<PAGE>
1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended September 27, 1997 Commissions file number 1-6770
MUELLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-0790410
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6799 GREAT OAKS ROAD, SUITE 200
MEMPHIS, TENNESSEE 38138-2572
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 753-3200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $ 0.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by a 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 / /
The number of shares of the Registrant's common stock outstanding as of
October 20, 1997 was 17,508,708.
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MUELLER INDUSTRIES, INC.
FORM 10-Q
For the Period Ended September 27, 1997
INDEX
Part I. Financial Information Page
Item 1. Financial Statements (Unaudited)
a.) Consolidated Statements of Income
for the nine-months and quarters ended
September 27, 1997 and September 28, 1996............3
b.) Consolidated Balance Sheets
as of September 27, 1997 and December 28, 1996.......5
c.) Consolidated Statements of Cash Flows
for the nine-months ended September 27, 1997
and September 28, 1996...............................7
d.) Notes to Consolidated Financial Statements...........9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................11
Part II. Other Information
Item 5. Other Information........................................14
Item 6. Exhibits and Reports on Form 8-K.........................14
Signatures...........................................................15
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
For the Quarter Ended
September 27, September 28,
1997 1996
<S> <C> <C>
Net sales $ 229,133 $ 175,991
Cost of goods sold 181,376 133,204
----------- -----------
Gross profit 47,757 42,787
Depreciation and amortization 5,593 4,697
Selling, general, and administrative expense 15,120 12,809
----------- -----------
Operating income 27,044 25,281
Interest expense (1,818) (1,400)
Environmental reserves (1,100) (1,945)
Other income, net 1,661 1,424
----------- -----------
Income before income taxes 25,787 23,360
Current income tax expense (8,217) (8,532)
Deferred income tax benefit (expense) 481 1,354
----------- -----------
Total income tax expense (7,736) (7,178)
----------- -----------
Net income $ 18,051 $ 16,182
=========== ===========
Net income per share:
Primary:
Average shares outstanding 19,641 19,520
Net income $ 0.92 $ 0.83
=========== ===========
Fully diluted:
Average shares outstanding 19,648 19,550
Net income $ 0.92 $ 0.83
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
For the Nine-Months Ended
September 27, September 28,
1997 1996
<S> <C> <C>
Net sales $ 645,936 $ 546,063
Cost of goods sold 509,845 426,272
----------- -----------
Gross profit 136,091 119,791
Depreciation and amortization 15,409 13,718
Selling, general, and administrative expense 45,850 41,632
----------- -----------
Operating income 74,832 64,441
Interest expense (4,114) (4,113)
Environmental reserves (3,100) (1,945)
Other income, net 4,857 4,364
----------- -----------
Income before income taxes 72,475 62,747
Current income tax expense (21,874) (17,087)
Deferred income tax expense (453) (2,289)
----------- -----------
Total income tax expense (22,327) (19,376)
----------- -----------
Net income $ 50,148 $ 43,371
=========== ===========
Net income per share:
Primary:
Average shares outstanding 19,604 19,477
Net income $ 2.56 $ 2.23
=========== ===========
Fully diluted:
Average shares outstanding 19,641 19,534
Net income $ 2.55 $ 2.22
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<CAPTION>
September 27, December 28,
1997 1996
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 44,333 $ 96,956
Accounts receivable, less allowance
for doubtful accounts of $3,229 in
1997 and $3,188 in 1996 139,254 88,905
Inventories:
Raw material and supplies 21,219 15,416
Work-in-process 20,459 12,540
Finished goods 57,434 42,041
Gold 14,050 6,650
----------- -----------
Total inventories 113,162 76,647
Current deferred income taxes 6,374 6,508
Other current assets 7,009 5,696
----------- -----------
Total current assets 310,132 274,712
Property, plant and equipment, net 256,391 219,855
Deferred income taxes 9,058 10,064
Other assets 34,062 4,726
----------- -----------
$ 609,643 $ 509,357
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
<CAPTION>
September 27, December 28,
1997 1996
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 19,083 $ 14,844
Accounts payable 36,805 18,305
Accrued wages and other employee costs 21,569 16,872
Other current liabilities 31,925 28,935
----------- -----------
Total current liabilities 109,382 78,956
Long-term debt 61,094 44,806
Pension and postretirement liabilities 15,882 15,875
Environmental reserves 13,043 9,105
Deferred income taxes 2,234 2,922
Other noncurrent liabilities 10,181 9,214
----------- -----------
Total liabilities 211,816 160,878
----------- -----------
Minority interest in subsidiaries 641 397
