, 1997 during
which the stockholders voted on: (1) the election of ten directors of the
Corporation to serve until the 1998 annual meeting of stockholders and until
their respective successors are duly elected and qualified, (2) the amendment of
the charter of the Company set forth in the Articles of Amendment and
Restatement, (3) the adoption of the Company's 1997 Stock Incentive Plan, and
(4) the appointment of Ernst & Young LLP as the Company's auditors to serve at
the discretion of the Board of Directors. The directors nominated and duly
elected are Russell W. Kupiec, W. Russell Asher, Lynn F. Brown, Elizabeth Varley
Camp, Elena de Costas, Todd Goodwin, Edward R. Heiser, Leo A. McCafferty, Jr.,
Lewis W. van Amerongen and Estrella Vidal. The stockholders approved all actions
presented to them at the annual meeting.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Wells' common stock is not registered under the Securities Act of 1993, as
amended, and is not traded on any organized securities market. In 1997, the
Company paid a special cash dividend of $62.00 per share, or $56.0 million, to
the holders of its common stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth summary financial data with respect to Wells
for the periods ended and as of the dates indicated. The summary historical
financial data for the five years ended December 31, 1997 are derived from the
audited financial statements of the Company. The following table should be read
in conjunction with the Company's financial statements and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the other financial information included elsewhere herein. All
amounts are in thousands.
<TABLE>
<CAPTION>
Fiscal Year Ended December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ---------- ----------- ----------- ------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales ................................ $ 267,349 $ 228,161 $ 232,555 $ 197,991 $ 155,401
Cost of sales ............................ 225,681 191,206 194,414 168,810 130,128
------- ------- ------- ------- -------
Gross profit ............................. 41,668 36,955 38,141 29,181 25,273
Selling, general and
administrative expenses ................ 17,446 15,877 16,211 14,536 13,536
Compensation from
settlement of employee
stock options .......................... 4,070 -- -- -- --
-------- ---------- --------- --------- ---------
Operating profit ......................... 20,152 21,078 21,930 14,645 11,737
Interest expense (a) ..................... 8,390 5,176 7,087 8,443 8,487
Income taxes ............................. 5,073 7,059 6,262 3,016 1,697
------- -------- -------- -------- --------
Earnings before extra-ordinary
loss and cumulative effect of
accounting change (b)................... $ 6,689 $ 8,843 $ 8,581 $ 3,186 $ 1,553
======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
1997 1996 1995 1994 1993
----------- ---------- ----------- ----------- ------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ................ $ 5,352 $ 277 $ 342 $ 1,827 $ 1,115
Working capital .......................... 29,989 18,175 19,355 19,813 17,675
Inventories .............................. 20,209 19,838 19,972 24,665 18,705
Property, plant and equipment, net........ 27,269 26,723 26,489 28,241 29,996
Total assets ............................. 125,383 108,726 112,261 124,800 109,366
Total indebtedness ....................... 105,000 40,091 51,683 69,064 65,180
Total stockholders' equity ............... (16,068) 34,472 25,246 17,142 14,938
</TABLE>
Notes to Selected Financial Data:
(a) Interest expense includes amortization of debt issuance costs of $593,
$495, $570, $474 and $334 for the years ended December 31, 1997, 1996,
1995, 1994 and 1993, respectively, and is net of interest income of $452
for the year ended December 31, 1997.
(b) Earnings before extraordinary loss and cumulative effect of accounting
changes excludes an extraordinary loss of $1,292 (net of applicable income
taxes of $826) on the refinancing of debt in 1997, an extraordinary loss of
$1,092 (net of applicable income taxes of $698) on the refinancing of debt
in 1994, and a cumulative effect of accounting change for income taxes of
$618 in 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Wells Aluminum Corporation is a custom extruder, finisher and fabricator of
soft alloy aluminum products, serving principally the building/construction,
transportation, consumer durable and equipment/electrical markets. The Company
operates a network of seven facilities with 12 extrusion presses, located in six
states in midwestern and southeastern United States, and also has its own
casting facility for aluminum billet.
The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results or future events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including, but not limited to, raw material costs
and availability (primarily aluminum), labor market conditions, the Company's
level of utilization of its extrusion, finishing and fabrication capacities, and
the impact of capacity utilization on costs, whether and to what extent the
Company's capital expenditures can facilitate reductions in variable costs, the
highly competitive nature of the extrusion industry, and developments with
respect to contingencies such as environmental matters and litigation.
BASIS OF PRESENTATION
The following discussion of financial condition and the results of
operations for the years ended 1997, 1996 and 1995 is based on the historical,
audited results achieved by the Company. The following table sets forth for the
periods indicated, net sales, gross profit, operating profit and net earnings,
and for performance and other measurements, pounds of product shipped, gross
sales price per pound, Adjusted EBITDA (as defined below) and Adjusted EBITDA
per pound. The table also includes average market prices of aluminum per pound
and market price of aluminum per pound at period-end. All amounts are in
thousands except for per pound data.
Adjusted EBITDA is defined as earnings before interest expense, income
taxes, depreciation and amortization of goodwill, and excludes LIFO charges or
income, extraordinary items and compensation from settlement of employee stock
options. Adjusted EBITDA should not be considered in isolation of, nor in
substitute for, net
11
<PAGE>
income, cash flows from operations, or other income or cash flow data prepared
in accordance with generally accepted accounting principles.
<TABLE>
<CAPTION>
1997 1996 1995
--------------- --------------- ----------
<S> <C> <C> <C>
Statement of Operations Data:
Net Sales - Products ......................................... $ 235,467 $ 208,634 $ 221,402
Net Sales - Metal ............................................ 31,882 19,527 11,153
------ ---------- ----------
Net Sales ................................................ 267,349 228,161 232,555
Cost of Sales - Products ..................................... 192,201 173,988 185,862
Cost of Sales - Metal ........................................ 31,409 19,550 11,082
LIFO Charges (Income) ........................................ 2,071 (2,332) (2,530)
------- ---------- ---------
Cost of Sales ............................................ 225,681 191,206 194,414
Gross Profit ................................................. 41,668 36,955 38,141
Operating Profit ............................................. 20,152 21,078 21,930
Net Earnings ................................................. 5,397 8,843 8,581
Other Measurement Data:
Pounds of Product Shipped .................................... 154,930 138,380 137,779
Gross Sales - Products ....................................... $ 244,760 $ 217,764 $ 230,156
Gross Sales Price per Pound .................................. 1.580 1.574 1.670
Adjusted EBITDA .............................................. 29,970 22,285 23,406
Adjusted EBITDA per Pound .................................... 0.193 0.161 0.170
Average Market Price of Aluminum per Pound ................... 0.775 0.725 0.875
Market Price of Aluminum per Pound at Period-End ............. 0.797 0.736 0.797
</TABLE>
Aluminum Prices. For the periods indicated, approximately 60% of the
Company's cost of sales - products reflect the cost of aluminum, its principal
raw material. The Company seeks to manage aluminum price fluctuations, which can
be volatile, principally either by passing aluminum prices through to customers
by systematic market indexed pricing or by fixing the cost of aluminum by
hedging against committed fixed price sales to customers. As a result, increases
and decreases in aluminum prices have generally caused similar increases and
decreases in selling prices, sales and costs of sales, and generally have had
little impact on the Company's level of profitability for the periods described
herein.
Business Activity. The Company's experience indicates that pounds of
product shipped has a direct impact on profitability, since a significant
portion of the Company's operating costs are fixed. The Company defines pounds
of product shipped as the weight of all extrusions shipped, including those
pounds transferred within the Company from which it manufactures fabricated
parts, components and assemblies, but excluding the pounds of aluminum related
to excess metal sales as described herein.
Financial and Other Measures. The Company believes that its ability to
manage its sales spread (gross sales minus aluminum costs), control variable
spending and minimize its fixed cost structure are significant determinants of
profitability and resultant cash flow. The Company, therefore, monitors its
sales spread per pound, variable costs per pound and fixed costs per pound,
focusing on operating profit as a key performance measure. In addition, the
Company monitors Adjusted EBITDA, as it is relevant for debt covenant analysis
under the New Credit Agreement (as defined herein) and it can also be used as a
measure of the Company's ability to service its debt.
12
<PAGE>
LIFO Inventory. The Company values its aluminum inventory under the
last-in, first-out (LIFO) method. During periods of rising aluminum prices,
compared to historical LIFO inventory values, the Company may incur LIFO
charges, which will reduce taxable income, and when aluminum prices subsequently
decline, the Company may recognize LIFO income, which will increase taxable
income. As a result of fluctuations in earnings levels resulting from the
application of LIFO, the Company excludes LIFO charges and LIFO income from
certain measures, such as Adjusted EBITDA.
Excess Metal Sales. The Company's policy is to sell excess metal (primary
aluminum ingot and billet) on the open market when necessary to maintain
aluminum inventory levels consistent with near-term business needs. Imbalances
in inventory can arise from the ongoing and efficient operation of the Company's
casting facility and from the Company's obligations to purchase fixed amounts of
primary aluminum ingot and billet under long-term supply agreements. The sale of
excess metal, which also reflects aluminum price fluctuations, has minimal
effect on profit performance since the prices of metal bought and metal sold are
closely matched. Pounds of excess metal sold are not included in the calculation
of pounds of product shipped, the Company's primary indicator of business
activity. In the normal course of business, the Company also sells secondary
aluminum billet and aluminum scrap, which are not accounted for as excess metals
sales.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
The Company's net sales increased to $267.3 million in 1997 from $ 228.2
million in 1996, an increase of $39.1 million or 17.1%. Net sales - products
increased to $235.5 million in 1997 from $208.6 million in 1996, an increase of
$26.9 million or 12.9%. Sales of value added products increased $8.1 million, or
6.4%, to $134.8 in 1997 from $126.7 million in 1996. Sales of mill finished
extrusions increased 20.7%, primarily due to increased shipments of mill
finished products to truck and trailer manufacturers, several distributor
accounts, and manufacturers of equipment and electrical products. The gross
sales price per pound increased by 0.4%, reflecting an increase of $0.051 in the
average market price per pound of aluminum and an increase of 12.0% in sales of
fabricated products, offset by the effect of a higher sales mix of mill finished
extrusions.
Pounds of product shipped increased 16.5 million pounds, or 11.9%, to 154.9
million in 1997 from 138.4 million pounds of product shipped in 1996. Shipments
to commercial construction decreased 1.3 million pounds, resulting mainly from
the loss of a curtain wall/store front account, the completion of a contract
involving a bridge renovation project, and the loss of a commercial door
account. In residential construction, shipments increased 2.3 million pounds as
a result of increased shipments to door and window manufacturers and to
manufacturers of modular and mobile homes despite a decision to shift capacity
to the more profitable distributor market. Shipments to transportation increased
7.8 million pounds, due to increased shipments to major truck, utility vehicle
and trailer manufacturers. In consumer durables, shipments decreased 1.0 million
pounds, resulting mainly from decreased shipments to manufacturers of pleasure
boats and other consumer durable products, offset in part by increased shipments
to office furniture manufacturers. Shipments to equipment/electrical increased
2.0 million pounds due to the continuing strong performance of several niche
accounts, particularly manufacturers of electrical products. The increase of 6.7
million pounds of shipments to distributors/other resulted mainly from
continuing sales efforts to increase custom extrusion business with select
distributors, including a Puerto Rico based distributor who is expanding
throughout the Caribbean basin.
Cost of sales increased to $225.7 million in 1997 from $191.2 million in
1996, an increase of $34.5 million or 18.0%. Cost of sales - products increased
to $192.2 million in 1997 from $174.0 million in 1996, an increase of $18.2
million or 10.5%. This increase resulted from a $4.5 million increase in
operating costs and a $13.7 million increase in aluminum costs. Variable costs
per pound, however, decreased to $0.423 in 1997 from $0.444 in 1996, an
improvement of $0.021 per pound. This improved performance was due to effective
utilization of capacity, continuing extrusion press and casting efficiencies,
and effective control of variable spending.
13
<PAGE>
Gross profit increased to $41.7 million in 1997 from $37.0 million in 1996,
an increase of $4.7 million or 12.7%.
Selling, general and administrative expenses increased to $21.5 million in
1997 from $15.9 million in 1996, an increase of $5.6 million or 35.2%. This
increase is primarily attributable to an increase of $4.1 million in
compensation related to the settlement of employee stock options as part of the
Recapitalization (as defined herein) and an increase of $0.8 million in
incentive compensation. Other selling, marketing, general and administrative
costs increased $0.7 million, reflecting the increased level of business
activity and the development of sales and marketing programs.
Operating profit decreased to $20.2 million in 1997 from $21.1 million in
1996, a decrease of $0.9 million or 4.3%.
Interest expense, net of interest income, increased to $8.4 million in 1997
from $5.2 million in 1996, an increase of $3.2 million or 61.5%. This increase
was mainly attributable to the increase in debt outstanding and higher effective
interest rates as a result of the Recapitalization, offset in part by an
increase in interest income. Income tax expense decreased to $5.1 million in
1997 from $7.1 million in 1996, a decrease of $2.0 million. The effective tax
rates for the years ended December 31, 1997 and 1996 were 43% and 44%,
respectively, which differed from the federal statutory rate of 35% due to the
goodwill amortization and state income taxes.
In 1997, the Corporation incurred an extraordinary loss of $1.3 million
(net of applicable income taxes of $0.8 million) on the refinancing of debt
related to the Recapitalization.
As a result of the above factors, net earnings decreased to $5.4 million in
1997 from $8.8 million in 1996, a decrease of $3.4 million or 38.6%.
Adjusted EBITDA, as previously defined herein, increased to $30.0 million
in 1997 from $22.3 million in 1996, an increase of $7.7 million or 34.5%. The
improvement in Adjusted EBITDA consisted of $7.0 million from increased sales
volume, $0.5 million from a net reduction in operating costs (as previously
discussed) and $0.5 million of income from excess metal sales, offset by a
decrease in sales spread of $0.3 million. Adjusted EBITDA per pound, in turn,
increased $0.032 to $0.193 in 1997 since the increase in Adjusted EBITDA was
substantially greater than the increase in pounds shipped.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company's net sales decreased to $228.2 million in 1996 from $232.6
million in 1995, a decrease of $4.4 million or 1.9%. Net sales - products
decreased to $208.6 million in 1996 from $221.4 million in 1995, a decrease of
$12.8 million or 5.8%. However, sales of valued added products increased $6.0
million, or 5.0%, to $126.7 million in 1996 from $120.7 million in 1995. Sales
of mill finished extrusions declined 16.8%, reflecting a decrease in both
aluminum prices and shipments of mill finished products, particularly to trailer
manufacturers. The $0.096 decrease in gross sales price per pound was less than
the $0.150 decline in the average market price per pound of aluminum, due to a
higher sales mix of higher value added products, led by an increase of 18.6% in
sales of painted or anodized products.
Pounds of product shipped increased 0.6 million pounds, or 0.4%, to 138.4
million in 1996 from 137.8 million pounds of product shipped in 1995. Shipments
to commercial construction increased 2.8 million pounds, reflecting business
from a new architectural account. In residential construction, shipments
increased 5.1 million pounds, mainly because of a management decision to
dedicate more press capacity to mobile home products. Shipments to
transportation decreased 12.7 million pounds, primarily as a result of a 20%
decline in shipments to truck and trailer manufacturing as the industry
consolidated after record production in the 1994-1995 period. In consumer
durables, shipments increased 3.2 million pounds, primarily due to growth in
demand for office furniture and
14
<PAGE>
pleasure boats. Shipments to equipment/electrical increased 1.2 million pounds
due to continuing strong performance of several niche accounts, particularly
those related to material handling systems. The increase of 1.0 million pounds
in shipments to distributors/other resulted mainly from continuing sales efforts
to increase custom extrusion business with select distributors.
Cost of sales decreased to $191.2 million in 1996 from $194.4 million in
1995, a decrease of $3.2 million or 1.6%. Cost of sales - products decreased to
$174.0 million in 1996 from $185.9 million in 1995, a decrease of $11.9 million
or 6.4%. This decrease resulted from a $14.7 million decrease in aluminum costs
and a $2.8 million increase in operating costs. Production labor costs per pound
increased $0.011 mainly due to a shift in production mix from large truck
trailer extrusion shapes to smaller extrusion shapes requiring more press labor
and higher costs of labor and shipping materials, due to more extensive
protective packing. Other variable costs increased $0.014 mainly due to a large
increase in natural gas prices.
Gross profit decreased to $37.0 million in 1996 from $38.1 million in 1995,
a decrease of $1.1 million or 2.9%.
Selling, general and administrative expenses decreased to $15.9 million in
1996 from $16.2 million in 1995, a decrease of $0.3 million or 1.9%. The
contributing factors included professional fees, which decreased $0.2 million;
and travel expenses, which decreased $0.3 million; both decreases were due to
completion of supervisory training principally undertaken in 1995. Offsetting
these decreases were personnel costs, which increased $0.3 million due to
increased management incentive bonuses and employee stock option compensation.
Other general and administrative expenses decreased by $0.1 million.
Operating profit decreased to $21.1 million in 1996 from $21.9 million in
1995, a decrease of $0.8 million or 3.7%.
Interest expense decreased to $5.2 million in 1996 from $7.1 million in
1995, a decrease of $1.9 million or 26.8%. The decrease in interest expense
resulted from a reduction in debt outstanding and a performance-based decrease
in interest rates under the Old Credit Facility (as defined herein). In 1996,
the Company was able to reduce debt from $51.7 million to $40.1 million, a
decrease of 11.6 million. Income tax expense increased to $7.1 million in 1996
from $6.3 million in 1995, an increase of $0.8 million. Effective tax rates for
the years ended December 31, 1996 and 1995 were 44% and 42%, respectively, which
differed from the federal statutory rate of 35% due to the goodwill amortization
and state income taxes, and in the case of 1996, the payment of income taxes due
from prior periods.
As a result of the above factors, net earnings increased to $8.8 million in
1996 from $8.6 million in 1995, an increase of $0.2 million or 2.3%.
Adjusted EBITDA, as previously defined herein, decreased to $22.3 million
in 1996 from $23.4 million in 1995, a decrease of $1.1 million or 4.7%. The
decline in Adjusted EBITDA consisted of $3.2 million from a net increase in
operating costs (as previously discussed), offset by an improvement of $1.9
million in sales spread and of $0.2 million due to a slight increase in sales
volume. Adjusted EBITDA per pound, in turn, decreased $0.009 to $0.161 in 1996.
Liquidity and Capital Resources
The Company has historically obtained funds from its operations, augmented
by borrowings under various credit agreements. Aluminum price changes increase
or decrease working capital requirements since the dollar value of accounts
receivable, inventories and accounts payable reflect these changes. Working
capital requirements are generally higher during periods of higher aluminum
prices.
As of December 31, 1997, the Company had $105 million of New Notes (as
defined herein) outstanding and no borrowings under the New Credit Facility (as
defined herein). The significant indebtedness incurred by the
15
<PAGE>
Company as a result of the Recapitalization will have several important
consequences, the foremost being that interest expense will be substantially
higher than prior to the Recapitalization. The ability of the Company to satisfy
its obligations pursuant to such indebtedness, including pursuant to the New
Notes and the Indenture (under which the New Notes were issued), will be
dependent upon the Company's future performance, which, in turn, will be subject
to management, financial and other business factors affecting the business and
operations of the Company, some of which are not in the Company's control. The
Company's liquidity may also be impacted by environmental and other regulatory
matters.
The Company currently believes that cash flow from operating activities,
together with borrowings available under the New Credit Facility, will be
sufficient to fund currently anticipated working capital needs and capital
expenditure requirements for at least several years. However, there can be no
assurance that this will be the case.
Cash Flows from Operating Activities
Cash provided by operations in 1997, 1996 and 1995 was $5.3 million, $14.1
million and $17.4 million, respectively. In 1997, cash flow decreased primarily
as a result of reduced net earnings, reflecting the non-recurring compensation
charge and increased interest costs. In addition, cash flow decreased as a
result of increases in accounts receivable and inventories resulting from
increased levels of business activity and increased aluminum prices. In 1996,
cash flow increased reflecting a modest improvement in profit performance and
continued emphasis on working capital management.
Total working capital (excluding current portion of long-term debt) at
December 31, 1997, 1996 and 1995 was $30.0 million, $18.2 million and $19.4
million, respectively. In 1997, cash and cash equivalents increased $5.1 million
due in part to the terms and conditions of the Notes (as defined herein)
outstanding (see Cash Flows from Financing Activities). Increases in other
working capital accounts reflected the impact of increased business activity,
the effect of rising aluminum prices, and the change in timing of interest
payments. In 1996, lower aluminum prices and lower inventory levels resulted in
slightly lower working capital requirement than 1995.
Cash Flows from Investing Activities
Expenditures for property, plant and equipment in 1997, 1996 and 1995 were
$3.0 million, $2.6 million and $1.1 million, respectively. During the last two
years, the Company has successfully increased its casting capacity by 15% and
capacities on two extrusion presses by an average of 11% without the acquisition
of expensive new equipment. The Company also made investments in CNC mills,
benders, saws and presses to increase its fabrication capabilities. The Company
anticipates that expenditures for property, plant and equipment will approach
$4.5 million in 1998 and will average $3.5 million per annum for the years 1999
through 2002. The Company plans to update and modernize two extrusion presses
per year, including the installation of advanced isothermal extrusion control
equipment, where cost justified. The Company expects to increase extrusion
capacity by 10% per press and reduce scrap generated in the process by 1.5%. The
Company also plans to upgrade and modernize the homogenizing ovens at its
casting facility, which is estimated to increase capacity by 5% and improve the
metallurgical properties of billet cast, resulting in further efficiencies in
the extrusion process. Approximately $1.0 million of the annual expenditure for
the years 1998-2002 is expected to be used for maintenance capital with the
remainder invested in productivity improvements and capacity enhancements.
Cash Flows from Financing Activities
Cash provided by financing activities was $2.8 million in 1997 compared to
cash used in financing activities of $11.6 million in 1996 and $17.9 million in
1995. Cash used in financing activities in 1996 and 1995 reduced borrowings
under the Old Credit Facility (as defined herein).
16
<PAGE>
On May 28, 1997, the Company issued and sold $105.0 million principal
amount of 10.125% Series A Senior Notes (the "Notes") due 2005. The Company is
required to make semi-annual payments of interest on the Notes on June 1 and
December 1 of each year. As of May 28, 1997, the Company used a portion of the
proceeds from the issuance of the Notes to repay an existing credit facility
(the "Old Credit Facility") of $21.2 million outstanding (including accrued
interest and agency fees) and to retire its $16.3 million (including accrued
interest and a prepayment penalty for the early retirement of debt) of 14.125%
Senior Subordinated Notes due 2001 (the "Subordinated Notes"). Upon the issuance
of the Notes, the Company entered into a new credit facility (the "New Credit
Facility"), which provides a $15.0 million secured line of revolving credit
maturing on the last business day of June 2002. Under the New Credit Facility,
the Company is required to make payments of interest on a monthly or quarterly
basis. As of December 31, 1997, there were no loans outstanding under the New
Credit Facility.
The offering of the Notes, the repayment of the Old Credit Facility, the
retirement of the Subordinated Notes, and the entering into of a New Credit
Facility were part of an overall recapitalization of the Company (the
"Recapitalization"). As part of the Recapitalization, the Company used a
substantial portion of the proceeds received from the issuance and sale of the
Notes to pay a special cash dividend to holders of its common stock, settle
existing employee stock options, and repurchase, or offer to repurchase, shares
of common stock held by certain stockholders.
In 1997, the Company paid a special cash dividend of $62.00 per share, or
$56.0 million, to holders of common stock, paid an aggregate of $37.5 million
for the repayment and retirement of debt, and paid $1.2 million for the
repurchase and retirement of 152,100 shares of Class A Common Stock from certain
shareholders. The Company also incurred $4.1 million of compensation expense and
issued 158,042.5 shares of Class A Common Stock related to the settlement of
employee stock options. The compensation expense represents the difference
between fair market value and the exercise price on the settlement of 57,000
employee stock options and $0.9 million of bonuses paid to satisfy a portion of
income taxes incurred by option holders as a result of receiving shares of
common stock.
On November 7, 1997, the Company consummated an exchange of 100% of the
Notes for $105.0 aggregate principal amount of 10.125% Series B Senior Notes
(the "New Notes") due 2005, which are registered under the Securities Act of
1933, as amended.
Futures Contracts and Forward Sales Contracts
In the normal course of business, the Company enters into forward sales
contracts with certain customers for the sale of fixed quantities of finished
products at scheduled intervals. The aluminum cost component of the forward
sales contract is fixed for the duration of the contract, based on forward
market prices at the inception of the contract. In order to hedge its exposure
to aluminum price volatility under these forward sales contracts, the Company
enters into aluminum futures contracts (a financial hedge) based on scheduled
deliveries.
At December 31, 1997, the Company was party to $19.5 million of aluminum
futures contracts through nationally recognized brokerage firms and major metal
brokers. These aluminum futures contracts are for periods between January 1998
and December 1998, covering 27.0 million pounds of aluminum at prices expected
to be settled financially in cash as they reach their respective settlement
dates. The Company does not engage in any speculative trading of futures
contracts.
LIFO Adjustment and Inflation
The largest component of the Company's cost of sales is aluminum, its
principal raw material. Aluminum costs can be volatile, and reported results may
vary due to LIFO adjustments, as previously discussed. With the exception of
LIFO adjustments, the Company does not believe that inflation has had a
significant impact on its results of operations for the years ended December 31,
1997, 1996 and 1995.
17
<PAGE>
Seasonality
The Company generally does not experience significant seasonality in its
business. However, working capital requirements are often higher and operating
results are often lower during the fourth quarter principally due to reduced
shipments of product and increased inventory due to the decrease in sales during
the holiday season and increased accounts receivable due to customers delaying
payment until after the year-end.
Year 2000 Systems Compliance
The Company has undertaken a number of initiatives to ensure that its
computer systems, microprocessors, electronic data interchange ("EDI") systems,
and other computer based applications are compliant with the Year 2000
requirements. The Year 2000 issue stems from the fact that many computer
programs were written with two, rather than four, digits to identify the
applicable year. As a result, computer programs with time-sensitive software may
recognize a two-digit code for any year in the next century as related to this
century. For example, "00" entered into a date-field for the year 2000 may be
interpreted as the year 1900, resulting in system failures or miscalculations
and disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in other normal business activities.
The Company has completed an evaluation of its centralized main computer
system and related software and has determined that this system and the software
is compliant with the Year 2000 requirements. The Company is in the process of
evaluating its other computer systems, microprocessors, EDI systems and other
computer based applications for Year 2000 compliance. The Company expects to
complete any required Year 2000 remediation prior to any anticipated impact on
its operations. The Company believes that with modifications to existing
software and conversions to new systems, where required, the Year 2000 issue
will not pose significant operational problems for its computer systems.
However, if such modifications or conversions are not made, or are not completed
timely, the Year 2000 issue could have a material impact on the operations of
the Company.
The Company is also contacting vendors and customers to determine the
extent to which the Company's interface systems are vulnerable to the failure of
such companies to remediate their own Year 2000 issues. There is no guarantee
that the systems of the Company's vendors and customers on which the Company's
systems rely will be converted timely by such companies and would not have an
adverse effect on the Company's systems.
Commitments and Contingencies
At December 31, 1997, the Company has commitments with four North American
suppliers to purchase 65.5 million pounds of primary aluminum from January 1998
through January 1999 at current market prices at the specified delivery dates.
In addition, the Company has a commitment with Venalum, even though the Venalum
Agreement terminated December 31, 1997, to purchase 8.0 million pounds of
aluminum in January 1998 at contract market prices, a delivery originally
scheduled for December 1997. In January and February of 1998, the Company
arranged further commitments with five North American suppliers to purchase an
additional 6.6 million pounds of primary aluminum, plus 16.8 million pounds of
aluminum billet from January 1998 through December 1998 at current market prices
at the delivery dates. Management expects that such quantities of aluminum will
be utilized in the normal course of operations during the terms of these
agreements.
In the normal course of business, the Company has received notice of claims
asserting potential liability under various federal and state environmental
laws. The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Based upon
information that is currently available, management does not expect that the
resolution of environmental claims will have a material adverse effect on the
Company. However, given the inherent uncertainties in evaluating environmental
exposure, it is not possible to predict the amount of future costs of
environmental claims which may be subsequently
18
<PAGE>
determined. The Company has not anticipated any insurance proceeds or
third-party payments in determining its estimated liability for environmental
remediation.
The Company is also a party to a number of other lawsuits and claims
arising out of the conduct of its business. Although the ultimate results of
lawsuits and other proceedings against the Company cannot be predicted with
certainty, management does not expect that these matters will have a material
adverse effect on the Company and its operations.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors .............................................................................21
Balance Sheets as of December 31, 1997 and 1996 ............................................................22
Statements of Operations for the years ended December 31, 1997, 1996 and 1995 ..............................23
Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 ....................24
Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 ..............................25
Notes to Financial Statements ..............................................................................26
Schedule II -- Valuation and Qualifying Accounts ...........................................................39
</TABLE>
20
<PAGE>
Report of Independent Auditors
The Board of Directors
Wells Aluminum Corporation
We have audited the balance sheets of Wells Aluminum Corporation (the
"Company") as of December 31, 1997 and 1996, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedule in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Wells Aluminum Corporation
as of December 31, 1997 and 1996, and the results of operations and its cash
flows for each of the three years ended December 31, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
March 20, 1998
Baltimore, Maryland
21
<PAGE>
WELLS ALUMINUM CORPORATION
BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
1997 1996
---------- ---------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................ $ 5,352 $ 277
Accounts receivable, principally trade, less allowances of $825 and $1,170 30,599 22,279
Inventories .............................................................. 20,209 19,838
Other current assets ..................................................... 1,444 938
--------- ---------
Total current assets ................................................. 57,604 43,332
Property, plant and equipment, at cost less accumulated depreciation ......... 27,269 26,723
Debt issuance costs, net of accumulated amortization of $362 and $1,365 ..... 4,387 2,104
Goodwill, net of accumulated amortization of $12,474 and $11,286 ............. 34,550 35,738
Other assets ................................................................. 1,573 829
--------- ---------
Total assets ......................................................... $ 125,383 $ 108,726
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt ........................................ $ -- $ 13
Accounts payable, principally trade ...................................... 20,253 19,577
Accrued expenses ......................................................... 7,362 5,567
--------- ---------
Total current liabilities ............................................ 27,615 25,157
Long-term debt, less current portion ......................................... 105,000 40,078
Deferred income taxes ........................................................ 5,804 5,750
Deferred benefit plan obligations ............................................ 3,032 3,269
--------- ---------
Total liabilities .................................................... 141,451 74,254
--------- ---------
Stockholders' equity:
Common stock, Class A, par value $0.01 per share, 1,100,000 and 975,000
shares authorized, 909,005 and 778.062.5 shares issued ............... 9 8
Common stock, Class B, par value $0.01 per share, 0 and 125,000 shares
authorized and issued ................................................ -- 1
Additional paid-in capital ............................................... 1,215 24,390
Accumulated (deficit) earnings ........................................... (16,805) 10,565
Additional minimum pension liability ..................................... (487) (492)
--------- ---------
Total stockholders' equity ........................................... (16,068) 34,472
--------- ---------
Total liabilities and stockholders' equity ........................... $ 125,383 $ 108,726
========= =========
</TABLE>
See accompanying notes.
-22-
<PAGE>
WELLS ALUMINUM CORPORATION
STATEMENTS OF OPERATIONS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Net sales ............................................ $ 267,349 $228,161 $232,555
Cost of sales ........................................ 225,681 191,206 194,414
--------- -------- --------
Gross profit ......................................... 41,668 36,955 38,141
Selling, general and administrative expenses ......... 17,446 15,877 16,211
Compensation from settlement of employee stock options 4,070 -- --
--------- -------- --------
Operating profit ..................................... 20,152 21,078 21,930
Interest expense, net of interest income ............. 8,390 5,176 7,087
--------- -------- --------
Earnings before income taxes and extraordinary item .. 11,762 15,902 14,843
Income taxes ......................................... 5,073 7,059 6,262
--------- -------- --------
Earnings before extraordinary item ................... 6,689 8,843 8,581
Extraordinary loss on refinancing of debt,
net of applicable income taxes of $826 .......... (1,292) -- --
--------- -------- --------
Net earnings ......................................... $ 5,397 $ 8,843 $ 8,581
========= ======== ========
</TABLE>
See accompanying notes.
-23-
<PAGE>
WELLS ALUMINUM CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Accumu- Additional
Common Common Additional lated Minimum
Stock, Stock, Paid-In Earnings Pension
Class A Class B Capital (Deficit) Liability
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 ... $ 8 $ 1 $ 24,347 $ (6,859) $(355)
Net earnings for 1995 ...... -- -- -- 8,581 --
Change in additional minimum
pension liability ...... -- -- -- -- (490)
Exercise of stock options .. -- -- 13 -- --
--- --- -------- -------- -----
Balance at December 31, 1995 ... 8 1 24,360 1,722 (845)
Net earnings for 1996 ...... -- -- -- 8,843 --
Change in additional minimum
pension liability ...... -- -- -- -- 353
Exercise of stock options .. -- -- 30 -- --
--- --- -------- -------- -----
Balance at December 31, 1996 ... 8 1 24,390 10,565 (492)
Net earnings for 1997 ...... -- -- -- 5,397 --
Exchange of common stock ... 1 (1) -- -- --
Change in additional minimum
pension liability ...... -- -- -- -- 5
Dividend declared .......... -- -- (24,390) (31,600) --
Repurchase of common stock . (2) -- (48) (1,167) --
Settlement of stock options 2 -- 1,263 -- --
--- --- -------- -------- -----
Balance at December 31, 1997 ... $ 9 $-- $ 1,215 $(16,805) $(487)
=== === ======== ======== =====
</TABLE>
See accompanying notes.
-24-
<PAGE>
WELLS ALUMINUM CORPORATION
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net earnings ................................................................... $ 5,397 $ 8,843 $ 8,581
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization .......................................... 4,270 4,034 4,576
Settlement of employee stock options ................................... 1,263 -- --
Deferred income taxes .................................................. 30 (704) (191)
Extraordinary loss on refinancing of debt .............................. 1,292 -- --
Changes in operating assets and liabilities:
Accounts receivable, net ........................................... (8,320) 2,362 1,748
Inventories ........................................................ (371) 134 4,693
Accounts payable and accrued expenses .............................. 2,471 (930) (3,650)
Other assets and liabilities ....................................... (728) 348 1,663
--------- -------- --------
Net cash provided by operating activities ...................................... 5,304 14,087 17,420
--------- -------- --------
Investing activities:
Purchase of property, plant and equipment ...................................... (3,035) (2,589) (1,054)
--------- -------- --------
Net cash used in investing activities .......................................... (3,035) (2,589) (1,054)
--------- -------- --------
Financing activities:
Principal payments on long-term debt ........................................... (69,791) (93,793) (89,231)
Proceeds from long-term debt ................................................... 134,700 82,200 71,850
Payment of debt issuance costs ................................................. (4,749) -- (483)
Proceeds from the exercise of stock options .................................... -- 30 13
Payment of special cash dividend ............................................... (55,990) -- --
Prepayment penalty on early retirement of debt ................................. (149) -- --
Purchase of common stock ....................................................... (1,215) -- --
--------- -------- --------
Net cash provided by (used in) financing activities ............................ 2,806 (11,563) (17,851)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents ........................... 5,075 (65) (1,485)
Cash and cash equivalents at beginning of year ................................. 277 342 1,827
--------- -------- --------
Cash and cash equivalents at end of year ....................................... $ 5,352 $ 277 $ 342
========= ======== ========
</TABLE>
See accompanying notes.
-25-
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wells Aluminum Corporation (the "Company") is a domestic manufacturer of
aluminum extruded and fabricated products for several diverse industries
including building/construction, transportation, durable goods and
equipment/electrical.
RECLASSIFICATION
Certain amounts previously reported have been reclassified to conform with
the 1997 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those estimates,
and such differences may be material to the financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and short-term investments
with original maturities of three months or less.
INVENTORIES
The aluminum component of inventories, representing 68% of total
inventories at December 31, 1997 and 1996, is stated at the lower of cost or
market, using the last-in, first-out method (LIFO). The labor, overhead and
supplies components of inventories are carried at the lower of cost or market
using the first-in, first-out method (FIFO). The outside purchased parts
component of inventories are carried at the lower of cost or market using the
weighted average cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Maintenance and repairs
are charged to operations when incurred, while expenditures having the effect of
extending the useful life of an asset are capitalized. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Depreciation expense for the years ended December 31, 1997, 1996 and 1995 was
$2,489,000, $2,351,000 and $2,818,000, respectively.
DEBT ISSUANCE COSTS
Costs incurred to obtain financing are capitalized and amortized using the
straight-line method over the term of the related financing. Amortization of
debt issuance costs is included in the Statements of Operations as an item of
interest expense, net of interest income.
-26-
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL
The excess of the purchase price of the Company over the fair value of the
net assets acquired was recorded as goodwill. Amortization is recorded on the
straight-line method over forty years. On a periodic basis, the Company
estimates its future undiscounted cash flows of the business to which goodwill
relates in order to ensure that the carrying value of such goodwill has not been
impaired.
CREDIT RISK
The Company is potentially subject to concentrations of credit risk with
accounts receivable and futures contracts. Although the Company has a diverse
customer base, 34% and 27% of the accounts receivable balance was due in
aggregate from five customers as of December 31, 1997 and 1996, respectively.
The Company performs ongoing credit evaluations of customers and does not
require collateral for accounts receivable. The Company evaluates the
creditworthiness of the counterparties to the futures contracts and considers
nonperformance risk to be remote.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors several defined benefit pension plans covering
substantially all employees. The Company uses the "projected unit credit"
actuarial method for financial reporting purposes and the "entry age normal"
actuarial method for funding purposes.
The Company has historically provided postretirement medical insurance and
life insurance benefits (primarily for salaried employees). In 1995, the Company
adopted on a prospective basis Statement of Financial Accounting Standards 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, to
account for the cost of postretirement benefits other than pensions. This
statement changed the prevalent practice of cash basis accounting for
postretirement benefits by requiring the accrual of such benefits during the
employees' years of service.
FORWARD SALES CONTRACTS AND FUTURES CONTRACTS
In the normal course of business, the Company enters into forward sales
contracts with certain customers for the sale of fixed quantities of extruded
aluminum at scheduled intervals whereby the cost of the aluminum component of
the contract is fixed for the duration of the contract, based on market price at
the inception of the contract. In order to hedge its exposure to aluminum price
volatility under these forward sales contracts, the Company enters into aluminum
futures contracts to purchase aluminum, based on scheduled deliveries under the
forward sales contracts. Gains and losses on futures contracts designated and
effective as hedges of aluminum price exposure are recorded as adjustments to
the cost of inventory.
RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997, 1996 and 1995, the Company
purchased aluminum from CVG Industria Venezolana de Aluminio C.A. ("Venalum"),
an owner of 180.362.5 shares of Class A common stock, with total amounts
purchased of $69,606,000, $69,288,000 and $68,277,000, respectively. Amounts
payable to Venalum at December 31, 1997 and 1996 were $6,344,000 and $8,567,000,
respectively.
-27-
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
As described in Note 12, the Company has elected to follow the provisions
of Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock
Issued to Employees, for stock based compensation. Pro forma disclosures
required under Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation, are not included herein since the
information is not materially different from the amounts reported.
BUSINESS SEGMENTS
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information, which is
required to be adopted effective December 31, 1998, and requires, among other
things, that the Company provide financial and descriptive information about its
operating segments. Under SFAS No. 131, operating segments are components of an
enterprise about which separate financial information is available that is
regularly evaluated by the enterprise's chief operating decision maker deciding
how to allocate resources and in assessing performance. While the Company
continues to evaluate the adoption of the new standard, it is likely that the
Company will continue to have only one reportable operating segment.
2. INVENTORIES
A summary of inventories at December 31 follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
Cost for aluminum and FIFO cost for other components:
Raw materials ................................... $ 11,840 $ 11,073
Finished goods and work-in-process .............. 10,658 8,929
Supplies ........................................ 471 525
-------- --------
22,969 20,527
Less LIFO reserve ............................... (2,760) (689)
-------- --------
$ 20,209 $ 19,838
======== ========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31 follows (dollars
in thousands):
1997 1996
-------- ---------
Land ........................ $ 816 $ 816
Buildings and improvements .. 9,075 8,909
Machinery and equipment ..... 45,847 44,485
Construction in progress .... 1,848 352
-------- --------
57,586 54,562
Less accumulated depreciation (30,317) (27,839)
-------- --------
$ 27,269 $ 26,723
======== ========
-28-
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
4. RECAPITALIZATION
On May 5, 1997, 125,000 shares of Class B Common Stock were converted to
125,000 shares of Class A Common Stock, increasing the total shares of Class A
Common Stock outstanding to 903,062.5.
In May 1997, the Company issued and sold $105,000,000 principal amount of
10.125% Series A Senior Notes ("Series A Notes") due 2005. In connection with
the consummation of the issuance and sale of the Notes, the Company repaid
existing indebtedness and entered into a new bank credit facility (see Note 6
herein) providing a secured working capital line of $15,000,000, which matures
in 2002.
The offering of the Series A Notes, the repayment of $20,992,000 of
indebtedness under an old bank credit facility, the retirement of $15,000,000 of
14.125% Senior Subordinated Notes ("Subordinated Notes") due 2001, and the
entering into of a new bank credit facility were part of an overall
recapitalization of the Company ("Recapitalization"). As part of the
Recapitalization, the Company used a substantial portion of the proceeds
received from the issuance and sale of the Series A Notes to pay a special cash
dividend to holders of its common stock, settle existing employee stock options,
and repurchase, or offer to repurchase, shares of common stock held by certain
stockholders.