Stockholders' equity:
Preferred stock-shares authorized
4,985,000; none outstanding - -
Series A junior participating preferred
stock-$1.00 par value; shares authorized
15,000; none outstanding - -
Common stock-$.01 par value; shares
authorized 50,000,000; issued 20,000,000;
outstanding 17,507,508 in 1997 and
17,434,888 in 1996 200 200
Additional paid-in capital, common 253,924 254,214
Retained earnings (since January 1, 1991) 178,131 127,983
Cumulative translation adjustments (4,446) (2,805)
Treasury common stock, at cost (30,623) (31,510)
----------- -----------
Total stockholders' equity 397,186 348,082
Commitments and contingencies (Note 3) - -
----------- -----------
$ 609,643 $ 509,357
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
For the Nine-Months Ended
September 27, September 28,
1997 1996
<S> <C> <C>
Operating activities
Net income $ 50,148 $ 43,371
Reconciliation of net income to net
cash provided by operating activities:
Depreciation and amortization 15,409 13,718
Minority interest in subsidiaries 244 459
Deferred income taxes 453 2,289
Gain on disposal of properties (1,641) (1,442)
Changes in assets and liabilities:
Receivables (34,805) (20,756)
Inventories (14,013) (3,332)
Other assets (7,304) (1,325)
Current liabilities 8,071 15,466
Other liabilities (1,495) 294
Other, net (18) 61
----------- -----------
Net cash provided by operating activities 15,049 48,803
----------- -----------
Investing activities
Capital expenditures (26,743) (15,167)
Proceeds from sales of properties 1,722 3,657
Acquisition of businesses (37,743) -
Escrowed IRB financing (23,001) -
----------- -----------
Net cash used in investing activities (85,765) (11,510)
----------- -----------
Financing activities
Proceeds from issuance of long-term debt 27,500 -
Repayments of long-term debt (9,840) (9,341)
Proceeds from the sale of treasury stock 597 1,219
----------- -----------
Net cash provided by (used in) financing
activities 18,257 (8,122)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents (164) -
----------- -----------
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<TABLE>
MUELLER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
(In thousands)
<CAPTION>
For the Nine-Months Ended
September 27, September 28,
1997 1996
<S> <C> <C>
Increase (decrease) in cash and cash equivalents (52,623) 29,171
Cash and cash equivalents at the
beginning of the period 96,956 48,357
----------- -----------
Cash and cash equivalents at the
end of the period $ 44,333 $ 77,528
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
MUELLER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
General
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Results of operations
for the interim periods presented are not necessarily indicative of results
which may be expected for any other interim period or for the year as a
whole. This quarterly report on Form 10-Q should be read in conjunction
with the Company's Annual Report on Form 10-K, including the annual
financial statements incorporated therein by reference.
The accompanying unaudited interim financial statements include all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented.
Note 1 - Earnings Per Common Share
Primary earnings per common share are based upon the weighted average
number of common and common equivalent shares outstanding during the period.
Fully diluted earnings per share are based upon the weighted average number
of common shares outstanding plus the dilutive effects of all outstanding
stock options.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
(SFAS No. 128), which is required to be adopted for periods ending after
December 15, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. The following table presents pro forma earnings per share amounts
computed using SFAS No. 128:
<TABLE>
<CAPTION>
For the Quarter Ended
September 27, September 28,
1997 1996
<S> <C> <C>
Pro forma earnings per share:
Earnings per common share $ 1.03 $ 0.93
=========== ===========
Earnings per common share
assuming dilution $ 0.92 $ 0.83
=========== ===========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
For the Nine-Months Ended
September 27, September 28,
1997 1996
<S> <C> <C>
Pro forma earnings per share:
Earnings per common share $ 2.87 $ 2.49
=========== ===========
Earnings per common share
assuming dilution $ 2.56 $ 2.23
=========== ===========
</TABLE>
Note 2 - Long Term Debt
On July 15, 1997, the Company, through a wholly-owned subsidiary,
issued $25 million of 1997 Series IRBs. These 1997 Series IRBs bear
interest at 7.39 percent for seven years and then convert to LIBOR plus 1.35
percent. Payments are due in quarterly installments of $875 thousand plus
interest for seven years beginning October 15, 1997, followed by annual
payments of $50 thousand plus interest for ten years. Proceeds of these
1997 Series IRBs will be used to fund a new copper refining facility located
adjacent to the Company's existing tube mill in Fulton, Mississippi.