In 1997, the Company paid a special cash dividend of $62.00 per share, or
$55,990,000, to the holders of common stock, paid an aggregate of $37,467,000
related to the repayment or retirement of debt, and paid $1,217,000 for the
repurchase and retirement of 152,100 shares of Class A Common Stock from certain
shareholders. The Company also incurred $4,070,000 of compensation expense and
issued 158,042.5 shares of Class A Common Stock related to the settlement of
employee stock options. The compensation expense represents the difference
between fair market value and the exercise price on the settlement of 57,000
employee stock options and $900,000 of bonuses paid to satisfy a portion of
income taxes incurred by option holders as a result of receiving shares of
common stock.
In November 1997, the Company consummated an exchange of 100% of the Series
A Notes for $105,000,000 aggregate principal amount of 10.125% Series B Senior
Notes due 2005, which are registered under the Securities Act of 1993, as
amended.
At December 31, 1997, there were 909,005.0 shares of Class A Common Stock
outstanding.
5. ACCRUED EXPENSES
A summary of accrued expenses at December 31 follows (dollars in
thousands):
1997 1996
------ ------
Interest ............................. $ 886 $1,011
Salaries, wages and other compensation 3,697 2,474
Other ................................ 2,779 2,082
------ ------
$7,362 $5,567
====== ======
-29-
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
6. LONG-TERM DEBT
A summary of long-term debt at December 31 follows (dollars in thousands):
1997 1996
-------- --------
Credit agreement:
Revolving loan facility ................. $ -- $ 1,400
Term A loan ............................. -- 7,477
Term B loan ............................. -- 6,201
Subordinated notes:
14.125% senior subordinated notes ....... -- 15,000
Senior notes:
10.125% Series B senior notes (see Note 4) 105,000 --
Other ....................................... -- 13
105,000 40,091
Less current portion .................... -- (13)
-------- --------
$105,000 $ 40,078
======== ========
Aggregate maturities of long-term debt for each of the five years
succeeding December 31, 1997 are $0.
CREDIT AGREEMENT
In December 1994, the Company entered into a $62,000,000 credit agreement
("1994 Credit Agreement") with Banque Indosuez (now known as Credit Agricole
Indosuez), New York Branch ("Agent"). In May 1997, the Company entered into a
$15,000,000 credit agreement ("1997 Credit Agreement") with Credit Agricole
Indosuez by amending and restating the 1994 Credit Agreement.
The 1994 Credit Agreement with Agent was comprised of 1) a $22,000,000
working capital line of credit ("1994 Revolving Loan Facility"), which would
mature on December 31, 2000, 2) a $33,000,000 term loan ("Term A Loan"), which
would mature on December 31, 2000, and 3) a $7,000,000 term loan ("Term B
Loan"), which would mature on March 31, 2001. The proceeds under the 1994 Credit
Agreement were used to refinance existing debt.
Outstanding balances of the 1994 Revolving Loan Facility were subject to
interest, at the Company's option , at either 1.5% over the Agent's prime
lending rate or 2.75% over LIBOR. On or after January 1, 1996, either rate was
subject to a reduction of 0.25% or 0.50% if the Company met certain financial
criteria stated in the 1994 Credit Agreement. The Company met these financial
criteria and as such the interest rates were reduced by 0.25%. In addition, the
Company paid a commitment fee of 0.50% per annum on the average daily unused
amounts. The 1994 Revolving Loan Facility included available letters of credit
of $5,000,000 which were not used by the Company. In May 1997, outstanding
balances of the 1994 Revolving Loan Facility were paid in full as part of the
Recapitalization. As a consequence of paying off the 1994 Revolving Loan
Facility, the Company recorded an extraordinary loss of $370,000, consisting of
$606,000 of unamortized costs, net of an income tax benefit of $236,000.
The Term A Loan required quarterly principal payments of $1,375,000,
through December 31, 2000 and was subject to interest, at the Company's option,
at either 1.5% over the Agent's prime lending rate or 2.75% over
30
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
6. LONG-TERM DEBT (CONTINUED)
LIBOR. On or after January 1, 1996, either rate was subject to a reduction of
0.25% or 0.50% if the Company met certain financial criteria stated in the 1994
Credit Agreement. The Company met these financial criteria and as such the
interest rates were reduced by 0.25%. In May 1997, the remaining balance due
under the Term A Loan was paid in full as part of the Recapitalization. As a
consequence of retiring the Term A Loan, the Company recorded an extraordinary
loss of $555,000 consisting of $910,000 of unamortized costs, net of an income
tax benefit of $355,000.
The Term B Loan, payable in full on March 31, 2001, was subject to
interest, at the Company's option, at either 2.0% over the Agent's prime lending
rate or 3.25% over LIBOR. On or after January 1, 1996, either rate was subject
to a reduction of 0.25% or 0.50% if the Company met certain financial criteria
stated in the 1994 Credit Agreement. The Company met these financial criteria
and as such the interest rates were reduced by 0.25%. In May 1997, the remaining
balance due under the Term B Loan was paid in full as part of the
Recapitalization. As a consequence of retiring the Term B Loan, the Company
recorded an extraordinary loss of $118,000, consisting of $193,000 of
unamortized costs, net of an income tax benefit of $75,000.
The 1997 Credit Agreement with the Agent is comprised of a $15,000,000
secured line of revolving credit maturing on the last business day of June 2002.
Outstanding balances under this agreement are subject to interest, at the
Company's option, at either 1.0% over the Agent's prime lending rate or 2.25%
over LIBOR. In addition, the Company pays a commitment fee of 0.35% per annum on
the average daily unused amounts. The 1997 Credit Agreement includes available
letters of credit of $5,000,000, which have not been used by the Company. There
are no additional fees with respect to unused letters of credit.
The 1997 Credit Agreement contains numerous covenants, including: (a) a
limitation on the payment of dividends or the repurchase of common stock; (b) a
restriction on redemption or purchase of any indebtedness or the alteration of
terms of any indebtedness; (c) a restriction on the incurrence of future
indebtedness, capital expenditures, investments, liens, transactions with
affiliates and disposition of assets; and (d) the maintenance of specified
financial rations and minimum net worth. The Company was in compliance with
these covenants at December 31, 1997.
The Company's obligations under the 1997 Credit Agreement are secured by
substantially all of the Company's inventories and accounts receivable. No
borrowings were outstanding under the 1997 Credit Agreement as of December 31,
1997.
SUBORDINATED NOTES
In 1987, the Company issued $15,000,000 of 14.125% Junior Subordinated
Notes with a required mandatory redemption of $7,500,000 on June 15, 1998 and
final maturity on July 15, 1999. In December 1994, the Company entered into an
Exchange and Amendment Agreement whereby the original notes were exchanged for
the Subordinated Notes. The Subordinated Notes were redeemable at the option of
the Company, assuming no notes were held by original note holders, at a price of
105.375% of the principal amount redeemed, with the prepayment penalty reducing
annually thereafter to 100.0%. In connection with the Recapitalization, the
Company placed funds in escrow in May 1997 to be used to redeem the Subordinated
Notes at 101.625% on July 15, 1997. As a consequence of retiring the
Subordinated Notes, the Company recorded an extraordinary loss of $249,000,
comprised of $244,000 of prepayment penalty and $165,000 of unamortized costs,
net of an income tax benefit of $160,000.
31
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
6. LONG-TERM DEBT (CONTINUED)
During 1995, the Company entered into a 7.50% interest cap agreement which
had the effect of limiting exposure to fluctuating interest rates on its
variable rate debt under the 1994 Credit Agreement. The interest rate cap
agreement was terminated in June 1997 in connection with the Recapitalization.
7. INTEREST EXPENSE, NET OF INTEREST INCOME
A summary of interest expense, net of interest income, for the years ended
December 31 follows (dollars in thousands):
1997 1996 1995
------- ------ ------
Interest expense ....................... $ 8,249 $4,681 $6,517
Amortization of debt issuance costs .... 593 495 570
------- ------ ------
8,842 5,176 7,087
Interest income ........................ (452) -- --
------- ------ ------
Interest expense, net of interest income $ 8,390 $5,176 $7,087
======= ====== ======
Cash paid for interest amounted to $8,375,000, $5,015,000 and $6,184,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
8. FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standard No. 107, Disclosures about Fair
Values of Financial Instruments, defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. The carrying value reported in the balance
sheets for cash, accounts receivable, accounts payable and long-term debt
approximate their fair values.
9. Income Taxes
Significant components of deferred tax liabilities and assets at December
31 follow (dollars in thousands):
1997 1996
------ -------
Deferred tax liabilities:
Property, plant and equipment ...... $6,372 $6,701
Inventory .......................... 237 212
------ ------
Total deferred tax liabilities ......... 6,609 6,913
------ ------
Deferred tax assets:
Pension and benefit plan liabilities 568 952
Accrued liabilities ................ 319 135
Allowance for doubtful accounts .... 322 456
------ ------
Total deferred tax assets .............. 1,209 1,543
------ ------
Net deferred tax liabilities ........... $5,400 $5,370
====== ======
Deferred income taxes are included in the Balance Sheets in other current
assets and deferred income taxes.
32
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES (CONTINUED)
For the years ended December 31, 1997 and 1996, there was no valuation
allowance for any of the deferred tax assets.
A reconciliation of the statutory income tax to the income tax expense
included in the Statements of Operations for the years ended December 31 follows
(dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Income tax expense calculated at the statutory
federal income tax rate .................. $4,117 $5,566 $5,195
Amortization of goodwill ..................... 416 416 416
State taxes, net of federal benefits ......... 518 683 642
Prior years' income taxes .................... -- 313 --
Other ........................................ 22 81 9
------ ------ ------
Income tax expense ........................... $5,073 $7,059 $6,262
====== ====== ======
</TABLE>
1997 1996 1995
------ ------- -------
Current taxes .... $5,043 $ 7,763 $ 6,453
Deferred taxes ... 30 (704) (191)
------ ------- -------
Income tax expense $5,073 $ 7,059 $ 6,262
====== ======= =======
Cash paid for federal and state income taxes amounted to $4,490,000,
$6,883,000 and $4,960,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
10. LEASES
The Company leases various facilities and equipment under short-term rental
and operating lease agreements. Rent expense under these agreements amounted to
$1,752,000, $1,496,000 and $1,434,000 for the years ended December 31, 1997,
1996 and 1995, respectively. Future minimum payments under noncancellable
operating leases as of December 31, 1997 are: $1,392,000 in 1998, $896,000 in
1999, $607,000 in 2000, $341,000 in 2001, $128,000 in 2002 and $526,000
thereafter.
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company sponsors several defined benefit pension plans covering
substantially all salaried and hourly employees. The benefits for salaried
employees are based on years of service and compensation while the benefits for
hourly employees are based on years of service. The Company's funding policy is
to contribute annually an amount at least equal to the minimum annual
contributions required by ERISA. The plans' assets are invested primarily in
money market funds, common stocks and stock mutual funds.
33
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (Continued)
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
A summary of the actuarially computed benefit obligations and assets for
the defined benefit pension plans as of December 31 follows (dollars in
thousands):
<TABLE>
<CAPTION>
1997 1997 1996 1996
----------- ----------- ----------- -----------
Accumulated Assets Accumulated Assets
Benefit Exceed Benefit Exceed
Obligation Accumulated Obligation Accumulated
Exceeds Benefit Exceeds Benefit
Assets Obligation Assets Obligation
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation ................. $ 3,464 $ 8,373 $ 5,652 $ 3,884
======= ======== ======= =======
Accumulated benefit obligation ............ $ 4,354 $ 9,255 $ 6,620 $ 4,292
======= ======== ======= =======
Projected benefit obligation .................. $ 4,354 $ 11,307 $ 6,620 $ 6,038
Plan assets at fair value ..................... 3,672 9,470 4,895 4,815
------- -------- ------- -------
Plan assets less than
projected benefit obligations ............. (682) (1,837) (1,725) (1,223)
Unrecognized prior service costs .............. 648 421 829 33
Unrecognized net (gain) loss .................. 799 906 807 (208)
Additional minimum pension
liability ................................. (1,447) -- (1,636) --
------- -------- ------- -------
Total accrued and
deferred pension obligations .............. $ (682) $ 510 $(1,725) $(1,398)
======= ======== ======= =======
</TABLE>
A summary of net pension costs for the years ended December 31 follows (dollars
in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
<S> <C> <C> <C>
Service cost - benefits earned during the period .......... $ 803 $ 825 $ 690
Interest cost on projected benefit obligation ............. 1,005 884 824
Return on plan assets ..................................... (1,071) (758) (622)
Net amortization and deferral ............................. 373 195 105
------- ------- -----
Net pension cost .......................................... $ 1,110 $ 1,146 $ 997
======= ======= =====
</TABLE>
A summary of the significant actuarial assumptions follows:
1997 1996 1995
----- ----- -----
Discount rates .............. 7.25% 7.75% 7.25%
Future compensation increases 4.50% 4.50% 4.00%
The actuary assumed an expected long-term rate of return on assets of 8.00% for
1997, 1996 and 1995.
In addition to the Company's defined benefit pension plans, the Company
offers postretirement medical insurance and life insurance benefits to employees
(primarily salaried employees) who retire under certain eligibility
requirements. Coverage is for the lifetime of the retiree and spouse (if
elected). Contribution requirements for
34
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
11. PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS (CONTINUED)
current retirees are set at a fixed percentage of expected claims costs, while
contributions for future retirees will vary dependent upon years of service at
retirement. The Company funds its postretirement benefit obligation on a pay as
you go basis.
A reconciliation of the plans' combined funding status with the amounts
recognized in the balance sheet as of December 31 follows (dollars in
thousands):
1997 1996
-------- --------
Accumulated postretirement benefit obligation:
Retirees ................................. $(1,150) $(1,044)
Fully eligible active plan participants .. (524) (475)
Other active plan participants ........... (2,147) (1,605)
------- -------
(3,821) (3,124)
Plan assets at fair value .................... -- --
Accumulated postretirement benefit obligations
in excess of plan assets ................. (3,821) (3,124)
Unrecognized transition obligation ........... 2,444 2,588
Unrecognized net gain ........................ (148) (413)
------- -------
Net pension cost ............................. $(1,525) $ (949)
======= =======
The portion of the accumulated postretirement benefit obligation related to
life insurance is $1,004,000 and $799,000 for December 31, 1997 and 1996,
respectively.
The components of net periodic postretirement benefit cost follow (dollars
in thousands):
<TABLE>
<CAPTION>
1997 1996
----- ----
<S> <C> <C>
Service cost ................................................... $183 $186
Interest cost .................................................. 243 220
Amortization of unrecognized transition obligation over 20 years 144 144
Amortization of unrecognized gain .............................. (2) --
---- ----
Net periodic postretirement benefit cost ....................... $568 $550
==== ====
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e. health care cost trend rate) for the plans is 8% and
is assumed to decrease gradually to 5% and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. For example, increasing the health care cost trend rate by one
percentage point in each year would increase the accumulated postretirement
benefit obligation for the plans as of December 31, 1997 by $547,000 and the
aggregate of the service and interest cost components of net periodic
postretirement benefit for 1997 by $72,000.
The weighted-average discount rate used by the actuary in determining the
accumulated postretirement benefit obligations was 7.25 percent and 7.75 percent
at December 31, 1997 and 1996, respectively.
35
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
12. STOCK OPTION PLANS
In November 1993, the Board of Directors of the Company approved a stock
option plan which authorized up to 60,000 shares of Class A Common Stock for the
plan. The plan provided for the granting of options to officers, other key
employees and directors at an exercise price not to exceed the fair market value
on the date of the grant as determined by the Board of Directors. Under the
terms of the plan, the maximum term for the options granted was ten years with
the options vesting ratably over a period of four years. The options granted
were exercisable at a price of $10.00 per share. All options granted under the
plan were settled on May 28, 1997 as part of the Recapitalization of the
Company.
1997 1996 1995
------ ------ ------
Options outstanding at January 1 . 57,000 53,000 60,000
Options exercised ................ -- (3,000) (750)
Options settled .................. (57,000)
Options granted .................. -- 7,000 --
Options canceled ................. -- -- (6,250)
------- ------- -------
Options outstanding at December 31 -- 57,000 53,000
======= ======= =======
Options exercisable at December 31 -- 42,750 26,500
======= ======= =======
The Company recognized $4,070,000 in compensation expense relating to the
57,000 options settled in 1997 and $250,000 in compensation expense relating to
the 7,000 options granted in 1996.
In June 1997, the Board of Directors of the Company approved a stock option
plan which authorized up to 65,000 shares of Class A Common Stock for the plan.
The plan provides for the granting of options to officers, other key employees
and directors at an exercise price not to exceed the fair market value on the
date of the grant as determined by the Board of Directors. Under terms of the
plan, the maximum term for the options granted is ten years with the options
vesting ratably over a period of four years. The options granted are exercisable
at a price of $8.00 per share. The weighted-average remaining contractual life
of the options outstanding as of December 31, 1997 approximates 9.5 years.
1997 1996 1995
------ ------- ------
Options outstanding at January 1 . -- -- --
Options exercised ................ -- -- --
Options granted .................. 61,350 -- --
Options canceled ................. (9,650) -- --
------ ---- ----
Options outstanding at December 31 51,700 -- --
====== ==== ====
Options exercisable at December 31 -- -- --
====== ==== ====
13. FUTURES CONTRACTS
The Company, in the normal course of business, enters into futures
contracts to manage the risk of fluctuations in the price of aluminum.
Fluctuations in the price of aluminum can have a significant impact upon the
operations of the Company. These instruments involve elements of credit and
market risk that are not reflected on the Company's balance sheet. Entering into
these contracts involves not only the risk of dealing with counterparties and
their ability to meet the terms of the contracts, but also of movements in
market value of the futures contracts.
36
<PAGE>
WELLS ALUMINUM CORPORATION
NOTES TO THE FINANCIAL STATEMENTS (Continued)
13. FUTURES CONTRACTS (CONTINUED)
The Company is required to place amounts on deposit with brokers based on the
market value of certain contracts. These margin deposits bear interest based on
the rate of certain U.S. Treasury instruments and are to be refunded as the
market value changes or contracts are closed.
As of December 31, 1997 and 1996, the Company has contracts outstanding
with a notional principal amount of $19,469,000 and $11,125,000, respectively,
all of which the Company has used to hedge forward sales contracts. The
unrealized loss related to these contracts approximates $501,000 at December 31,
1997.
14. COMMITMENTS AND CONTINGENCIES
At December 31, 1997, the Company has commitments with four North American
suppliers to purchase 65.5 million pounds of primary aluminum from January 1998
through January 1999 at current market prices at the delivery dates. In
addition, the Company has a commitment under the Venalum Agreement, which
expired December 31, 1997, to purchase 8.0 million pounds of aluminum in January
1998 from Venalum, a delivery originally scheduled for December 1997. Management
expects that such quantities of aluminum will be utilized in the normal course
of operations during the terms of these agreements.
The Company has received notice of claims asserting potential liability
under various federal and state environmental laws. Management believes
substantially all such claims were discharged in a Chapter 11 bankruptcy filing
by the former owner of the Company and relate to matters existing prior to June
1987 which are covered by an indemnity agreement with the former owner of the
Company. The indemnity agreement requires the former owner to pay all qualifying
claims, as defined, in excess of $500,000 if the aggregate amount of all claims
exceeds $1,500,000.
The Company accrues for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Based upon
information that is currently available, management does not expect that the
resolution of environmental claims will have a material adverse effect on the
Company. However, given the inherent uncertainties in evaluating environmental
exposure, it is not possible to predict the amount of future costs of
environmental claims which may be subsequently determined. The Company has not
anticipated any insurance proceeds or third-party payments in determining its
estimated liability for environmental remediation.
The Company is also a party to a number of other lawsuits and claims
arising out of the conduct of its business. Although the ultimate results of
lawsuits or other proceedings against the Company cannot be predicted with
certainty, management does not expect that these matters will have a material
adverse effect on the Company or its operations.
15. SUBSEQUENT EVENTS
In January and February of 1998, the Company arranged commitments with five
North American suppliers to purchase an additional 6.6 million pounds of primary
aluminum, plus 16.8 million pounds of aluminum billet from January 1998 through
December 1998 at current market prices at the delivery dates. Management expects
that such quantities of aluminum will be utilized in the normal course of
operations during the terms of these agreements.
37
<PAGE>
15. SUBSEQUENT EVENTS (CONTINUED)
In late February 1998, the Company's collective bargaining agreement with
the local union at one plant location expired, and shortly thereafter, the local
union initiated a work stoppage. In late March 1998, the Company and the local
union reached agreement on a new collective bargaining agreement and the work
stoppage ceased. During the work stoppage, the Company operated the affected
plant using salaried personnel from within the Company and temporary employees.
Management believes that the work stoppage did not have a material adverse
effect on the financial performance of the Company.
38
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
WELLS ALUMINUM CORPORATION
December 31, 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions End
Description of Period Expenses Accounts -- Describe of Period
- -------------------------------- --------- -------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts $1,170 $150 -- $(495)(1) $ 825
------ ---- ----- ------
Total $1,170 $150 -- $(495) $ 825
====== ==== ===== ======
Year Ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts $ 925 $548 -- $(303)(1) $1,170
------ ---- ----- ------
Total $ 925 $548 -- $(303) $1,170
====== ==== ===== ======
Year Ended December 31, 1995:
Deducted from asset accounts:
Allowance for doubtful accounts $1,008 $464 -- $(547)(1) $ 925
------ ---- ----- ------
Total $1,008 $464 -- $(547) $ 925
====== ==== ===== ======
</TABLE>
(1) Uncollectible accounts written off, net of recoveries and adjustments.
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table set forth certain information with respect to the
individuals who are the directors and executive officers of Wells.
<TABLE>
<CAPTION>
Name Age Position
- ----------------------------------------- -- -----------------------------------------------------------
<S> <C> <C>
Russell W. Kupiec ....................... 50 President, Chief Executive Officer and Director
W. Russell Asher ........................ 55 Senior Vice President, Chief Financial Officer and Director
Lynn F. Brown ........................... 53 Senior Vice President, Sales and Marketing and Director
Leo A McCafferty ....................... 60 Vice President, Operations and Director
William J. Milam ........................ 57 Vice President, Sales and Product Management
David J. Raymonda ...................... 40 Controller, Secretary and Treasurer
Elizabeth Varley Camp .................. 40 Director
Elena de Costas ........................... 45 Director
Todd Goodwin ............................ 66 Director
Edward R. Heiser ........................ 62 Director
Lewis W. van Amerongen .............. 57 Director
Estrella Vidal ............................. 38 Director
</TABLE>
Each director of the Company holds office until the next annual meeting of
the stockholders of the Company or until his or her successor has been elected
and qualified. Officers of the Company are elected by and serve at the
discretion of the Board of Directors. See "Certain Relationships and Other
Transactions."
Pursuant to an agreement among the Company and certain of its stockholders,
Venalum has the right to nominate two directors to the Board of Directors. Ms.
Elena de Costas and Ms. Estrella Vidal have been nominated by Venalum and have
been duly elected and qualified.
Russell W. Kupiec joined the Company in April 1991. Mr. Kupiec has been
President and Chief Executive Officer since April 1996. From March 1995 to April
1996, he served as Chief Operating Officer. From November 1991 to March 1995,
Mr. Kupiec served as Vice President, Manufacturing. From April 1991 to November
1991, he served as Vice President, Administration. Mr. Kupiec has been a
director of the Company since 1991.
W. Russell Asher, a certified public accountant, joined the Company in
January 1994 and has been Chief Financial Officer since that time. From December
1991 to January 1994, he served as Chief Financial Officer of the Federal
Emergency Management Agency. Prior thereto, Mr. Asher was Vice President,
Finance of MB America Inc., a packaging and printing business, and President and
General Manager of AmeriForms Inc., a printing company which was a subsidiary of
MB America Inc. Mr. Asher has been a director of the Company since 1994.
Lynn F. Brown joined the Company in January 1996 and has been Senior Vice
President, Sales and Marketing since that time. From December 1994 to January
1996, he served as Executive Vice President, Sales and Marketing of Terra Green
Technologies, a start-up business in the ceramics industry. From July 1986 to
40
<PAGE>
December 1994, Mr. Brown was Business Manager of International Paper's
Fountainhead Products Group. Mr. Brown has been a director of the Company since
June 1997.
Leo A. McCafferty joined the Company in October 1995 and has been Vice
President, Operations since July 1996. From October 1995 to July 1996, he served
as Vice President, Manufacturing. From May 1993 to October 1995, Mr. McCafferty
was President of Solutions Et Al, a consulting company engaged in strategic
planning and operations control. From 1986 to May 1993, he was President of PEMS
Service and Repair, a company engaged in ground water treatment and control. Mr.
McCafferty has also held vice president and general manager positions at Black &
Decker Corporation, where he was employed for twenty years. Mr. McCafferty has
been a director of the Company since December 1997.
William J. Milam joined the Company in 1971. Mr. Milam has been Vice
President, Sales and Product Management since 1991, and prior thereto, held
various regional sales management positions.
David J. Raymonda joined the Company in 1982. Mr. Raymonda has been
Controller and Secretary of the Company since February 1989 and Treasurer since
September 1993.
Elizabeth Varley Camp has been a Vice President at Goldman, Sachs & Co.
since August 1997 and has served a director of the Company since July 1987. Ms.
Varley Camp joined GGvA in 1986 and was a Partner of GGvA from 1992 until July
1997.
Elena de Costas has been Vice President of Finance and Administration of
Venalum since 1995 and has served as a director of the Company since August
1997. From 1994 to 1995, Ms. de Costas served as Manager of Finance and
Administration of Venalum.
Todd Goodwin has been a Partner of GGvA since 1984 and has served as a
director of the Company since July 1987. Mr. Goodwin is a director of Schult
Homes Corporation, The Rival Company, Inc., Johns Manville Corporation and U. S.
Energy Systems, Inc.
Edward R. Heiser retired as President and Chief Executive Officer of the
Company in April 1996, a position which he had held since 1991. Mr. Heiser has
been a director of the Company since 1991.
Lewis A. van Amerongen has been a Partner of GGvA since 1970 and has served
as a director of the Company since July 1987. Mr. van Amerongen is also a
director of Agrifos LLC and Erickson Air-Cranes Co., LLC, two privately held
companies.
Estrella Vidal is the Assistant Corporate Executive to the President of
Venalum and has served as a director of the Company since December 1997. During
the past five years, Ms. Vidal has held various administrative positions with
Venalum.
41
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table sets forth the compensation earned, whether paid or
deferred, to Wells's Chief Executive Officer and its other five most highly
compensated executive officers (collectively, the "Named Officers") for services
rendered in all capacities to the Company during the years ended December 31,
1997, 1996 and 1995.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual Compensation Securities
------------------------- Underlying
Name and Principal Position Year Salary Bonus Options
- --------------------------- ---- ------ ----- ----------
<S> <C> <C> <C> <C>
Russell W. Kupiec 1997 $234,650 $1,434,955 15,000
President and 1996 $187,500 $ 175,000 1,300
Chief Executive Officer 1995 $146,583 $ 112,000 --
W. Russell Asher 1997 $140,000 $ 991,042 10,000
Senior Vice President and 1996 $130,000 $ 110,000 1,000
Chief Financial Officer 1995 $120,000 $ 80,000 --
Lynn F. Brown 1997 $136,100 $ 167,210 5,000
Senior Vice President, 1996 $130,000 $ 50,000 500
Sales and Marketing 1995 -- $ -- --
Leo A. McCafferty 1997 $120,900 $ 180,000 5,000
Vice President, 1996 $ 87,500 $ 65,000 --
Operations 1995 $ 16,667 $ 12,800 --
William J. Milam 1997 $112,067 $ 487,571 1,500
Vice President, 1996 $106,562 $ 25,000 --
Sales and Product Management 1995 $102,625 $ 29,000 --
David J. Raymonda 1997 $ 85,180 $ 511,515 1,500
Controller, Treasurer and 1996 $ 80,180 $ 23,000 --
Secretary 1995 $ 74,980 $ 20,000 --
</TABLE>
42
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information on grants of options made to the
Named Officers during fiscal 1997.
Option Grants in Fiscal 1997
<TABLE>
<CAPTION>
Individual Grants
----------------------
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base Grant
Options Employees in Price Expiration Date
Name Granted Fiscal Year Per Share Date(1) Value(2)
- ------------------ ------- ----------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
Russell W. Kupiec 15,000 24.4% $ 8.00 June 30, 2007 $120,000
W. Russell Asher 10,000 16.3% $ 8.00 June 30, 2007 $ 80,000
Lynn F. Brown 5,000 8.1% $ 8.00 June 30, 2007 $ 40,000
Leo A. McCafferty 5,000 8.1% $ 8.00 June 30, 2007 $ 40,000
William J. Milam 1,500 2.4% $ 8.00 June 30, 2007 $ 12,000
David J. Raymonda 1,500 2.4% $ 8.00 June 30, 2007 $ 12,000
</TABLE>
(1) The terms of the stock options granted in fiscal 1997 provide that the
options become exercisable in four substantially equal installments on July
1, 1998, 1999, 2000 and 2001.
(2) The grant date value was determined using the enterprise value of the
Company, based upon third party offers to acquire the Company less the
amount of indebtedness outstanding at May 28, 1997 (including accrued
interest, agency fees and prepayment penalty) and the special cash dividend
paid in connection with the Recapitalization.
The following table provides information on the valuation of options held
by the Named Officers. None of the options held by the Named Officers were
eligible for exercise during fiscal 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year End At Fiscal Year End (1)
-------------------------- -------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
-------------------------- -------------------------
<S> <C> <C>
Russell W. Kupiec........... 0/15,000 $0/$120,000
W. Russell Asher............ 0/10,000 $0/$80,000
Lynn F. Brown .............. 0/5,000 $0/$40,000
Leo A. McCafferty........... 0/5,000 $0/$40,000
William J. Milam............ 0/1,500 $0/$12,000
David J. Raymonda .......... 0/1,500 $0/$12,000
</TABLE>
(1) The value of the in-the-money options is based upon an estimate of market
value of $16.00 per share at December 31, 1997.
43
<PAGE>
PENSION BENEFITS
The following table provides the estimated annual retirement benefits
payable under the Company's pension plan to participating employees, including
the Named Officers, in the remuneration and years of service classifications
indicated. The Company maintains a tax-qualified defined benefit plan, which
covers most officers and salaried employees on a non-contributory basis.
Pension Plan Table
<TABLE>
<CAPTION>
Years of Service
Remuneration 10 15 20 25 30 35
- ------------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 100,000 ........ $15,360 $23,040 $30,720 $38,400 $46,080 $53,760
$ 125,000 ........ $19,200 $28,800 $38,400 $48,000 $57,600 $67,200
$ 150,000 ........ $23,040 $34,560 $46,080 $57,600 $69,120 $80,640
$ 175,000 ........ $24,576 $36,864 $49,152 $61,440 $73,728 $86,016
$ 200,000 ........ $24,576 $36,864 $49,152 $61,440 $73,278 $86,016
</TABLE>
Compensation used in calculating the annual normal retirement benefit
amounts reflected in the Pension Plan Table is the current annual base salary.
The normal retirement age for pension plan purposes is age 65.
The respective years of service credited for pension purposes as of
December 31, 1997, and the estimated years of service at age 65 for each of the
Named Officers are as follows:
Years of Service Years of Service
at December 31, 1997 at Normal Retirement
-------------------- --------------------
Russell W. Kupiec ..................... 6.76 21.31
W. Russell Asher ...................... 4.00 13.60
Lynn F. Brown ......................... 2.00 14.23
Leo A. McCafferty ..................... 2.21 6.56
William J. Milam ...................... 26.53 33.84
David J. Raymonda ..................... 18.34 43.00
The Pension Plan Table reflects the annual benefit payable commencing on
the participant's 65th birthday in the form of an annuity for the participant's
life. The benefits reflected in the Pension Plan Table will be offset by 0.486%
of the participant's Covered Compensation, as defined by the Internal Revenue
Service, and any prior plan benefits.
EMPLOYMENT AGREEMENTS
Each of the Named Officers has an employment agreement with the Company.
Among other things, each arrangement provides for a term of employment in a
specific executive position, a specified annual base salary and participation in
any additional incentive compensation or bonus programs of the Company. The
employment agreements with Messrs. Kupiec and Asher continue until December 31,
1999 and annually thereafter unless otherwise terminated. If either Mr. Kupiec
or Mr. Asher is terminated other than for cause or disability, the Company is
obligated to continue paying the base salary amount through the end of the
contract term, subject to an offset for earnings from other full-time
employment, and to maintain benefits for such executive through the end of the
contract term. If certain Change in Ownership (as defined in such agreements)
events occur during the
44
<PAGE>
term of these agreements, the term of employment is automatically extended for
three years from the date the executive is notified of the Change in Ownership.
In the event of a Change in Ownership, the executive is given the right to
terminate his agreement if he is dissatisfied with his salary or performance
review to be given approximately 18 months after the Change in Ownership. If,
after a Change in Ownership, the executive terminates his employment due to such
dissatisfaction or is discharged other than for cause or disability, the
Company's obligation to continue paying his base salary through the end of the
contract term is not subject to any offset and the Company is obligated to
maintain benefits for such executive through the end of the contract term.
The employment agreements with each of Mr. Milam and Mr. Raymonda continue
until December 31, 1998, which are subject to automatic two year extensions, if
certain Change in Ownership (as defined in such agreements) events occur. If
either of such executives is terminated other than for cause or disability, the
Company is obligated to continue paying the base salary amount through the end
of the contract term, subject to an offset for earnings from other full-time
employment, and to maintain benefits for such executive for six months after
such termination. The employment agreements for Messrs. Brown and McCafferty
ended on December 31, 1997, and during their contract term, were substantially
similar to the employment agreements of Mr. Milam and Mr. Raymonda.
STOCK OPTION PLAN
In June 1997, the Company adopted and the stockholders of the Company
subsequently approved the 1997 Stock Incentive Plan (the "Plan") pursuant to
which officers, directors and other key employees of the Company will be granted
stock options to purchase shares of Class A Common Stock. The Plan is
administered by either the Stock Option Committee (the "Committee") of the Board
of Directors or the Board of Directors (the "Board"). The Committee or the Board
will have the discretion to determine the exercise price, the duration and other
terms and conditions of such options. The Committee or the Board will have the
authority to interpret and construe the Plan, and any interpretation or
construction of the Plan by the Committee or the Board will be final and
conclusive. During the year ended December 31,1997, 61,350 stock options were
granted and 9,650 stock options were cancelled, both pursuant to the Plan.
Twenty five percent of such outstanding options will vest and become exercisable
on each of the first through fourth anniversaries of the date of the grant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Wells is authorized to issue 1,100,000.0 shares of Class A Common Stock,
par value $0.01 per share (the "Common Stock"). As of December 31, 1997,
909,005.0 shares of Common Stock were issued and outstanding.
The following table sets forth certain information as of December 31, 1997,
with respect to the shares of the Common Stock of the Company beneficially owned
by each person or group that is known by the Company to be a beneficial owner of
more than 5% of the outstanding Common Stock and by all directors and executive
officers of the Company.
45
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership
Number of Shares Percentage of Total
-------------------- -------------------
<S> <C> <C>
Wells Holdings Limited Partnership
600 Madison Avenue, New York, New York 10022 ... 560,000.0 61.61%
CVG Industria Venezolana de Aluminio, C.A .........
Zona Industrial Matanzas, Cuidad Guayana,
Apt 289312, Estado Bolivar, Venezuela ......... 180,362.5 19.84%
Russell W. Kupiec ................................. 34,810.0 3.83%
W. Russell Asher .................................. 41,125.0 4.52%
Lynn F. Brown ..................................... 2,937.5 0.31%
William J. Milam .................................. 12,600.0 1.39%
David J. Raymonda ................................. 29,375.0 3.23%
Todd Goodwin ...................................... 560,000.0 61.61%
Edward R. Heiser .................................. 16,000.0 1.76%
Lewis W. van Amerongen ............................ 560,000.0 61.61%
All Executive Officers and Directors
as a Group (12 Persons) ....................... 696,847.5 76.66%
</TABLE>
Wells Holdings Limited Partnership ("Wells Holdings") is a limited
partnership of which GGvA is the sole general partner. As such, GGvA exercises
sole voting and investment power with respect to the shares owned by Wells
Holdings. Messrs. Goodwin and van Amerongen, directors of the Company, are
partners in GGvA, with the shared power to direct the actions of GGvA, and may
be deemed to own beneficially the shares owned by Wells Holdings by virtue of
their status and rights as such partners.
Wells Holdings is the successor limited partnership of The Fulcrum III
Limited Partnership and The Second Fulcrum III Limited Partnership
(collectively, "Fulcrum III"). Fulcrum III was a limited partnership of which
GGvA was the sole general partner. GGvA has informed the Company that all of the
shares owned by Fulcrum III have been transferred to Wells Holdings.
AGREEMENTS WITH STOCKHOLDERS
In connection with the acquisition of the Company in 1987, the Company
entered into a Stock Purchase Agreement with Fulcrum III. Subject to certain
restrictions, Fulcrum III had certain demand and "piggyback" rights to have its
shares of Class A Common Stock registered under the Securities Act. The Company
had agreed to pay the costs and expenses associated with two such registrations,
except for discounts and commissions. As successor to Fulcrum III, Wells
Holdings has succeeded to these rights.
In 1988, the Company entered into a Stock Purchase Agreement with Venalum
(the "Venalum Stock Purchase Agreement"). The Venalum Stock Purchase Agreement
provides that, upon certain issuances of equity securities, Venalum will have
rights to maintain its percentage of equity interest in the Company's capital
stock by purchasing a portion of such equity securities. Subject to certain
conditions, Venalum has certain "piggyback" rights to have its shares of Class A
Common Stock registered under the Securities Act. The Company has agreed to pay
the costs and expenses associated with two such registrations, except for
discounts and commissions.
In connection with Venalum's acquisition of Class A Common Stock, the
Company entered into a Shareholders' Agreement (the "Shareholders Agreement")
with Fulcrum III and Venalum. The Shareholders Agreement provides that if
Fulcrum III transfers its shares of Class A Common Stock under certain
circumstances, Venalum may participate in such transfer. The transfer of shares
from Fulcrum III to Wells Holdings did not trigger Venalum's right to
participate in such transaction. Pursuant to the Shareholders Agreement, the
Company agreed to nominate for election to the Board of Directors two persons
designated by Venalum. Fulcrum III agreed to vote its shares of Class A Common
Stock so that the two persons designated by
46
<PAGE>
Venalum shall be elected to the Board of Directors, and Venalum agreed to vote
its shares of Class A Common Stock in favor of the Company's slate of nominees
for election to the Board of Directors.
ITEM 13. CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
The Company was party to an agreement with Venalum pursuant to which
Venalum supplied primary aluminum to the Company. This contract accounted for
approximately 60-65% of the aluminum purchased by the Company from outside
suppliers. Pursuant to the Venalum Agreement, the Company purchased $68.3
million, $69.3 million and $69.6 million of aluminum from Venalum in 1995, 1996
and 1997, respectively. Prices were based on the MWTP from the prior month. The
Company believed that the terms of the Venalum Agreement were no less favorable
to the Company than would have been obtained in an arms' length transaction. The
Venalum Agreement commenced in 1988 and was renewed on numerous occasions.
During 1997, negotiations to extend the Venalum Agreement or enter into a new
supply agreement were not successful. The Venalum Agreement expired on December
31, 1997, although the last scheduled delivery of primary aluminum under the
Venalum Agreement was received in January 1998.
In 1987, the Company entered into an agreement with GGvA, pursuant to which
GGvA provides financial advisory and other services to the Company. For such
services, GGvA was paid an annual retainer of $250,000 in 1995, 1996 and 1997,
plus reimbursement for its out-of-pocket expenses. In addition, GGvA received a
fee of $500,000 for financial advisory and other services in connection with the
Recapitalization.
GGvA has informed the Company that all of the shares owned by Fulcrum III
were transferred to Wells Holdings, a new limited partnership, of which GGvA is
the sole general partner. In connection with that transfer, GGvA offered to
purchase from the existing limited partners of Fulcrum III their interests in
the capital stock of the Company owned by Fulcrum III. Certain limited partners
accepted such offer, and as a result, the interest of GGvA in the new
partnership owning the capital stock of the Company increased to approximately
83% of the interests in the capital stock of the Company owned by the new
partnership.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
1. Financial Statements
The following financial statements of the Company are included in Item
8 of this report:
- Report of Independent Auditors
- Balance Sheets as of December 31, 1997 and 1996
- Statements of Operations for the years ended December 31, 1997,
1996 and 1995
- Statements of Stockholders' Equity for the years ended December
31, 1997, 1996 and 1995
- Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995
- Notes to the Financial Statements
2. Financial Statement Schedules
The following financial statement schedule of the Company is included
in Item 8 of this report:
- Valuation and Qualifying Accounts and Reserves
47
<PAGE>
Other schedules for which provision is made in the applicable
accounting regulations of the SEC are not required under the
related instruction or are not applicable and, therefore, have
been omitted.
(b) Exhibits
3.1 Articles of Amendment and Restatement of the Certificate of
Incorporation of Wells Aluminum Corporation (the "Company").
3.2 By-Laws of the Company. *
4.1 Indenture, dated as of May 28, 1997, between the Company and State
Street Bank and Trust Company (formerly known as Fleet National Bank)
(the "Trustee"). *
4.2 Form of 10.125% Series A and Series B Senior Notes due 2005, dated as
of May 28, 1997 (incorporated by reference to Exhibit 4.1). *
4.3 Registration Rights Agreement, dated as of May 28, 1997, among the
Company and Merrill Lynch & Co. (the "Initial Purchaser"). *
10.1 Amended and Restated Credit Agreement, dated as of May 28, 1997, among
the Company, the lending institutions party thereto and Credit
Agricole Indosuez, as Agent. *
10.2 Amended and Restated General Security Agreement, dated as of May 28,
1997, between the Company and Credit Agricole Indosuez. *
10.3 Employment Agreement with Russell W. Kupiec, dated as of December 18,
1996.