Also, on July 15, 1997, the Company, through another wholly-owned
subsidiary, issued $2.5 million of 1997 Series IRBs. These 1997 Series IRBs
bear interest at 7.31 percent for five years and then convert to LIBOR plus
1.35 percent. Payments are due in quarterly installments of $115 thousand
plus interest for five years beginning October 15, 1997, followed by annual
payments of $29 thousand plus interest for seven years. Proceeds of these
1997 Series IRBs will be used to fund a new line set plant in Fulton,
Mississippi.
Note 3 - Commitments and Contingencies
The Company is subject to normal environmental standards imposed by
federal, state and local environmental laws and regulations. Based upon
information currently available, management believes that the outcome of
pending environmental matters will not materially affect the overall
financial position and results of operations of the Company.
In addition, the Company is involved in certain litigation as either
plaintiff or defendant as a result of claims that arise in the ordinary
course of business which management believes will not have a material effect
on the Company's financial condition.
Note 4 - Acquisitions
On December 30, 1996, the Company acquired the assets and certain
liabilities of Precision Tube Company, Inc. (Precision) for approximately
$6.6 million. Precision, which fabricates tubing and coaxial cables and
assemblies, had net sales of approximately $20.0 million in 1996.
Precision's tubing and coaxial divisions are located in North Wales,
Pennsylvania, and Salisbury, Maryland, respectively.
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<PAGE>
On February 28, 1997, the Company acquired certain assets of Wednesbury
Tube Company (Wednesbury) for approximately $21.3 million. Wednesbury,
which manufactures copper tube and is located in Bilston, West Midlands,
England, had net sales of approximately $94.0 million in 1996.
On May 15, 1997, the Company acquired Desnoyers S.A., a copper tube
manufacturer which operates two factories near Paris in Laigneville and
Longueville, France. The Company acquired Desnoyers for approximately $13.5
million which includes certain assumed debt obligations. Desnoyers had net
sales of approximately $100.0 million in 1996.
These acquisitions are accounted for using the purchase method.
Therefore, the results of operations of the acquired businesses are included
in the consolidated financial statements of the Company from the date of
acquisition.
The following table presents condensed pro forma consolidated results
of operations as if the acquisitions had occurred at the beginning of the
periods presented. This information combines the historical results of
operations of the Company and the acquired businesses after the effects of
estimated preliminary purchase accounting adjustments. Actual adjustments
may differ from those reflected below. The pro forma information does not
purport to be indicative of the results that would have been obtained if the
operations had actually been combined during the periods presented and is
not necessarily indicative of operating results to be expected in future
periods.
<TABLE>
(In thousands, except per share data)
<CAPTION>
For the Nine-Months Ended
September 27, September 28,
1997 1996
<S> <C> <C>
Net sales $ 707,419 $ 712,347
Net income 45,363 38,279
Net income per share:
Primary 2.31 1.97
Fully diluted 2.31 1.96
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Overview
The Company's principal business is the manufacture and sale of copper
tube, brass rod, fittings and other products made of copper, brass, bronze,
plastic and aluminum. These core manufacturing businesses have been in
operation for over 75 years. New housing starts and commercial construction
are important determinants of the Company's sales to the air-conditioning,
refrigeration and plumbing markets because the principal end use of a
significant portion of the Company's products is in the construction of
single and multi-family housing units and commercial buildings.
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<PAGE>
Profitability of certain of the Company's product lines is dependent
upon the "spreads" between the cost of material and the selling prices of
its completed products. The open market price for copper cathode, for
example, directly influences the selling price of copper tubing, a principal
product manufactured by the Company. The Company attempts to minimize the
effects of changes in copper prices by passing base metal costs through to
its customers. "Spreads" fluctuate based upon competitive market
conditions.
The Company uses the LIFO method of accounting for the copper component
of certain of its domestic copper tube and fittings inventories.
Management believes the LIFO method results in a better matching of current
costs with current revenues. The market price of copper does, however,
indirectly affect the carrying value (FIFO basis) of the Company's brass and
other inventories. The Company's copper and brass inventories customarily
total between 45 to 55 million pounds.
The Company also operates a short line railroad in Utah and a placer
gold mining operation in Alaska. Additionally, certain other natural
resource properties produce rental or royalty income.