10.4 Employment Agreement with W. Russell Asher, dated as of December 18,
1996.
10.5 Employment Agreement with David Raymonda dated as of December 18,
1996.
10.6 Employment Agreement with William J. Milam, dated as of December 18,
1996.
10.7 1997 Stock Incentive Plan
12.1 Statement re Computation of Ratio of Earnings to Fixed Charges.
27.1 Financial Data Schedule.
-----------------
* Previously filed.
(c) Reports on 8-K
The Company did not file any reports on Form 8-K during the year ended
December 31, 1997.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Baltimore, State of
Maryland, on March 30, 1998.
Wells Aluminum Corporation
By: /s/ Russell W. Kupiec
----------------------------
Russell W. Kupiec
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1993, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------- ---------------------------------------- --------------
<S> <C> <C>
/s/ Russell W. Kupiec Principal Executive Officer and Director March 30, 1998
- ----------------------------------
Russell W. Kupiec
/s/ W. Russell Asher Chief Financial Officer and Director March 30, 1998
- ----------------------------------
W. Russell Asher
/s/ David J. Raymonda Principal Accounting Officer March 30, 1998
- ----------------------------------
David J. Raymonda
/s/ Lynn F. Brown Director March 30, 1998
- ----------------------------------
Lynn F. Brown
/s/ Leo A. McCafferty Director March 30, 1998
- ----------------------------------
Leo A. McCafferty
/s/ Elizabeth Varley Camp Director March 30, 1998
- ----------------------------------
Elizabeth Varley Camp
/s/ Elena de Costas Director March 30, 1998
- ----------------------------------
Elena de Costas
Director March , 1998
- ----------------------------------
Todd Goodwin
/s/ Edward R. Heiser Director March 30, 1998
- ----------------------------------
Edward R. Heiser
/s/ Lewis W. van Amerongen Director March 30, 1998
- ----------------------------------
Lewis W. van Amerongen
Director March , 1998
- ----------------------------------
Estrella Vidal
</TABLE>
WELLS ALUMINUM CORPORATION
ARTICLES OF AMENDMENT AND RESTATEMENT
Wells Aluminum Corporation, a Maryland corporation ("the Corporation"),
certifies as follows.
FIRST: The Corporation desires to amend and restate its charter as
currently in effect.
SECOND: The following are the provisions of the charter of the corporation
in effect as amended.
FIRST: The name of the corporation (herein called the "Corporation")
is WELLS ALUMINUM CORPORATION.
SECOND: The purposes for which the Corporation is formed and the
business or objects to be carried on and promoted by it are as follows: to
manufacture, own, sell, import, export and deal in and with aluminum and
other metals of all kinds and all combinations or compounds thereof and all
materials, supplies and articles which may be produced or manufactured
therefrom and to conduct, perform or participate in every kind of
commercial or manufacturing enterprise in any part of the world for such
purpose or any other lawful object or purpose, to acquire or dispose of
real property, inventory, materials, good will and other properties in any
part of the world in any manner and to the extent authorized or permitted
by law; to borrow or otherwise raise money and issue shares of stock and to
guaranty payments of others; and to engage in any other lawful business.
The Corporation shall have the general and other powers not inconsistent
with law that are appropriate to promote and attain its purposes.
THIRD: The address of the principal office of the Corporation in the
State of Maryland is c/o United States Corporation Company, 11 East Chase
Street, Baltimore, Maryland 21202. The name and address of the resident
agent of the Corporation in the State of Maryland is United States
Corporation Company, 11 East Chase Street, Baltimore, Maryland 21202.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is 1,100,000 shares, all of which shares
shall be Class A Common Stock, par value $.01 per share (herein called
"Common Stock") , with an aggregate par value of $11, 000.
The following is a statement of certain rights, qualifications,
limitations and restrictions in respect of Common Stock of the Corporation.
<PAGE>
1. Voting Rights.
A. General. The holders of the shares of Common Stock shall be
entitled to vote on the election or removal of the directors of the
Corporation and on all other matters to be voted on by the
stockholders of the Corporation.
B. One Vote Per Share. On all matters to be voted on by the
holders of Common Stock, the holders of such class shall be entitled
to one vote for each share thereof held of record.
2. Liquidation. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the corporation, the assets of
the corporation available for distribution to the holders of Common Stock
shall be distributed equally, share for share, to the holders of
outstanding Common Stock.
3. Dividends. Each outstanding share of Common Stock shall be entitled
to participate equally, share for share, in any dividends which the Board
of Directors of the Corporation may cause to be paid to the holders of
shares of Common Stock out of funds legally available for the payment of
dividends.
FIFTH: The number of directors now in office is ten and the names of
the directors now in office are as follows:
Russell W. Kupiec Elena deCostas
W. Russell Asher Todd Goodwin
Hector Alvarez Edward R. Heiser
Lynn F. Brown Leo A. McCafferty, Jr.
Elizabeth Varley Camp Lewis W. van Amerongen
No director need be a stockholder of the Corporation. The number of
directors may be changed as provided by the bylaws of the Corporation.
SIXTH: No holder of stock of any class shall have any preemptive right
to subscribe to or purchase any additional shares of any class, or any
bonds, notes, debentures or other obligations convertible into stock;
provided, however, that the Board of Directors may, in authorizing the
issuance of stock of any class, confer any preemptive right that the Board
of Directors may deem advisable in connection with such issuance.
SEVENTH: The Board of Directors is hereby authorized and empowered to
authorize the issuance, from time to time, of shares of stock of any and
all classes, including securities convertible into or exchangeable for
shares of stock, in each case for such consideration as the Board of
Directors may deem advisable.
<PAGE>
EIGHTH: The Corporation reserves the right from time to time to amend,
alter, change, add to or repeal any provisions contained in the charter in
the manner now or hereafter prescribed or permitted by statute, including
any amendment which alters the contract rights, as expressly set forth in
the charter, of any outstanding stock, and all rights conferred on
stockholders and others herein are granted subject to this reservation.
NINTH: The Corporation is to have perpetual existence.
TENTH: To the fullest extent permitted by Maryland law, as applicable
from time to time, no person who at any time was or is a director or
officer of the Corporation shall be personally liable to the Corporation or
its stockholders for money damages. No amendment of the charter of the
Corporation or repeal of any of its provisions shall limit or eliminate any
of the benefits provided to directors and officers under this Article in
respect of any act or omission that occurred prior to such amendment or
repeal.
ELEVENTH: The Corporation shall indemnify, to the fullest extent
provided by the general laws of Maryland now or hereafter in force, all
persons who at any time were or are directors or officers of the
Corporation for any threatened, pending or completed action, suit or
proceeding (whether civil, criminal, administrative or investigative)
relating to any action alleged to have been taken or omitted in such
capacity as a director or an officer. The Corporation shall pay or
reimburse all reasonable expenses incurred by a present or former director
or officer of the Corporation in connection with any threatened, pending or
completed action, suit or proceeding (whether civil, criminal,
administrative or investigative) in which the present or former director or
officer is a party, in advance of the final disposition of the proceeding,
to the fullest extent permitted by, and in accordance with, the applicable
requirements of Maryland law as applicable from time to time. The
Corporation may indemnify any other persons permitted, but not required, to
be indemnified by Maryland law, as applicable from time to time, if and to
the extent indemnification is authorized and determined to be appropriate
in each case in accordance with applicable law by the Board of Directors,
the stockholders, or special legal counsel appointed by the Board of
Directors. The Corporation shall not be required to purchase or maintain
insurance on behalf of the any present or former directors or officers or
other persons required or permitted to be indemnified. No amendment of the
charter of the Corporation or repeal of any of its provisions shall limit
or eliminate any of the benefits provided to directors and officers under
this Article in respect of any act or omission that occurred prior to such
amendment or repeal.
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<PAGE>
THIRD: Prior to the amendment and restatement of the charter of the
Corporation, the authorized stock of the Corporation was 1,100,000 shares, of
which 975,000 shares, par value $.01 per share, were designated Class A Common
Stock, and 125,000 shares, par value $.01 per share, were designated Class B
Common Stock, for an-aggregate par value of all authorized ' stock of $11,000.
At the time of the amendment and restatement, no shares of Class B Common Stock
were outstanding. After giving effect to the amendment and restatement, the
total number of shares of stock which the Corporation has authority to issue is
1,100,000, all of which are designated Class A Common Stock, par value $.01 per
share, for an aggregate par value of $11,000.
FOURTH: The amendment and restatement of the charter of the Corporation was
advised by the Board of Directors and approved by the stockholders of the
Corporation.
IN WITNESS WHEREOF the Corporation has caused the Articles of Amendment and
Restatement to be, signed in its name and on its behalf on this 16th day,
December 1997, by its President, who acknowledges that the Articles of Amendment
and Restatement are the act of the Corporation and that, to the best of his
knowledge, information and belief and under penalties of perjury, all matters
and facts contained in these Articles of Amendment and Restatement are true in
all material respects.
ATTEST: WELLS ALUMINUM CORPORATION
/s/ David J. Raymonda By:/s/ Russell W. Kupiec
- ---------------------------------- -------------------------(SEAL)
Secretary President
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of December 18,1996, by and between Wells Aluminum
Corporation, a Maryland corporation (the "Corporation"), and Russell W. Kupiec
(the "Executive"), residing at 3228 Montebello Terrace, Baltimore, Maryland
21214.
W I T N E S S E T H:
WHEREAS, the Corporation desires to employ the Executive and the Executive
is willing to accept such employment with the Corporation, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the parties hereto do hereby agree as follows:
1. TITLE AND DUTIES OF EXECUTIVE. (a) During the term of his employment as
provided in Section 3 below, the Executive will be employed as President and
Chief Executive Officer of the Corporation, and the Executive agrees to be
employed in such capacities. During such term, the Executive shall hold
responsibility for, and exercise authority over, all operations of the
Corporation, and shall have such powers and duties as generally pertain to a
President and Chief Executive Officer. In no event shall the Executive be
assigned duties inconsistent with his status as an executive officer of the
Corporation.
(b) The Board of Directors of the Corporation may, in addition, from
time to time request the Executive to act (but only in an executive capacity and
with regard to duties reasonable assigned to him) as an officer or director of
subsidiaries of the Corporation which
<PAGE>
may hereafter be established, and the Executive agrees, upon such request (and
upon any necessary election), to hold such positions provided such do not
interfere with the Executive's duties hereunder.
(c) The Executive agrees to devote his full business time and his best
efforts to the performance of his duties hereunder and to the promotion of the
best interests of the Corporation. The Executive further agrees to normal and
reasonable business travel related to the performance of his duties hereunder.
2. PLACE OF EMPLOYMENT. The permanent place of the Executive's employment
shall be the Baltimore, Maryland area for the first twelve (12) months of the
term of this Agreement, or the first twelve (12) months following the date of
notification of a Change in Ownership (as hereinafter defined) to the Executive,
following which, if at any time the Board of Directors shall determine it to be
in the best interests of the Corporation for the Executive to be relocated and
the Executive, in the exercise of his sole discretion, shall so elect, he may be
relocated, provided that the Corporation shall reimburse the Executive's
reasonable expenses incurred in moving himself and his immediate family.
3. TERM OF AGREEMENT. The Employment of the Executive hereunder shall
commence on December 18, 1996 and shall continue through December 31, 1999,
unless a Change in Ownership has occurred in which case the term of this
Agreement shall extend three (3) years from the date of notification of a Change
in Ownership to the Executive, and in either case shall be automatically renewed
thereafter on an annual basis unless terminated by either party by written
notice to the other on or before six (6) months preceding any scheduled
-2-
<PAGE>
termination date, unless sooner terminated by the Executive's death or as
hereinafter provided in Section 6 below.
4. COMPENSATION. (a) The Corporation agrees to pay the Executive a salary,
payable semi-monthly, at the rate of $233,750 per annum, which salary shall be
subject to increase pursuant to review at least annually.
(b) The Executive shall also be entitled to participate in any
executive incentive compensation or bonus programs of the Corporation each year
he is employed by the Corporation.
5. BENEFITS AND EXPENSES. (a) During the term of the Executive's employment
hereunder, the Executive shall, subject to the terms thereof and the eligibility
requirements therefor, be eligible to participate in any insurance, pension,
retirement or other benefit program maintained by the Corporation for executive
employees, including the Corporation's stock option plan.
(b) In order to facilitate the Executive's carrying out his duties
hereunder, the Corporation shall promptly reimburse the Executive for all
reasonable expenses paid or incurred by him in promoting the business of the
Corporation, upon presentation by the Executive of an itemized accounting
therefor.
6. TERMINATION. (a) In the event of the Executive's willful misconduct (not
including negligence) in any material respect or his material breach of, or
material failure to perform, his duties or responsibilities hereunder, the
Corporation may terminate the Executive's
-3-
<PAGE>
employment hereunder at any time for cause by giving written notice to the
Executive stating the cause of such termination. In no event shall the
Executive's exercise of his rights under Section 2 not to relocate be deemed to
permit the Corporation to terminate his employment under this Subsection 6(a).
(b) If the Executive is unable to perform his duties hereunder by
reason of mental or physical illness or other incapacity continuing for a period
of six (6) consecutive months, the Corporation may, at any time after the
expiration of such six month period and prior to his recovery from such illness
or incapacity, elect to terminate the Executive's employment hereunder by giving
written notice of such election to the Executive. During such period of
incapacity, the Executive's salary hereunder shall be reduced by the amount of
any disability payments made to him under programs maintained by the
Corporation.
(c) If (i) the Executive's employment is terminated by the Corporation
for any reason other than as provided in Subsection 6(a) or 6(0), or (ii) the
Executive terminates his employment as provided in Subsection 7(b), the
Executive's salary shall continue through the term of this Agreement, and his
incentive bonus for the year during which the termination takes place shall be
paid on a pro-rated basis reflecting that portion of the year during which the
Executive was employed. The obligation of the Corporation to continue salary
pursuant hereto is subject to offset for the Executive's earnings from other
full-time employment, unless a Change in Ownership has occurred prior to the
termination of the Executive's employment, in which case the obligation of the
Corporation to continue salary pursuant hereto is not subject to such offset.
-4-
<PAGE>
(d) If (i) the Executive's employment is terminated by the Corporation
for any other reason other than as provided in Subsection 6(a) or 6(b), or (ii)
the Executive terminates his employment as provided in Subsection 7(b), the
Executive shall be entitled to service credit through the term of this Agreement
under the salaried retirement plan of the Corporation. The Corporation shall
also maintain in force the other benefits referred to in Subsection 5(a) through
the term of this Agreement to the extent allowed by the then existing benefit
plans of the Corporation under applicable law, excluding that governing the tax
deductibility of the Corporation's group plan expenses. The obligation of the
Corporation to continue the other benefits pursuant hereto shall cease upon the
Executive's acceptance of other full-time employment.
(e) The Executive may terminate his employment hereunder at any time
by giving the Corporation ninety (90) days' written notice.
7. CHANGE IN OWNERSHIP. (a) In the event that the Corporation shall at any
time be merged or consolidated with or into any corporation or corporations
(other than a subsidiary of the Corporation), or in the event that all or
substantially all of the assets or all or substantially all of the stock of the
Corporation shall be sold or otherwise transferred, or in the event that The
Fulcrum III Limited Partnerships (or, upon distribution, their partners) shall
sell, transfer or otherwise dispose of an aggregate of 80% or more of the shares
of common stock of the Corporation acquired by Fulcrum pursuant to that certain
Stock Subscription Agreement dated as of June 30, 1987 (any of the foregoing
events, a "Change in Ownership"), the Corporation
-5-
<PAGE>
shall give the Executive prompt written notice of such event, and the term of
this Agreement shall be automatically extended for the period three (3) years
after the date of such notification.
(b) In the event of a Change in Ownership, the Corporation shall
render to the Executive a special review (the "Review") in the first ten (10)
days of the eighteenth (18th) month following the notification of a Change in
Ownership to the Executive. The Review shall include an evaluation of the
Executive's performance, an assessment of the Executive's position in the
Corporation and the adjustments, if any, to be made to the Executive's
compensation pursuant to Subsection 4(a) of this Agreement. In the event the
Executive gives written notice of his disagreement or dissatisfaction with the
Review within thirty (30) days after the results of the Review are communicated
to the Executive, or in the event the Corporation fails to render the Review at
the time provided above, the Executive, in the exercise of his sole discretion,
may, at any time during the remainder of the term of this Agreement, terminate
his employment hereunder by giving the Corporation ten (10) days' written
notice. If the Corporation renders the Review and the Executive does not notify
the Corporation of his disagreement or dissatisfaction therewith as provided
above, this Agreement shall continue in full force and effect as if this
Subsection 7(b) were not contained herein.
(c) In the event of a Change in Ownership, the provisions of this
Agreement shall inure to the benefit of the successor of the Corporation
resulting from such merger or consolidation or the purchaser in such sale of
assets, except that, if applicable, the Executive's employment shall be as
President and Chief Executive of the corporation or division thereafter carrying
on the business of the Corporation.
-6-
<PAGE>
8. CONFIDENTIAL INFORMATION. (a) The Executive agrees that, during his
employment by the Corporation and at all times thereafter, he will not disclose
to others, directly or indirectly, any unpublished confidential information,
which is in the nature of trade secrets, relating to the business, prospects or
plans of the Corporation. Upon termination of his employment with the
Corporation, the Executive shall surrender to the Corporation any and all work
papers, reports, manuals, documents and the like (including all originals and
copies thereof) in his possession which contain any such unpublished
confidential information.
(b) The Executive agrees that, provided he is still employed by the
Corporation or is receiving payments pursuant to Subsection 6(c) above, he will
not directly or indirectly be engaged in the operation or management of, or be
interested as owner, holder of 5% or more of the outstanding equity, creditor,
partner, officer, employee or otherwise in, any business competing with the
business of the Corporation; provided, however, that nothing contained herein
shall prevent the Executive from working for a business or entity which has a
subsidiary, division or separate branch which is competitive with the business
of the Corporation, but only if the Executive does not work for, participate in
or otherwise render services to such competitive subsidiary, division or branch;
and provided, further, that the Executive may elect to terminate his obligations
under this Subsection 8(b) by waiving, irrevocably and in writing, any right to
further compensation, benefits or any other claim under this Agreement against
the Corporation, its affiliates and the directors, officers and employees of
each.
(c) The Executive agrees that he will not, for a three (3) year period
following the date of the termination of his employment under this Agreement,
solicit or encourage any
-7-
<PAGE>
employee of the Corporation to work for the Executive or any company,
partnership or other organization in which the Executive then works or with
which the Executive then has a relationship or from which the Executive then
receives compensation.
(d) In the event of a breach or threatened breach of the terms of this
Section 8 by the Executive, the Corporation shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction and/or a decree for
specific performance, in accordance with the provisions hereof, without showing
any actual damage or that monetary damagers would not provide an adequate remedy
and without any bond or other security being required.
9. NOTICES. Any and all notices or consents required or permitted to be
given under any of the provisions of this Agreement shall be in writing and
shall be deemed to have been duly given and received when delivered personally
or three (3) days after mailing, if mailed by registered or certified mail,
return receipt requested, as to the Executive, at his address appearing above,
and as to the Corporation, at its principal office at that time. The Executive
may change his mailing address for the purposes of this Agreement by notice to
the Corporation as herein provided.
10. AUTHORITY. This Agreement has been duly authorized on behalf of the
Corporation by its Board of Directors. The Executive represents that he is free
to enter into this Agreement and that his entering into this Agreement does not
violate any obligation that he has to any other person, firm or corporation.
-8-
<PAGE>
11. SEPARABILITY. In the event that any provision of this Agreement would
be held invalid or unenforceable for any reason unless narrowed by construction,
this Agreement shall be construed as if such invalid or unenforceable provision
had been more narrowly drawn so as not to be invalid or unenforceable. If,
notwithstanding the foregoing, any provision of this Agreement shall be held to
be invalid or unenforceable for any reason, such invalidity or unenforceability
shall attach only to such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement.
12. MISCELLANEOUS. (a) This Agreement sets forth the entire understanding
of the Corporation and the Executive with respect to the subject matter hereof
and cannot be amended or modified except by a writing signed by both parties.
(b) Except as otherwise expressly provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns, heirs and personal representatives.
(c) The Section headings contained herein are for purposes of
convenience only and are not intended to define or limit the contents of said
Sections.
(d) This Agreement shall be deemed to be a contract under the laws of
the State of Maryland and shall be construed and enforced in accordance with
such laws.
(e) This Agreement may be executed in two counterparts which, taken
together, shall constitute a single original document.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
WELLS ALUMINUM CORPORATION:
By /s/
----------------------------------
EXECUTIVE:
/s/ Russell W. Kupiec
------------------------------------
Russell W. Kupiec
-10-
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of December 18,1996, by and between Wells Aluminum
Corporation, a Maryland corporation (the "Corporation"), and W. Russell Asher
(the "Executive"), residing at 927 Metfield Road, Towson, Maryland 21286.