Results of Operations
Net income was $18.1 million, or 92 cents per common share, for the
third quarter of 1997, which compares with net income of $16.2 million, or
83 cents per common share, for the same period of 1996. Year-to-date, net
income was $50.1 million, or $2.56 per common share, which compares to net
income of $43.4 million or $2.23 per common share, for 1996. These
comparisons include 1997 Wednesbury, Desnoyers and Precision operations
since their acquisitions during the first half of 1997.
During the third quarter of 1997, the Company's net sales were $229.1
million, which compares to net sales of $176.0 million, or a 30 percent
increase over the same period of 1996. Net sales were $645.9 million in the
first nine-months of 1997 versus $546.1 million in 1996. During the third
quarter of 1997, the Company's manufacturing businesses shipped 140.1
million pounds of product compared to 113.1 million pounds in the same
quarter of 1996. The Company's manufacturing businesses shipped 397.6
million pounds of product in the first nine-months of 1997, or 18 percent
more than the same period of 1996. The Company's third quarter and year-to-
date operating income increased primarily due to: (i) productivity
improvements at its manufacturing plants; (ii) higher sales volumes; (iii)
favorable pricing in copper and plastic fittings; and (iv) cost containment
in selling, general, and administrative expenses. These improvements to
operating income were partially offset by lower domestic copper tube spreads
compared to 1996, and third quarter operating losses of approximately $2
million at our newly acquired European tube businesses.
Interest expense for the third quarter of 1997 totaled $1.8 million
compared to $1.4 million in the same quarter of 1996. For the first nine-
months of 1997, interest expense was $4.1 million, equal to the same period
of 1996. During the first nine-months of 1996, the Company capitalized $0.3
million of interest related to capital improvement programs compared to none
in 1997.
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<PAGE>
The Company has provided an additional $1.1 million in the third
quarter, or $3.1 million for the first nine-months of 1997, for
environmental reserves based on updated information and results of ongoing
remediation at previously identified environmental sites.
The effective tax rate of 30.0 percent in the third quarter and 30.8
percent in the first nine-months of 1997 reflect the benefits of a lower
federal provision relating to the recognition of net operating loss
carryforwards and a lower state provision associated with incentive IRB
financings.
Liquidity and Capital Resources
Cash provided by operating activities during the first three quarters
of 1997 totaled $15.0 million which is primarily attributable to net income
and depreciation offset by increases in receivables and inventories.
Approximately $8.2 million has been used to fund Wednesbury's trade accounts
receivable, which were not acquired.
During the first three quarters of 1997, the Company used $85.8 million
in investing activities, consisting primarily of $37.7 million in business
acquisitions as described in Note 4, plus $26.7 million in capital
expenditures. On July 15, 1997, the Company, through two wholly-owned
subsidiaries, issued two 1997 Series IRBs for $25 million and $2.5 million.
Proceeds from these IRBs will be used to fund a new copper refining facility
located adjacent to the Company's tube mill in Fulton, Mississippi, and a
new line set plant also in Fulton, Mississippi. Cash used in investing
activities was funded with existing cash plus the proceeds of the two 1997
Series IRBs.
The Company has a $100.0 million unsecured line-of-credit agreement
(the Credit Facility) which expires in December 1999, but may be extended
for successive one year periods by agreement of the parties. Borrowings
under the Credit Facility bear interest, at the Company's option, at (i)
prime rate less .50 percent, (ii) LIBOR plus .27 percent, or (iii) Federal
Funds Rate plus .65 percent. There are no outstanding borrowings under the
Credit Facility. At September 27, 1997, the Company's debt was $80.2
million or 17 percent of its total capitalization.
The Company's financing obligations contain various covenants which
require, among other things, the maintenance of minimum levels of working
capital, tangible net worth, and debt service coverage ratios. The Company
is in compliance with all debt covenants.
Management believes that cash provided by operations, currently
available cash of $44.3 million, and the escrowed proceeds from the 1997
Series IRBs will be adequate to meet the Company's normal future capital
expenditure and operational needs. The Company's current ratio remains
strong at 2.8 to 1 as of September 27, 1997.
The Company currently anticipates spending approximately $40 million
for major capital improvement projects during 1997. The significant
projects were identified in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 29, 1997. These capital improvement projects will
be funded from existing cash balances, cash generated from operations, and
the IRB financing discussed above.