WITNESSETH:
WHEREAS, the Corporation desires to employ the Executive and the Executive
is willing to accept such employment with the Corporation, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the parties hereto do hereby agree as follows:
1. TITLE AND DUTIES OF EXECUTIVE. (a) During the term of his employment as
provided in Section 3 below, the Executive will be employed as Senior Vice
President and Chief Financial Officer of the Corporation, and the Executive
agrees to be employed in such capacities. During such term, the Executive shall
hold responsibility for, and exercise authority over, all of the planning,
financial and accounting operations of the Corporation, subject to the overall
supervision of the President and Chief Executive of the Corporation. In no event
shall the Executive be assigned duties inconsistent with his status as an
executive officer of the Corporation.
<PAGE>
(b) The Board of Directors of the Corporation may, in addition, from
time to time request the Executive to act (but only in an executive capacity and
with regard to duties reasonable assigned to him) as an officer or director of
subsidiaries of the Corporation which may hereafter be established, and the
Executive agrees, upon such request (and upon any necessary election), to hold
such positions provided such do not interfere with the Executive's duties
hereunder.
(c) The Executive agrees to devote his full business time and his best
efforts to the performance of his duties hereunder and to the promotion of the
best interests of the Corporation. The Executive further agrees to normal and
reasonable business travel related to the performance of his duties hereunder.
2. PLACE OF EMPLOYMENT. The permanent place of the Executive's employment
shall be the Baltimore, Maryland area for the first twelve (12) months of the
term of this Agreement, or the first twelve (12) months following the date of
notification of a Change in Ownership (as hereinafter defined) to the Executive,
following which, if at any time the Board of Directors shall determine it to be
in the best interests of the Corporation for the Executive to be relocated and
the Executive, in the exercise of his sole discretion, shall so elect, he may be
relocated, provided that the Corporation shall reimburse the Executive's
reasonable expenses incurred in moving himself and his immediate family.
3. TERM OF AGREEMENT. The Employment of the Executive hereunder shall
commence on December 18, 1996 and shall continue
-2-
<PAGE>
through December 31, 1999, unless a Change in Ownership has occurred in which
case the term of this Agreement shall extend three (3) years from the date of
notification of a Change in Ownership to the Executive, and in either case shall
be automatically renewed thereafter on an annual basis unless terminated by
either party by written notice to the other on or before six (6) months
preceding any scheduled termination date, unless sooner terminated by the
Executive's death or as hereinafter provided in Section 6 below.
4. COMPENSATION. (a) The Corporation agrees to pay the Executive a salary,
payable semi-monthly, at the rate of $139,100 per annum, which salary shall be
subject to increase pursuant to review at least annually.
(b) The Executive shall also be entitled to participate in any
executive incentive compensation or bonus programs of the Corporation each year
he is employed by the Corporation.
5. BENEFITS AND EXPENSES. (a) During the term of the Executive's employment
hereunder, the Executive shall, subject to the terms thereof and the eligibility
requirements therefor, be eligible to participate in any insurance, pension,
retirement or other benefit program maintained by the Corporation for executive
employees, including the Corporation's stock option plan.
(b) In order to facilitate the Executive.'s carrying out his duties
hereunder, the Corporation shall promptly
-3-
<PAGE>
reimburse the Executive for all reasonable expenses paid or incurred by him in
promoting the business of the Corporation, upon presentation by the Executive of
an itemized accounting therefore.
6. TERMINATION. (a) In the event of the Executive's willful misconduct (not
including negligence) in any material respect or his material breach of, or
material failure to perform, his duties or responsibilities hereunder, the
Corporation may terminate the Executive's employment hereunder at any time for
cause by giving written notice to the Executive stating the cause of such
termination. In no event shall the Executive's exercise of his rights under
Section 2 not to relocate be deemed to permit the Corporation to terminate his
employment under this Subsection 6(a).
(b) If the Executive is unable to perform his duties hereunder by
reason of mental or physical illness or other incapacity continuing for a period
of six (6) consecutive months, the Corporation may, at any time after the
expiration of such six month period and prior to his recovery from such illness
or incapacity, elect to terminate the Executive's employment hereunder by giving
written notice of such election to the Executive. During such period of
incapacity, the Executive's salary hereunder shall be reduced by the amount of
any disability payments made to him under programs maintained by the
Corporation.
(c) If (i) the Executive's employment is terminated by the Corporation
for any reason other than as provided in Subsection 6(a) or 6(b), or (ii) the
Executive terminates his employment as provided in Subsection 7(b), the
Executive's salary
-4-
<PAGE>
shall continue through the term of this Agreement, and his incentive bonus for
the year during which the termination takes place shall be paid on a pro-rated
basis reflecting that portion of the year during which the Executive was
employed. The obligation of the Corporation to continue salary pursuant hereto
is subject to offset for the Executive's earnings from other full-time
employment, unless a Change in Ownership has occurred prior to the termination
of the Executive's employment, in which case the obligation of the Corporation
to continue salary pursuant hereto is not subject to such offset.
(d) If (i) the Executive's employment is terminated by the Corporation
for any other reason other than as provided in Subsection 6(a) or 6(b), or (ii)
the Executive terminates his employment as provided in Subsection 7(b), the
Executive shall be entitled to service credit through the term of this Agreement
under the salaried retirement plan of the Corporation. The Corporation shall
also maintain in force the other benefits referred to in Subsection 5(a) through
the term of this Agreement to the extent allowed by the then existing benefit
plans of the Corporation under applicable law, excluding that governing the tax
deductibility of the Corporation's group plan expenses. The obligation of the
Corporation to continue the other benefits pursuant hereto shall cease upon the
Executive's acceptance of other full-time employment.
-5-
<PAGE>
(f) The Executive may terminate his employment hereunder at any time
by giving the Corporation ninety (90) days' written notice.
7. CHANGE IN OWNERSHIP. (a) In the event that the Corporation shall at any
time be merged or consolidated with or into any corporation or corporations
(other than a subsidiary of the Corporation), or in the event that all or
substantially all of the assets or all or substantially all of the stock of the
Corporation shall be sold or otherwise transferred, or in the event that The
Fulcrum III Limited Partnerships (or, upon distribution, their partners) shall
sell, transfer or otherwise dispose of an aggregate of 80% or more of the shares
of common stock of the Corporation acquired by Fulcrum pursuant to that certain
Stock Subscription Agreement dated as of June 30, 1987 (any of the foregoing
events, a "Change in Ownership"), the Corporation shall give the Executive
prompt written notice of such event, and the term of this Agreement shall be
automatically extended for the period three (3) years after the date of such
notification.
(b) In the event of a Change in Ownership, the Corporation shall
render to the Executive a special review (the "Review") in the first ten (10)
days of the eighteenth (18th) month following the notification of a Change in
Ownership to the Executive. The Review shall include an evaluation of the
Executive's performance, an assessment of the Executive's position in the
Corporation and the adjustments, if any, to be made to the Executive's
compensation pursuant to Subsection 4(a) of this
-6-
<PAGE>
Agreement. In the event the Executive gives written notice of his disagreement
or dissatisfaction with the Review within thirty (30) days after the results of
the Review are communicated to the Executive, or in the event the Corporation
fails to render the Review at the time provided above, the Executive, in the
exercise of his sole discretion, may, at any time during the remainder of the
term of this Agreement, terminate his employment hereunder by giving the
Corporation ten (10) days' written notice. If the Corporation renders the Review
and the Executive does not notify the Corporation of his disagreement or
dissatisfaction therewith as provided above, this Agreement shall continue in
full force and effect as if this Subsection 7(b) were not contained herein.
(c) In the event of a Change in Ownership, the provisions of this
Agreement shall inure to the benefit of the successor of the Corporation
resulting from such merger or consolidation or the purchaser in such sale of
assets, except that, if applicable, the Executive's employment shall be as
President and Chief Executive of the corporation or division thereafter carrying
on the business of the Corporation.
8. CONFIDENTIAL INFORMATION. (a) The Executive agrees that, during his
employment by the Corporation and at all times thereafter, he will not disclose
to others, directly or indirectly, any unpublished confidential information,
which is in the nature of trade secrets, relating to the business, prospects or
plans of the Corporation. Upon termination of his employment with the
Corporation, the Executive shall surrender to the Corporation
-7-
<PAGE>
any and all work papers, reports, manuals, documents and the like (including all
originals and copies thereof) in his possession which contain any such
unpublished confidential information.
(b) The Executive agrees that, provided he is still employed by the
Corporation or is receiving payments pursuant to Subsection 6(c) above, he will
not directly or indirectly be engaged in the operation or management of, or be
interested as owner, holder of 5% or more of the outstanding equity, creditor,
partner, officer, employee or otherwise in, any business competing with the
business of the Corporation; provided, however, that nothing contained herein
shall prevent the Executive from working for a business or entity which has a
subsidiary, division or separate branch which is competitive with the business
of the Corporation, but only if the Executive does not work for, participate in
or otherwise render services to such competitive subsidiary, division or branch;
and provided, further, that the Executive may elect to terminate his obligations
under this Subsection 8(b) by waiving, irrevocably and in writing, any right to
further compensation, benefits or any other claim under this Agreement against
the Corporation, its affiliates and the directors, officers and employees of
each.
(c) The Executive agrees that he will not, for a three (3) year period
following the date of the termination of his employment under this Agreement,
solicit or encourage any employee of the Corporation to work for the Executive
or any company, partnership or other organization in which the Executive then
works
-8-
<PAGE>
or with which the Executive then has a relationship or from which the Executive
then receives compensation.
(d) In the event of a breach or threatened breach of the terms of this
Section 8 by the Executive, the Corporation shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction and/or a decree for
specific performance, in accordance with the provisions hereof, without showing
any actual damage or that monetary damagers would not provide an adequate remedy
and without any bond or other security being required.
9. NOTICES. Any and all notices or consents required or permitted to be
given under any of the provisions of this Agreement shall be in writing and
shall be deemed to have been duly given and received when delivered personally
or three (3) days after mailing, if mailed by registered or certified mail,
return receipt requested, as to the Executive, at his address appearing above,
and as to the Corporation, at its principal office at that time. The Executive
may change his mailing address for the purposes of this Agreement by notice to
the Corporation as herein provided.
10. AUTHORITY. This Agreement has been duly authorized on behalf of the
Corporation by its Board of Directors. The Executive represents that he is free
to enter into this Agreement and that his entering into this Agreement does not
violate any obligation that he has to any other person, firm or corporation.
-9-
<PAGE>
11. SEPARABILITY. In the event that any provision of this Agreement
would be held invalid or unenforceable for any reason unless narrowed by
construction, this Agreement shall be construed as if such invalid or
unenforceable provision had been more narrowly drawn so as not to be invalid or
unenforceable. If, notwithstanding the foregoing, any provision of this
Agreement shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall attach only to such provision and shall not
affect or render invalid or unenforceable any other provision of this Agreement.
12. MISCELLANEOUS. (a) This Agreement sets forth the entire understanding
of the Corporation and the Executive with respect to the subject matter hereof
and cannot be amended or modified except by a writing signed by both parties.
(b) Except as otherwise expressly provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns, heirs and personal representatives.
(c) The Section headings contained herein are for purposes of
convenience only and are not intended to define or limit the contents of said
Sections.
(d) This Agreement shall be deemed to be a contract under the laws of
the State of Maryland and shall be construed and enforced in accordance with
such laws.
-10-
<PAGE>
(e) This Agreement may be executed in two counterparts which, taken
together, shall constitute a single original document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
WELLS ALUMINUM CORPORATION:
BY /s/
-------------------------
EXECUTIVE:
/s/ W. Russell Asher
---------------------------
W. Russell Asher
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of December 18,1996, by and between Wells Aluminum
Corporation, a Maryland corporation (the "Corporation"), and David J. Raymonda
(the "Executive"), residing at 1106 Glastonbury Way, Bel Air, Maryland 21014.
WITNESSETH:
WHEREAS, the Corporation desires to employ the Executive and the Executive
is willing to accept such employment with the Corporation, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the parties hereto do hereby agree as follows:
1. Title and Duties of Executive. (a) During the term of his employment as
provided in Section 3 below, the Executive will be employed as Controller and
Treasurer of the Corporation, and the Executive agrees to be employed in such
capacities. In these capacities, the Executive will be subject to the overall
supervision of the Senior Vice Vice President and Chief Financial Officer of the
Corporation. In no event shall the Executive be assigned duties inconsistent
with his status as an executive officer of the Corporation.
(b) The Executive agrees to devote his full business time and his best
efforts to the performance of his duties
<PAGE>
hereunder and to the promotion of the best interests of the Corporation. The
Executive further agrees to normal and reasonable business travel related to the
performance of his duties hereunder.
2. Place of Employment. The permanent place of the Executive's employment
shall be the Baltimore, Maryland area. If at any time the Board of Directors
shall determine it to be in the best interests of the Corporation for the
Executive to be relocated and the Executive, in the exercise of his sole
discretion, shall so elect, he may be relocated, provided that the Corporation
shall reimburse the Executive's reasonable expenses incurred in moving himself
and his immediate family.
3. Term of Agreement. The Employment of the Executive hereunder shall
commence on December 18, 1996 and shall continue through December 31, 1998,
unless a Change in Ownership has occurred in which case the term of this
Agreement shall extend two (2) years from the date of notification of a Change
in Ownership to the Executive, unless sooner terminated by the Executive's death
or as hereinafter provided in Section 6 below.
4. Compensation. (a) The Corporation agrees to pay the Executive a salary,
payable semi-monthly, at the rate of $80,880 per annum, which salary shall be
subject to increase pursuant to review at least annually.
(b) The Executive shall also be entitled to participate in any
executive incentive compensation or bonus
<PAGE>
programs of the Corporation each year he is employed by the
Corporation.
5. Benefits and Expenses. (a) During the term of the Executive's employment
hereunder, the Executive shall, subject to the terms thereof and the eligibility
requirements therefor, be eligible to participate in any insurance, pension,
retirement or other benefit program maintained by the Corporation for executive
employees.
(b) In order to facilitate the Executive's carrying out his duties
hereunder, the Corporation shall promptly reimburse the Executive for all
reasonable expenses paid or incurred by him in promoting the business of the
Corporation, upon presentation by the Executive of an itemized accounting
therefor.
6. Termination. (a) In the event of the Executive's willful misconduct (not
including negligence) in any material respect or his material breach of, or
material failure to perform, his duties or responsibilities hereunder, the
Corporation may terminate the Executive's employment hereunder at any time for
cause by giving written notice to the Executive stating the cause of such
termination. In no event shall the Executive's exercise of his rights under
Section 2 not to relocate be deemed to permit the Corporation to terminate his
employment under this Subsection 6(a).
(b) If the Executive is unable to perform his duties hereunder by
reason of mental or physical illness or other
<PAGE>
incapacity continuing for a period of six (6) consecutive months, the
Corporation may, at any time after the expiration of such six month period and
prior to his recovery from such illness or incapacity, elect to terminate the
Executive's employment hereunder by giving written notice of such election to
the Executive. During such period of incapacity, the Executive's salary
hereunder shall be reduced by the amount of any disability payments made to him
under programs maintained by the Corporation.
(c) If the Executive's employment is terminated by the Corporation for
any reason other than as provided in Subsection 6(a) or 6(b), the Executive's
salary shall continue through the term of this Agreement. The obligation of the
Corporation to continue salary pursuant hereto is subject to offset for the
Executive's earnings from other full-time employment.
(d) If the Executive's employment is terminated by the Corporation for
any reason other than as provided in Subsections 6(a) or 6(b), the Corporation
shall also maintain in force the benefits referred to in Subsection 5(a) for six
(6) months after termination, to the extent allowed by the then existing benefit
plans of the Corporation.
(e) The Executive may terminate his employment hereunder at any time
by giving the Corporation ninety (90) days written notice.
<PAGE>
7. Change in Ownership. In the event that the Corporation shall at any time
be merged or consolidated with or into any corporation or corporations (other
than a subsidiary of the Corporation), or in the event that all or substantially
all of the assets or all or substantially all of the stock of the Corporation
shall be sold or otherwise transferred, or in the event that The Fulcrum III
Limited Partnerships (or, upon distribution, their partners) shall sell,
transfer or otherwise dispose of an aggregate of 80% or more of the shares of
common stock of the Corporation acquired by Fulcrum pursuant to that certain
Stock Subscription Agreement dated as of June 30, 1987 (any of the foregoing
events, a "Change in Ownership"), the Corporation shall give the Executive
prompt written notice of such event, and the term of this Agreement shall be
automatically extended for the period two (2) years after the date of such
notification.
(b) In the event of a Change in Ownership, the provisions of this
Agreement shall inure to the benefit of the successor of the Corporation
resulting from such merger or consolidation or the purchaser in such sale of
assets.
8. Confidential Information. (a) The Executive agrees that, during his
employment by the Corporation and at all times thereafter, he will not disclose
to others, directly
<PAGE>
or indirectly, any unpublished confidential information, which is in the nature
of trade secrets, relating to the business, prospects or plans of the
Corporation. Upon termination of his employment with the Corporation, the
Executive shall surrender to the Corporation any and all work papers, reports,
manuals, documents and the like (including all originals and copies thereof in
his possession which contain any such unpublished confidential information.
(b) The Executive agrees that, provided he is still employed by the
Corporation or is receiving payments pursuant to Subsection 6(c) above, he will
not directly or indirectly be engaged in the operation or management of, or be
interested as owner, holder of 5% or more of the outstanding equity, creditor,
partner, officer, employee or otherwise in, any business competing with the
business of the Corporation; provided, however, that nothing contained herein
shall prevent the Executive from working for a business or entity which has a
subsidiary, division or separate branch which is competitive with the business
of the Corporation, but only if the Executive does not work for, participate in
or otherwise render services to such competitive subsidiary, division or branch;
and provided, further, that the Executive may elect to terminate his obligations
under this Subsection 8(b) by
<PAGE>
waiving, irrevocably and in writing, any right to further compensation, benefits
or any other claim under this Agreement against the Corporation and the
directors, officers and employees of the Corporation.
(c) The Executive agrees that he will not, for a three (3) year period
following the date of the termination of his employment under this Agreement,
solicit or encourage any employee of the Corporation to work for the Executive
or any company, partnership or other organization in which the Executive then
works or with which the Executive then has a relationship or from which the
Executive then receives compensation.
(d) In the event of a breach or threatened breach of the terms of this
Section 6 by the Executive, the Corporation shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction and/or a decree for
specific performance, in accordance with the provisions hereof, without showing
any actual damage or that monetary damagers would not provide an adequate remedy
and without any bond or other security being required.
9. Notices. Any and all notices or consents required or permitted to be
given under any of the provisions
<PAGE>
of this Agreement shall be in writing and shall be deemed to have been duly
given and received when delivered personally or three (3) days after mailing, if
mailed by registered or certified mail, return receipt requested, as to the
Executive, at his address appearing above, and as to the Corporation, at its
principal office at that time. The Executive may change his mailing address for
the purposes of this Agreement by notice to the Corporation as herein provided.
10. Authority. This Agreement has been duly authorized on behalf of the
Corporation by its Board of Directors. The Executive represents that he is free
to enter into this Agreement and that his entering into this Agreement does not
violate any obligation that he has to any other person, firm or corporation.
11. Separability. In the event that any provision of this Agreement would
be held invalid or unenforceable for any reason unless narrowed by construction,
this Agreement shall be construed as if such invalid or unenforceable provision
had been more narrowly drawn so as not to be invalid or unenforceable. If,
notwithstanding the foregoing, any provision of this Agreement shall be held to
be invalid or unenforceable for any reason, such invalidity or unenforceability
shall attach only to such provision and shall
<PAGE>
not affect or render invalid or unenforceable any other provision of this
Agreement.
12. Miscellaneous. (a) This Agreement sets forth the entire understanding
of the Corporation and the Executive with respect to the subject matter hereof
and cannot be amended or modified except by a writing signed by both parties.
(b) Except as otherwise expressly provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns, heirs and personal representatives.
(c) The Section headings contained herein are for purposes of
convenience only and are not intended to define or limit the contents of said
Sections.
(d) This Agreement shall be deemed to be a contract under the laws of
the State of Maryland and shall be construed and enforced in accordance with
such laws.
(e) This Agreement may be executed in two counterparts which, taken
together, shall constitute a single original document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
WELLS ALUMINUM CORPORATION:
By: /s/
------------------------
EXECUTIVE:
/s/ David J. Raymonda
---------------------------
David J. Raymonda
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of December 18,1996, by and between Wells Aluminum
Corporation, a Maryland corporation (the "Corporation"), and William J. Milam
(the "Executive"), residing at 48 English Run Turn, Sparks, Maryland 21152.
W I T N E S S E T H :
WHEREAS, the Corporation desires to employ the Executive and the Executive
is willing to accept such employment with the Corporation, on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the parties hereto do hereby agree as follows:
1. TITLE AND DUTIES OF EXECUTIVE. (a) During the term of his employment as
provided in Section 3 below, the Executive will be employed as Vice President,
Sales and Product Management, of the Corporation, and the Executive agrees to be
employed in such capacities. In these capacities, the Executive will be subject
to the overall supervision of the Senior Vice President, Sales and Marketing, of
the Corporation. In no event shall the Executive be assigned duties inconsistent
with his status as an executive officer of the Corporation.
(b) The Executive agrees to devote his full business time and his best
efforts to the performance of his duties hereunder and to the promotion of the
best interests of the Corporation. The Executive further agrees to normal and
reasonable business travel related to the performance of his duties hereunder.
<PAGE>
2. PLACE OF EMPLOYMENT. The permanent place of the Executive's employment
shall be the Baltimore, Maryland area. If at any time the Board of Directors
shall determine it to be in the best interests of the Corporation for the
Executive to be relocated and the Executive, in the exercise of his sole
discretion, shall so elect, he may be relocated, provided that the Corporation
shall reimburse the Executive's reasonable expenses incurred in moving himself
and his immediate family.
3. TERM OF AGREEMENT. The Employment of the Executive hereunder shall
commence on December 18, 1996 and shall continue through December 31, 1998,
unless a Change in Ownership has occurred in which case the term of this
Agreement shall extend two (2) years from the date of notification of a Change
in Ownership to the Executive, unless sooner terminated by the Executive's death
or as hereinafter provided in Section 6 below.
4. COMPENSATION. (a) The Corporation agrees to pay the Executive a salary,
payable semi-monthly, at the rate of $109,000 per annum, which salary shall be
subject to increase pursuant to review at least annually.
(b) The Executive shall also be entitled to participate in any
executive incentive compensation or bonus programs of the Corporation each year
he is employed by the Corporation.
5. BENEFITS AND EXPENSES. (a) During the term of the Executive's employment
hereunder, the Executive shall, subject to the terms thereof and the eligibility
requirements
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therefor, be eligible to participate in any insurance, pension, retirement or
other benefit program maintained by the Corporation for executive employees.
(b) In order to facilitate the Executive's carrying out his duties
hereunder, the Corporation shall promptly reimburse the Executive for all
reasonable expenses paid or incurred by him in promoting the business of the
Corporation, upon presentation by the Executive of an itemized accounting
therefor.
6. TERMINATION. (a) In the event of the Executive's willful misconduct (not
including negligence) in any material respect or his material breach of, or
material failure to perform, his duties or responsibilities hereunder, the
Corporation may terminate the Executive's employment hereunder at any time for
cause by giving written notice to the Executive stating the cause of such
termination. In no event shall the Executive's exercise of his rights under
Section 2 not to relocate be deemed to permit the Corporation to terminate his
employment under this Subsection 6(a).
(b) If the Executive is unable to perform his duties hereunder by
reason of mental or physical illness or other incapacity continuing for a period
of six (6) consecutive months, the Corporation may, at any time after the
expiration of such six month period and prior to his recovery from such illness
or incapacity, elect to terminate the Executive's employment hereunder by giving
written notice of such election to the Executive. During such period of
incapacity, the Executive's salary hereunder shall be reduced by the amount of
any disability payments made to him under programs maintained by the
Corporation.
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(c) If the Executive's employment is terminated by the Corporation for
any reason other than as provided in Subsection 6(a) or 6(b), the Executive's
salary shall continue through the term of this Agreement. The obligation of the
Corporation to continue salary pursuant hereto is subject to offset for the
Executive's earnings from other full-time employment.
(d) If the Executive's employment is terminated by the Corporation for
any reason other than as provided in Subsections 6(a) or 6(b), the Corporation
shall also maintain in force the benefits referred to in Subsection 5(a) for six
(6) months after termination, to the extent allowed by the then existing benefit
plans of the Corporation.
(e) The Executive may terminate his employment hereunder at any time
by giving the Corporation ninety (90) days written notice.
7. CHANGE IN OWNERSHIP. (a) In the event that the Corporation shall at any
time be merged or consolidated with or into any corporation or corporations
(other than a subsidiary of the Corporation), or in the event that all or
substantially all of the assets or all or substantially all of the stock of the
Corporation shall be sold or otherwise transferred, or in the event that The
Fulcrum III Limited Partnerships (or, upon distribution, their partners) shall
sell, transfer or otherwise dispose of an aggregate of 80% or more of the shares
of common stock of the Corporation acquired by Fulcrum pursuant to that certain
Stock Subscription Agreement dated as of June 30, 1987 (any of the foregoing
events, a "Change in Ownership"), the Corporation shall give the Executive
prompt written notice of such event, and the term of this Agreement shall be
automatically extended for the period two (2) years after the date of such
notification.
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(b) In the event of a Change in Ownership, the provisions of this
Agreement shall inure to the benefit of the successor of the Corporation
resulting from such merger or consolidation or the purchaser in such sale of
assets.
8. CONFIDENTIAL INFORMATION. (a) The Executive agrees that, during his
employment by the Corporation and at all times thereafter, he will not disclose
to others, directly or indirectly, any unpublished confidential information,
which is in the nature of trade secrets, relating to the business, prospects or
plans of the Corporation. Upon termination of his employment with the
Corporation, the Executive shall surrender to the Corporation any and all work
papers, reports, manuals, documents and the like (including all originals and
copies thereof) in his possession which contain any such unpublished
confidential information.
(b) The Executive agrees that, provided he is still employed by the
Corporation or is receiving payments pursuant to Subsection 6(c) above, he will
not directly or indirectly be engaged in the operation or management of, or be
interested as owner, holder of 5% or more of the outstanding equity, creditor,
partner, officer, employee or otherwise in, any business competing with the
business of the Corporation; provided, however, that nothing contained herein
shall prevent the Executive from working for a business or entity which has a
subsidiary, division or separate branch which is competitive with the business
of the Corporation, but only if the Executive does not work for, participate in
or otherwise render services to such competitive subsidiary, division or branch;
and provided, further, that the Executive may elect to terminate his obligations
under this Subsection 8(b) by waiving, irrevocably and in writing, any right to
further compensation, benefits or any other claim under
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this Agreement against the Corporation and the directors, officers and employees
of the Corporation.
(c) The Executive agrees that he will not, for a three (3) year period
following the date of the termination of his employment under this Agreement,
solicit or encourage any employee of the Corporation to work for the Executive
or any company, partnership or other organization in which the Executive then
works or with which the Executive then has a relationship or from which the
Executive then receives compensation.
(d) In the event of a breach or threatened breach of the terms of this
Section 6 by the Executive, the Corporation shall, in addition to all other
remedies, be entitled to a temporary or permanent injunction and/or a decree for
specific performance, in accordance with the provisions hereof, without showing
any actual damage or that monetary damagers would not provide an adequate remedy
and without any bond or other security being required.
9. NOTICES. Any and all notices or consents required or permitted to be
given under any of the provisions of this Agreement shall be in writing and
shall be deemed to have been duly given and received when delivered personally
or three (3) days after mailing, if mailed by registered or certified mail,
return receipt requested, as to the Executive, at his address appearing above,
and as to the Corporation, at its principal office at that time. The Executive
may change his mailing address for the purposes of this Agreement by notice to
the Corporation as herein provided.
10. AUTHORITY. This Agreement has been duly authorized on behalf of the
Corporation by its Board of Directors. The Executive represents that he is free
to enter into this
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Agreement and that his entering into this Agreement does not violate any
obligation that he has to any other person, firm or corporation.
11. SEPARABILITY. In the event that any provision of this Agreement would
be held invalid or unenforceable for any reason unless narrowed by construction,
this Agreement shall be construed as if such invalid or unenforceable provision
had been more narrowly drawn so as not to be invalid or unenforceable. If,
notwithstanding the foregoing, any provision of this Agreement shall be held to
be invalid or unenforceable for any reason, such invalidity or unenforceability
shall attach only to such provision and shall not affect or render invalid or
unenforceable any other provision of this Agreement.
12. MISCELLANEOUS. (a) This Agreement sets forth the entire understanding
of the Corporation and the Executive with respect to the subject matter hereof
and cannot be amended or modified except by a writing signed by both parties.
(b) Except as otherwise expressly provided herein, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns, heirs and personal representatives.
(c) The Section headings contained herein are for purposes of
convenience only and are not intended to define or limit the contents of said
Sections.
(d) This Agreement shall be deemed to be a contract under the laws of
the State of Maryland and shall be construed and enforced in accordance with
such laws.
(e) This Agreement may be executed in two counterparts which, taken
together, shall constitute a single original document.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
WELLS ALUMINUM CORPORATION:
By /s/
----------------------------------
EXECUTIVE:
/s/ William J. Milam
------------------------------------
William J. Milam
WELLS ALUMINUM CORPORATION
1997 STOCK INCENTIVE PLAN
<PAGE>
Table of Contents
Page
ARTICLE I
GENERAL
1.1 Purpose............................................. 1
1.2 Administration...................................... 1
1.3 Persons Eligible for Awards......................... 3
1.4 Types of Awards Under Plan.......................... 4
1.5 Shares Available for Awards......................... 4
1.6 Definitions of Certain Terms........................ 6
ARTICLE II
AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards........................ 9
2.2 No Rights as a Shareholder.......................... 10
2.3 Grant of Stock Options.............................. 10
2.4 Exercise of Options Rights......................... 12
2.5 Termination of Employment; Death.................... 14
2.6 Grant of Dividend Equivalent Rights................. 15
2.7 Grant of Restricted Stock........................... 16
2.8 Grant of Restricted Stock Units..................... 18
2.9 Other Stock-Based Awards............................ 19
2.10 Right of Recapture.................................. 19
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification
of Awards......................................... 21
3.2 Tax Withholding..................................... 22
3.3 Restrictions........................................ 23
3.4 Non-assignability................................... 24
3.5 Requirement of Notification of Election
Under Section 83(b) of the Code................... 24
3.6 Requirement of Notification Upon
Disqualifying Disposition Under
Section 421(b) of the Code........................ 24
3.7 Corporate Reorganization............................ 25
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3.8 Right of Discharge Reserved......................... 26
3.9 Nature of Payments.................................. 27
3.10 Non-Uniform Determinations.......................... 27
3.11 Other Payments or Awards............................ 28
3.12 Section Headings.................................... 28
3.13 Effective Date and Term of Plan..................... 28
3.14 Governing Law....................................... 29
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ARTICLE I
GENERAL
1.1 Purpose
The purpose of the Wells Aluminum Corporation 1997 Stock Incentive Plan
(the "Plan") is to provide for officers, other employees and directors of, and
consultants to, Wells Aluminum Corporation (the "Company") and its subsidiaries
an incentive (a) to enter into and remain in the service of the Company, (b) to
enhance the long-term performance of the Company, and (c) to acquire a
proprietary interest in the success of the Company.
1.2 Administration 1.2.1
Subject to Section 1.2.6, the Plan shall be administered by the Stock
Option Committee (the "Committee") of the board of directors of the Company (the
"Board"), which shall consist of not less than two directors. The members of the
Committee shall be appointed by, and serve at the pleasure of, the Board. To the
extent required for transactions under the Plan to qualify for the exemptions
available under Rule 16b-3 ("Rule 16b-3") promulgated under the Securities
Exchange Act of 1934 (the "1934 Act"), all actions relating to awards to persons
subject to Section 16 of the 1934 Act shall be taken by the Board unless each
person who serves on the Committee is a "non-employee director" within the
meaning of Rule 16b-3 or such actions are taken by a sub-committee of the
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Committee (or the Board) comprised solely of "non-employee directors". To the
extent required for compensation realized from awards under the Plan to be
deductible by the Company pursuant to section 162(m) of the Internal Revenue
Code of 1986 (the "Code"), the members of the Committee shall be "outside
directors" within the meaning of section 162(m).
1.2.2 The Committee shall have the authority (a) to exercise all of the
powers granted to it under the Plan, (b) to construe, interpret and implement
the Plan and any Plan Agreements executed pursuant to Section 2.1, (c) to
prescribe, amend and rescind rules and regulations relating to the Plan,
including rules governing its own operations, (d) to make all determinations
necessary or advisable in administering the Plan, (e) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan, (f) to amend
the Plan to reflect changes in applicable law, (g) to determine whether, to what
extent and under what circumstances awards may be settled or exercised in cash,
Shares of Common Stock, other securities, other awards or other property, or
canceled, forfeited or suspended and the method or methods by which awards may
be settled, canceled, forfeited or suspended, and (h) to determine whether, to
what extent and under what circumstances cash, shares of Common Stock, other
securities, other awards or other property and other amounts payable with
respect to an award shall be deferred either automatically or at the election of
the holder thereof or of the Committee.
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1.2.3 Actions of the Committee shall be taken by the vote of a majority
of its members. Any action may be taken by a written instrument signed by a
majority of the Committee members, and action so taken shall be fully as
effective as if it had been taken by a vote at a meeting.
1.2.4 The determination of the Committee on all matters relating to the
Plan or any Plan Agreement shall be final, binding and conclusive.
1.2.5 No member of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any award
thereunder.
1.2.6 Notwithstanding anything to the contrary contained herein: (a)
until the Board shall appoint the members of the Committee, the Plan shall be
administered by the Board; and (b) the Board may, in its sole discretion, at any
time and from time to time, grant awards or resolve to administer the Plan. In
either of the foregoing events, the Board shall have all of the authority and
responsibility granted to the Committee herein.
1.3 Persons Eligible for Awards
Awards under the Plan may be made to such directors, officers and other
employees of the Company and its subsidiaries (including prospective employees
conditioned on their becoming employees), and to such consultants to the Company
and its subsidiaries (collectively, "key persons") as the Committee shall in its
discretion select.
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1.4 Types of Awards Under Plan
Awards may be made under the Plan in the form of (a) incentive stock
options (within the meaning of section 422 of the Code), (b) nonqualified stock
options, (c) dividend equivalent rights, (d) restricted stock, (e) restricted
stock units and (f) other stock-based awards, all as more fully set forth in
Article II. The term "award" means any of the foregoing. No incentive stock
option (other than an incentive stock option that may be assumed or issued by
the Company in connection with a transaction to which section 424(a) of the Code
applies) may be granted to a person who is not an employee of the Company on the
date of grant.
1.5 Shares Available for Awards
1.5.1 The total number of shares of stock of the Company which may be
transferred pursuant to awards granted under the Plan shall not exceed 65,000
shares of Class A Common Stock, par value $.01 per share ("Common Stock"). Such
shares may be authorized but unissued Common Stock or authorized and issued
Common Stock held in the Company's treasury or acquired by the Company for the
purposes of the Plan. The Committee may direct that any stock certificate
evidencing shares issued pursuant to the Plan shall bear a legend setting forth
such restrictions on transferability as may apply to such shares pursuant to the
Plan. If, after the effective date of the Plan, any award is forfeited or any
award otherwise terminates or is cancelled without the delivery of shares of
Common Stock, then the shares covered by such award or to which such award
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relates shall again become available for transfer pursuant to awards granted or
to be granted under this Plan. Any shares of Common Stock delivered by the
Company, any shares of Common Stock with respect to which awards are made by the
Company and any shares of Common Stock with respect to which the Company becomes
obligated to make awards, through the assumption of, or in substitution for,
outstanding awards previously granted by an acquired entity, shall not be
counted against the shares available for awards under this Plan.
1.5.2 Subject to any required action by the shareholders of the
Company, the number of shares of Common Stock covered by each outstanding award,
the number of shares available for awards and the price per share of Common
Stock covered by each such outstanding award shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued 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." Such adjustment shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or
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price of shares of Common Stock subject to an award. After any adjustment made
pursuant to this Section 1.5.2, the number of shares subject to each outstanding
award shall be rounded to the nearest whole number.
1.6 Definitions of Certain Terms
1.6.1 The "Fair Market Value" of a share of Common Stock on any day
shall be determined as follows.
(a) If the principal market for the Common Stock (the "Market") is
a national securities exchange or the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") National Market, the last sale price or,
if no reported sales take place on the applicable date, the average of the high
bid and low asked price of Common Stock as reported for such Market on such date
or, if no such quotation is made on such date, on the next preceding day on
which there were quotations, provided that such quotations shall have been made
within the ten (10) business days preceding the applicable date;
(b) If the Market is the NASDAQ National List, the NASDAQ
Supplemental List or another market, the average of the high bid and low asked
price for Common Stock on the applicable date, or, if no such quotations shall
have been made on such date, on the next preceding day on which there were
quotations, provided that such quotations shall have been made within the ten
(10) business days preceding the applicable date; or,
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(c) In the event that neither paragraph (a) nor (b) shall apply,
the Fair Market Value of a share of Common Stock on any day shall be determined
in good faith by the Committee.
1.6.2 The term "incentive stock option" means an option that is
intended to qualify for special federal income tax treatment pursuant to
sections 421 and 422 of the Code, as now constituted or subsequently amended, or
pursuant to a successor provision of the Code, and which is so designated in the
applicable Plan Agreement. Any option that is not specifically designated as an
incentive stock option shall under no circumstances be considered an incentive
stock option. Any option that is not an incentive stock option is referred to
herein as a "nonqualified stock option."
1.6.3 The term "employment" means, in the case of a grantee of an award
under the Plan who is not an employee of the Company, the grantee's association
with the Company or a subsidiary as a director, consultant or otherwise.
1.6.4 A grantee shall be deemed to have a "termination of employment"
upon ceasing to be employed by the Company and all of its subsidiaries or by a
corporation assuming awards in a transaction to which section 424(a) of the Code
applies. The Committee may in its discretion determine (a) whether any leave of
absence constitutes a termination of employment for purposes of the Plan, (b)
the impact, if any, of any such leave of absence on awards theretofore made
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under the Plan, and (c) when a change in a non-employee's association with the
Company constitutes a termination of employment for purposes of the Plan. The
Committee shall have the right to determine whether the termination of a
grantee's employment is a dismissal for cause and the date of termination in
such case, which date the Committee may retroactively deem to be the date of the
action that is cause for dismissal. Such determinations of the Committee shall
be final, binding and conclusive.
1.6.5 The term "cause," when used in connection with
termination of a grantee's employment, shall have the meaning set forth in any
then-effective employment agreement between the grantee and the Company or a
subsidiary thereof. In the absence of such an employment agreement provision,
"cause" means: (a) conviction of any crime (whether or not involving the
Company) constituting a felony in the jurisdiction involved; (b) engaging in any
substantiated act involving moral turpitude; (c) engaging in any act which, in
each case, subjects, or if generally known would subject, the Company to public
ridicule or embarrassment; (d) material violation of the Company's policies,
including, without limitation, those relating to sexual harassment or the
disclosure or misuse of confidential information; (e) serious neglect or
misconduct in the performance of the grantee's duties for the Company or a
subsidiary or willful or repeated failure or refusal to perform such duties; in
each case as determined by the Committee, which determination shall be final,
binding and conclusive.
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ARTICLE II
AWARDS UNDER THE PLAN
2.1 Agreements Evidencing Awards
Each award granted under the Plan (except an award of unrestricted
stock) shall be evidenced by a written agreement ("Plan Agreement") which shall
contain such provisions as the Committee in its discretion deems necessary or
desirable. Such provisions may include, without limitation, a requirement that
the grantee become a party to a shareholders' agreement with respect to any
shares of Common Stock acquired pursuant to the award, a requirement that the
grantee acknowledge that such shares are acquired for investment purposes only,
and a right of first refusal exercisable by the Company in the event that the
grantee wishes to transfer any such shares. The Committee may grant awards in
tandem with or in substitution for any other award or awards granted under this
Plan or any award granted under any other plan of the Company or any subsidiary.
Payments or transfers to be made by the Company or any subsidiary upon the
grant, exercise or payment of an award may be made in such form as the Committee
shall determine, including cash, shares of Common Stock, other securities, other
awards or other property and may be made in a single payment or transfer, in
installments or on a deferred basis, in each case in accordance with rules
established by the Committee. By accepting an award pursuant to the Plan, a
grantee
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thereby agrees that the award shall be subject to all of the terms and provi-
sions of the Plan and the applicable Plan Agreement.
2.2 No Rights as a Shareholder
No grantee of an option (or other person having the right to exercise
such award) shall have any of the rights of a shareholder of the Company with
respect to shares subject to such award until the issuance of a stock
certificate to such person for such shares. Except as otherwise provided in
Section 1.5.2, no adjustment shall be made for dividends, distributions or other
rights (whether ordinary or extraordinary, and whether in cash, securities or
other property) for which the record date is prior to the date such stock
certificate is issued.
2.3 Grant of Stock Options
2.3.1 The Committee may grant incentive stock options and nonqualified
stock options (collectively, "options") to purchase shares of Common Stock from
the Company, to such key persons, in such amounts and subject to such terms and
conditions, as the Committee shall determine in its discretion, subject to the
provisions of the Plan.
2.3.2 Each Plan Agreement with respect to an option shall set forth the
amount (the "option exercise price") payable by the grantee to the Company upon
exercise of the option evidenced thereby. The option exercise price per share
shall be determined by the Committee in its discretion; provided, however, that
the
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option exercise price of an incentive stock option shall be at least 100% of the
Fair Market Value of a share of Common Stock on the date the option is granted
(except as permitted in connection with the assumption or issuance of options in
a transaction to which section 424(a) of the Code applies); and provided,
further, that in no event shall the option exercise price be less than the par
value of a share of Common Stock.