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<PAGE>
Part II. OTHER INFORMATION
Item 5. Other Information
The following discussion updates the disclosure in Item 1, Business, in
the Company's Annual Report on Form 10-K, for the year ended December 28,
1996.
Environmental Matters
Mining Remedial Recovery Company (MRRC)
1. Cleveland Mill Site
The EPA has agreed to permit the Cleveland Mill tailings to be capped
on site, rather than placed at the nearby Hanover site. An approved holding
cell near the tailings is under construction. Consolidation of the mill
tailings into the cell is scheduled to commence this year and capping of the
tailings is anticipated to be substantially completed by the Fall of 1998.
2. Hanover Site
MRRC had chosen to defer regrading and capping of approximately twenty
acres at Hanover pending a decision on storage of tailings in its nearby
Cleveland Mill site. Following the EPA's decision to permit on site storage
of tailings at the Cleveland Mill site, MRRC completed its regrading and
capping of the remaining Hanover acres.
3. Mammoth Mine Site
In response to an Order issued by the California Regional Water Quality
Control Board in 1996, MRRC recently completed a feasibility study
describing measures designed to mitigate the effects of acid rock drainage
in Shasta County, California. MRRC proposed remedial options that would
involve expenditures of approximately $1.7 million by the end of 1998.
Regulatory officials requested MRRC modify its proposed design at two
locations, which MRRC plans to do once it establishes that the requested
modifications can be accomplished for the currently estimated incremental
cost of $200,000. Further remediation may be required depending on how
effective MRRC's remedial options are in reducing acid rock drainage.
4. U.S.S. Lead
In the process of remediating the Lead Refinery site in East Chicago,
Illinois, Lead Refinery identified the presence of suspected petroleum
contamination on site. Lead Refinery is evaluating whether and how to
address remediation of this contamination as part of the Corrective Action
Management Unit.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Amended and Restated Employment Agreement, effective as of
September 17, 1997, by and between Mueller Industries, Inc.
and Harvey L. Karp.
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<PAGE>
10.2 Amended and Restated Employment Agreement, effective as of
September 17, 1997, by and between Mueller Industries, Inc.
and William D. O'Hagan.
19.1 Mueller Industries, Inc.'s Quarterly Report to Stockholders
for the quarter ended September 27, 1997. Such report is
being furnished for the information of the Securities and
Exchange Commission only and is not to be deemed filed as part
of this Quarterly Report on Form 10-Q.
(b) During the quarter ended September 27, 1997, the Registrant filed
no Current Reports on Form 8-K.
Items 1, 2, 3 and 4 are not applicable and have been omitted.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on
October 21, 1997.
MUELLER INDUSTRIES, INC.
/S/ EARL W. BUNKERS
Earl W. Bunkers, Executive Vice President
and Chief Financial Officer
/S/ KENT A. MCKEE
Kent A. McKee
Vice President Business Development/
Investor Relations
/S/ RICHARD W. CORMAN
Richard W. Corman
Director of Corporate Accounting
-15-
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, effective as of
September 17, 1997, by and between MUELLER INDUSTRIES, INC., a Delaware
corporation having its principal address at 6799 Great Oaks Road, Suite 200,
Memphis, Tennessee 38138 (the "Employer"), and HARVEY KARP, an individual
residing at West End Road, (P.O. Box 30) East Hampton, New York 11937 (the
"Executive").
WITNESSETH:
WHEREAS, the Executive has entered into an Employment Agreement with
the Employer, effective as of October 1, 1991, as amended by an Amendment,
effective as of January 1, 1994 (the "Existing Employment Agreement"); and
WHEREAS, the Executive and the Employer wish to modify the terms of the
Existing Employment Agreement by amending and restating the Existing
Employment Agreement in the form of this Amended and Restated Employment
Agreement (the "Agreement");
NOW THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the Executive and the Employer hereby amend and restate the Existing
Employment Agreement as follows:
1. Term of Employment.
The Employer agrees to employ the Executive, and the Executive
hereby accepts such employment, as Chairman of the Board of Directors of the
Employer. This Agreement shall have a three-year rolling term, which shall
commence as of the date first above written and automatically be extended so
that the unexpired term on any date is always three years (the "Employment
Period"), until such time as either party gives written notice to the other
of its election not to extend such term. The Employment Period shall end
three years from the date on which such notice is given unless it is
terminated earlier as provided in Section 4 hereof.