2.3.3 Each Plan Agreement with respect to an option shall set forth the
periods during which the award evidenced thereby shall be exercisable, whether
in whole or in part. Such periods shall be determined by the Committee in its
discretion; provided, however, that no incentive stock option shall be
exercisable more than 10 years after the date of grant.
2.3.4 To the extent that the aggregate Fair Market Value (determined as
of the time the option is granted) of the stock with respect to which incentive
stock options granted under this Plan and all other plans of the Company and any
subsidiary are first exercisable by any employee during any calendar year shall
exceed the maximum limit (currently, $100,000), if any, imposed from time to
time under section 422 of the Code, such options shall be treated as
nonqualified stock options.
2.3.5 Notwithstanding the provisions of Sections 2.3.2 and 2.3.3, to
the extent required under section 422 of the Code, an incentive stock option may
not be granted under the Plan to an individual who, at the time the option is
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granted, owns stock possessing more than 10% of the total combined voting power
of all classes of stock of his employer corporation or of its parent or
subsidiary corporations (as such ownership may be determined for purposes of
section 422(b)(6) of the Code) unless (a) at the time such incentive stock
option is granted the option exercise price is at least 110% of the Fair Market
Value of the shares subject thereto and (b) the incentive stock option by its
terms is not exercisable after the expiration of 5 years from the date it is
granted.
2.4 Exercise of Options
Subject to the provisions of this Article II, each option granted under
the Plan shall be exercisable as follows:
2.4.1 Unless the applicable Plan Agreement otherwise provides, an
option shall become exercisable in four substantially equal installments, on
each of the first, second, third and fourth anniversaries of the date of grant,
and each installment, once it becomes exercisable, shall remain exercisable
until expiration, cancellation or termination of the award.
2.4.2 Unless the applicable Plan Agreement otherwise provides, an
option may be exercised from time to time as to all or part of the shares as to
which such award is then exercisable (but, in any event, only for whole shares).
An option shall be exercised by the filing of a written notice with the Company,
on such form and in such manner as the Committee shall prescribe.
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2.4.3 Any written notice of exercise of an option shall be accompanied
by payment for the shares being purchased. Such payment shall be made: (a) by
certified or official bank check (or the equivalent thereof acceptable to the
Company) for the full option exercise price; or (b) at the discretion of the
Committee, unless the applicable Plan Agreement otherwise provides, by delivery
of shares of Common Stock acquired at least six months prior to the option
exercise date and having a Fair Market Value (determined as of the exercise
date) equal to all or part of the option exercise price and a certified or
official bank check (or the equivalent thereof acceptable to the Company) for
any remaining portion of the full option exercise price; or (c) at the
discretion of the Committee and to the extent permitted by law, by such other
provision as the Committee may from time to time prescribe.
2.4.4 Promptly after receiving payment of the full option exercise
price, the Company shall, subject to the provisions of Section 3.3 (relating to
certain restrictions), deliver to the grantee or to such other person as may
then have the right to exercise the award, a certificate or certificates for the
shares of Common Stock for which the award has been exercised. If the method of
payment employed upon option exercise so requires, and if applicable law
permits, an optionee may direct the Company to deliver the certificate(s) to the
optionee's stockbroker.
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2.5 Termination of Employment; Death
2.5.1 Except to the extent otherwise provided in Section 2.5.2 or 2.5.3
or in the applicable Plan Agreement, all options not theretofore exercised shall
terminate upon termination of the grantee's employment for any reason (including
death).
2.5.2 If a grantee's employment terminates for any reason other than
death or dismissal for cause, the grantee may exercise any outstanding option
right on the following terms and conditions: (a) exercise may be made only to
the extent that the grantee was entitled to exercise the award on the date of
employment termination; and (b) exercise must occur within 90 days after
employment terminates, except that this 90 day period shall be increased to one
year if the termination is by reason of disability, but in no event after the
expiration date of the award as set forth in the Plan Agreement. In the case of
an incentive stock option, the term "disability" for purposes of the preceding
sentence shall have the meaning given to it by section 422(c)(7) of the Code.
2.5.3 If a grantee dies while employed by the Company or any
subsidiary, or after employment termination but during the period in which the
grantee's awards are exercisable pursuant to Section 2.5.2, any outstanding
option shall be exercisable on the following terms and conditions: (a) exercise
may be made only to the extent that the grantee was entitled to exercise the
award on the date of death; and (b) exercise must occur by the earlier of the
first anniversary of
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the grantee's death or the expiration date of the award. Any such exercise of an
award following a grantee's death shall be made only by the grantee's executor
or administrator, unless the grantee's will specifically disposes of such award,
in which case such exercise shall be made only by the recipient of such specific
disposition. If a grantee's personal representative or the recipient of a
specific disposition under the grantee's will shall be entitled to exercise any
award pursuant to the preceding sentence, such representative or recipient shall
be bound by all the terms and conditions of the Plan and the applicable Plan
Agreement which would have applied to the grantee including, without limitation,
the provisions of Sections 3.3 and 3.7 hereof.
2.6 Grant of Dividend Equivalent Rights
The Committee may in its discretion include in the Plan Agreement with
respect to any award a dividend equivalent right entitling the grantee to
receive amounts equal to the ordinary dividends that would be paid, during the
time such award is outstanding and unexercised, on the shares of Common Stock
covered by such award if such shares were then outstanding. In the event such a
provision is included in a Plan Agreement, the Committee shall determine whether
such payments shall be made in cash, in shares of Common Stock or in another
form, whether they shall be conditioned upon the exercise of the award to which
they relate, the time or times at which they shall be made, and such other terms
and conditions as the Committee shall deem appropriate.
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2.7 Grant of Restricted Stock
2.7.1 The Committee may grant restricted shares of Common Stock to such
key persons, in such amounts and subject to such terms and conditions as the
Committee shall determine in its discretion, subject to the provisions of the
Plan. Restricted stock awards may be made independently of or in connection with
any other award under the Plan. A grantee of a restricted stock award shall have
no rights with respect to such award unless such grantee accepts the award
within such period as the Committee shall specify by executing a Plan Agreement
in such form as the Committee shall determine and, if the Committee shall so
require, makes payment to the Company by certified or official bank check (or
the equivalent thereof acceptable to the Company) in such amount as the
Committee may determine.
2.7.2 Promptly after a grantee accepts a restricted stock award, the
Company shall issue in the grantee's name a certificate or certificates for the
shares of Common Stock covered by the award. Upon the issuance of such
certificate(s), the grantee shall have the rights of a shareholder with respect
to the restricted stock, subject to the non-transferability restrictions and
Company repurchase rights described in Sections 2.7.4 and 2.7.5 and to such
other restrictions and conditions as the Committee in its discretion may include
in the applicable Plan Agreement.
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<PAGE>
2.7.3 Unless the Committee shall otherwise determine, any certificate
issued evidencing shares of restricted stock shall remain in the possession of
the Company until such shares are free of any restrictions specified in the
applicable Plan Agreement.
2.7.4 Shares of restricted stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in this Plan or the applicable Plan Agreement. At the time
of grant, the Committee shall specify the date or dates (which may depend upon
or be related to the attainment of performance goals and other conditions) on
which the non-transferability of the restricted stock shall lapse. Unless the
applicable Plan Agreement otherwise provides, additional shares of Common Stock
or other property distributed to the grantee in respect of shares of restricted
stock, as dividends or otherwise, shall be subject to the same restrictions
applicable to such restricted stock.
2.7.5 During the 120 days following termination of the grantee's
employment for any reason, the Company shall have the right to require the
return of any shares to which restrictions on transferability apply, in exchange
for which the Company shall repay to the grantee (or the grantee's estate) any
amount paid by the grantee for such shares.
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<PAGE>
2.8 Grant of Restricted Stock Units
2.8.1 The Committee may grant awards of restricted stock units to such
key persons, in such amounts and subject to such terms and conditions as the
Committee shall determine in its discretion, subject to the provisions of the
Plan. Restricted stock units may be awarded independently of or in connection
with any other award under the Plan.
2.8.2 At the time of grant, the Committee shall specify the date or
dates on which the restricted stock units shall become fully vested and
nonforfeit-able, and may specify such conditions to vesting as it deems
appropriate. In the event of the termination of the grantee's employment by the
Company and its subsidiaries for any reason, restricted stock units that have
not become nonforfeit-able shall be forfeited and cancelled. The Committee at
any time may accelerate vesting dates and otherwise waive or amend any
conditions of an award of restricted stock units.
2.8.3 At the time of grant, the Committee shall specify the maturity
date applicable to each grant of restricted stock units, which may be determined
at the election of the grantee. Such date may be later than the vesting date or
dates of the award. On the maturity date, the Company shall transfer to the
grantee one unrestricted, fully transferable share of Common Stock for each
restricted stock unit scheduled to be paid out on such date and not previously
forfeited. The
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<PAGE>
Committee shall specify the purchase price, if any, to be paid by the grantee to
the Company for such shares of Common Stock.
2.9 Other Stock-Based Awards
The Committee may grant other types of stock-based awards (including
the grant of unrestricted shares) to such key persons, in such amounts and
subject to such terms and conditions, as the Committee shall in its discretion
determine, subject to the provisions of the Plan.
2.10 Right of Recapture
2.10.1 If at any time within one year after the date on which a
participant exercises an option, or on which restricted stock vests, or which is
the maturity date of restricted stock units, or on which income is realized by a
participant in connection with any other stock-based award (each of which events
is a "Realization Event"), the participant (a) is terminated for cause or (b)
engages in any activity determined in the discretion of the Committee to be
inimical, contrary or harmful to the interests of the Company, then any gain
("Gain") realized by the participant from the Realization Event shall be paid by
the participant to the Company upon notice from the Company; provided, however,
that accepting employment with or serving as a consultant, adviser or in any
other capacity to an entity that is in competition with the Company shall not,
in and of itself, be deemed "inimical, contrary or harmful to the interests of
the Company". Such Gain
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<PAGE>
shall be determined as of the date of the Realization Event, without regard to
any subsequent change in the Fair Market Value of a share of Common Stock. The
Company shall have the right to offset such Gain against any amounts otherwise
owed to the participant by the Company (whether as wages, vacation pay, or
pursuant to any benefit plan or other compensatory arrangement).
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<PAGE>
ARTICLE III
MISCELLANEOUS
3.1 Amendment of the Plan; Modification of Awards
3.1.1 The Board may from time to time suspend, discontinue, revise or
amend the Plan in any respect whatsoever, except that no such amendment shall
materially impair any rights or materially increase any obligations under any
award theretofore made under the Plan without the consent of the grantee (or,
after the grantee's death, the person having the right to exercise the award).
For purposes of this Section 3.1, any action of the Board or the Committee that
alters or affects the tax treatment of any award shall not be considered to
materially impair any rights of any grantee.
3.1.2 Shareholder approval of any amendment shall be obtained to the
extent necessary to comply with section 422 of the Code (relating to incentive
stock options) or other applicable law or regulation.
3.1.3 The Committee may amend any outstanding Plan Agreement,
including, without limitation, by amendment which would accelerate the time or
times at which the award becomes unrestricted or may be exercised, or waive or
amend any goals, restrictions or conditions set forth in the Agreement. However,
any such amendment (other than an amendment pursuant to Section 3.7.2, relating
to change in control) that materially impairs the rights or materially increases
the
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<PAGE>
obligations of a grantee under an outstanding award shall be made only with the
consent of the grantee (or, upon the grantee's death, the person having the
right to exercise the award).
3.2 Tax Withholding
3.2.1 As a condition to the receipt of any shares of Common Stock
pursuant to any award or the lifting of restrictions on any award, or in
connection with any other event that gives rise to a federal or other
governmental tax withholding obligation on the part of the Company relating to
an award (including, without limitation, FICA tax), the Company shall be
entitled to require that the grantee remit to the Company an amount sufficient
in the opinion of the Company to satisfy such withholding obligation.
3.2.2 If the event giving rise to the withholding obligation is a
transfer of shares of Common Stock, then, unless otherwise specified in the
applicable Plan Agreement, the grantee may satisfy the withholding obligation
imposed under Section 3.2.1 by electing to have the Company withhold shares of
Common Stock having a Fair Market Value equal to the amount of tax to be
withheld. For this purpose, Fair Market Value shall be determined as of the date
on which the amount of tax to be withheld is determined (and any fractional
share amount shall be settled in cash).
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<PAGE>
3.3 Restrictions
3.3.1 If the Committee shall at any time determine that any consent (as
hereinafter defined) is necessary or desirable as a condition of, or in
connection with, the granting of any award under the Plan, the issuance or
purchase of shares or other rights thereunder, or the taking of any other action
thereunder (each such action being hereinafter referred to as a "plan action"),
then such plan action shall not be taken, in whole or in part, unless and until
such consent shall have been effected or obtained to the full satisfaction of
the Committee.
3.3.2 The term "consent" as used herein with respect to any plan action
means (a) any and all listings, registrations or qualifications in respect
thereof upon any securities exchange or under any federal, state or local law,
rule or regulation, (b) any and all written agreements and representations by
the grantee with respect to the disposition of shares, or with respect to any
other matter, which the Committee shall deem necessary or desirable to comply
with the terms of any such listing, registration or qualification or to obtain
an exemption from the requirement that any such listing, qualification or
registration be made and (c) any and all consents, clearances and approvals in
respect of a plan action by any governmental or other regulatory bodies.
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<PAGE>
3.4 Non-assignability
Except to the extent otherwise provided in the applicable Plan
Agreement, no award or right granted to any person under the Plan shall be
assignable or transferable other than by will or by the laws of descent and
distribution, and all such awards and rights shall be exercisable during the
life of the grantee only by the grantee or the grantee's legal representative.
3.5 Requirement of Notification of
Election Under Section 83(b) of the Code
If any grantee shall, in connection with the acquisition of shares of
Common Stock under the Plan, make the election permitted under section 83(b) of
the Code (that is, an election to include in gross income in the year of
transfer the amounts specified in section 83(b)), such grantee shall notify the
Company of such election within 10 days of filing notice of the election with
the Internal Revenue Service, in addition to any filing and notification
required pursuant to regulations issued under the authority of Code section
83(b).
3.6 Requirement of Notification Upon Disqualifying
Disposition Under Section 421(b) of the Code
If any grantee shall make any disposition of shares of Common Stock
issued pursuant to the exercise of an incentive stock option under the
circumstances described in section 421(b) of the Code (relating to certain
disqualifying
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<PAGE>
dispositions), such grantee shall notify the Company of such disposition within
10 days thereof.
3.7 Corporate Reorganization
3.7.1 In the event of a merger or consolidation ("Merger") of the
Company with or into any other corporation or entity ("Corporation"),
outstanding awards shall be assumed or an equivalent option or right shall be
substituted by such successor Corporation or a parent or subsidiary of such
successor Corporation, unless the Committee determines, in the exercise of its
sole discretion, to accelerate the date on which an award becomes exercisable or
fully vested. In the absence of an assumption or substitution of awards, awards
shall, to the extent not exercised, terminate as of the date of the closing of
the Merger. For the purposes of this Section 3.7.1, an award shall be considered
assumed if, for every share of Common Stock subject thereto immediately prior to
the merger, the grantee has the right, following the Merger, to acquire the
consideration received in the merger transaction by holders of shares of Common
Stock (and if holders were offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the outstanding shares);
provided, however, that if such consideration received in the Merger was not
solely common stock of the successor Corporation or its parent, the Committee
may, with the consent of the successor Corporation and the participant, provide
for the consideration to be acquired pursuant to the award, for each share of
Common Stock subject thereto, to be
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<PAGE>
solely common stock of the successor Corporation or its parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the Merger. For purposes hereof, the term "Merger" shall include any
transaction in which another Corporation acquires all of the issued and
outstanding Common Stock of the Company.
3.7.2 In the event all or substantially all of the assets of the
Company are acquired by another Corporation or in the event of the proposed
dissolution or liquidation of the Company, all outstanding awards will terminate
immediately prior to the consummation of such transaction or such proposed
action, unless otherwise provided by the Committee. The Committee may, in the
exercise of its sole discretion, accelerate the date on which any award becomes
exercisable or fully vested and/or declare that any award shall terminate as of
a specified date.
3.8 Right of Discharge Reserved
Nothing in the Plan or in any Plan Agreement shall confer upon any
grantee the right to continue in the employ of the Company or affect any right
which the Company may have to terminate such employment.
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<PAGE>
3.9 Nature of Payments
3.9.1 Any and all grants of awards and issuances of shares of Common
Stock under the Plan shall be in consideration of services performed for the
Company by the grantee.
3.9.2 All such grants and issuances shall constitute a special
incentive payment to the grantee and shall not be taken into account in
computing the amount of salary or compensation of the grantee for the purpose of
determining any benefits under any pension, retirement, profit-sharing, bonus,
life insurance or other benefit plan of the Company or under any agreement
between the Company and the grantee, unless such plan or agreement specifically
provides otherwise.
3.10 Non-Uniform Determinations
The Committee's determinations under the Plan need not be uniform and
may be made by it selectively among persons who receive, or are eligible to
receive, awards under the Plan (whether or not such persons are similarly
situated). Without limiting the generality of the foregoing, the Committee shall
be entitled, among other things, to make non-uniform and selective
determinations, and to enter into non-uniform and selective Plan agreements, as
to (a) the persons to receive awards under the Plan, (b) the terms and
provisions of awards under the Plan, and (c) the treatment of leaves of absence
pursuant to Section 1.6.4.
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<PAGE>
3.11 Other Payments or Awards
Nothing contained in the Plan shall be deemed in any way to limit or
restrict the Company from making any award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
3.12 Section Headings
The section headings contained herein are for the purpose of conve-
nience only and are not intended to define or limit the contents of the
sections.
3.13 Effective Date and Term of Plan
3.13.1 The Plan was adopted by the Board on June 18, 1997, subject to
approval by the Company's shareholders. All awards under the Plan prior to such
shareholder approval are subject in their entirety to such approval. If such
approval is not obtained prior to the first anniversary of the date of adoption
of the Plan, the Plan and all awards thereunder shall terminate on that date.
3.13.2 Unless sooner terminated by the Board, the provisions of the
Plan respecting the grant of incentive stock options shall terminate on the day
before the tenth anniversary of the adoption of the Plan by the Board, and no
incentive stock option awards shall thereafter be made under the Plan. All
awards made under the Plan prior to its termination shall remain in effect until
such awards
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<PAGE>
have been satisfied or terminated in accordance with the terms and provisions of
the Plan and the applicable Plan Agreements.
3.14 Governing Law
All rights and obligations under the Plan shall be construed and
interpreted in accordance with the laws of the State of Maryland, without giving
effect to principles of conflict of laws.
-29-
Exhibit 12.1
WELLS ALUMINUM CORPORATION
RATIO OF EARNINGS TO FIXED CHARGES(1)
Fiscal Year Ended December 31,
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
EARNINGS:
<S> <C> <C> <C> <C> <C>
Operating profit ............ $20,152 $21,078 $21,930 $14,645 $11,737
Portion of rent expense
representative of an interest
factor ...................... 514 499 478 499 463
------- ------- ------- ------- -------
Earnings(2) ................. $20,666 $21,577 $22,408 $15,094 $12,200
FIXED CHARGES
Interest expense ............ $ 8,842 $ 5,176 $ 7,087 $ 8,443 $ 8,487
Portion of rent expense
representative of an interest
factor ...................... 514 499 478 449 463
------- ------- ------- ------- -------
Total fixed charges ......... $ 9,356 $ 5,675 $ 7,565 $ 8,892 $ 8,950
RATIO OF EARNINGS TO
FIXED CHARGES ............... 2.21x 3.80x 2.96x 1.70x 1.36x
------- ------- ------- ------- -------
</TABLE>
(1) For the purpose of determining the ratio of earnings to fixed charges,
earnings consists of earnings before income taxes and fixed carges. Fixed
charges consist of interest expense, whether expensed or capitalized,
including amortization of deferred financing costs, and the portion of
rental expense considered to be interest.
(2) The Company recognized an extraordinary loss on the refinancing of debt of
$1,292 in 1997 and $1,092 in 1994.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,352
<SECURITIES> 0
<RECEIVABLES> 31,424
<ALLOWANCES> 825
<INVENTORY> 20,209
<CURRENT-ASSETS> 57,819
<PP&E> 57,586
<DEPRECIATION> 30,317
<TOTAL-ASSETS> 125,598
<CURRENT-LIABILITIES> 27,830
<BONDS> 105,000
0
0
<COMMON> 9
<OTHER-SE> (16,077)
<TOTAL-LIABILITY-AND-EQUITY> 125,598
<SALES> 267,349
<TOTAL-REVENUES> 267,349
<CGS> 225,681
<TOTAL-COSTS> 243,127
<OTHER-EXPENSES> 4,070
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 8,390
<INCOME-PRETAX> 11,762
<INCOME-TAX> 5,073
<INCOME-CONTINUING> 6,689
<DISCONTINUED> 0
<EXTRAORDINARY> (1,292)
<CHANGES> 0
<NET-INCOME> 5,397
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