2. Duties and Authority.
a. During the Employment Period the Executive shall serve as
Chairman of the Board of Directors of the Employer. The Executive shall
devote his best efforts and full working time and attention to services for
the Employer. The Executive agrees to hold any other office or position
with the Employer or any of the Employer's subsidiaries without additional
compensation if elected or appointed to such office or position.
b. To the degree required by the Employer, the Executive shall be
responsible to identify and propose to the Employer's Board of Directors
persons suitable to serve as President of the Employer.
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<PAGE>
3. Compensation.
a. As compensation for the Executive's services in all capacities
during the Employment Period, the Employer shall pay the Executive the
following:
(i) a base salary at the rate of $606,373 per annum to be paid in
equal installments in accordance with normal payroll practices of the
Employer but not less frequently than monthly, provided that in each
subsequent calendar year or part thereof during which the Executive is
employed commencing in 1998, the Executive's base salary shall be
adjusted upward annually from the Executive's current base salary at a
rate at least commensurate with increases granted to other key
executives (the "Base Salary");
(ii) a discretionary cash incentive bonus (the "Bonus") for each
calendar year or part thereof during which the Executive is employed,
the amount of such Bonus to be consistent with the executive bonus
program which the Employer establishes for other key employees.
b. The Executive shall be entitled to reimbursement for reasonable
business and travel expenses incurred in the performance of his duties in
accordance with the Employer's normal reimbursement practices.
c. Subject to the terms of the applicable plan and/or program, the
Executive shall participate in all bonus, incentive, stock option, pension,
disability and health plans and programs and all fringe benefit plans
maintained by or on behalf of the Employer and in which senior executives of
the Employer are entitled to participate.
4. Termination of Employment.
a. The Executive's employment hereunder shall terminate upon the
Executive's death, and the Employer shall have the right to terminate the
Executive's employment upon his permanent disability. A permanent
disability is a physical or mental disability which results in the
Executive's inability to substantially perform his duties hereunder for a
period of 180 consecutive days or for a period of 200 days within any period
of 12 consecutive months, except that a permanent disability shall not
include a physical or mental disability which occurs in connection with the
Executive's employment hereunder. In the event of termination by reason of
death or permanent disability, the Employer's obligation to pay further
compensation hereunder shall cease on the date of termination, except that
the Executive (or, in the case of death, his beneficiaries, or his estate if
no beneficiary has been named) shall be entitled to receive his Base Salary
and Bonus prorated on a calendar day basis through the date of such
termination.
b. The Employer may terminate the Executive's employment hereunder
for Cause (as defined below) upon not less than 30 days prior written notice
specifying such cause. If the Executive's employment hereunder is
terminated for Cause, the Executive shall forfeit all existing Employer
stock options effective as of the date of the termination of his employment,
but such options shall remain exercisable for the 30-day period following
the Executive's receipt of written notice required under this Section 4(b).
For purposes of this Agreement, the term "Cause" shall mean (i) the
Executive's willful and continued failure to substantially perform his
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duties hereunder, (ii) the engaging by the Executive in willful misconduct
which is demonstrably and materially injurious to the Employer, or (iii) the
Executive's conviction of a felony for a crime of moral turpitude. For
purposes of this Section 4(b), no act, or failure to act, on the Executive's
part shall be considered "willful" unless done, or omitted to be done, by
him not in good faith and without reasonable belief that his action or
omission was in the best interest of the Employer. The Executive shall not
be terminated for Cause in the case of actions or omissions described in
clauses (i) or (ii) of this Section 4(b) unless the Employer shall have
given the Executive an opportunity to cure any such actions or omissions
during the 30-day period after the Executive's receipt of written notice
required under this Section 4(b).
c. The Executive's employment hereunder may be terminated by the
Employer without Cause upon not less than 90 days prior written notice or by
the Executive for "Good Reason" (as defined below) upon not less than 10
days prior written notice. In such event, (i) the Executive shall continue
to receive his then current Base Salary otherwise payable pursuant to
Section 3 hereof as if his employment had continued for the remainder of the
Employment Period and an annual bonus for the remainder of the Employment
Period equal to the average Bonus for the three calendar years immediately
preceding the written notice, such bonus to be paid in the normal course at
the time other executive bonuses are normally paid, and (ii) all of the
outstanding unvested Employer stock options then held by Executive shall
immediately vest and become exercisable upon such notice. In addition, at
the Employer's expense, the Executive shall continue to participate in all
of the Employer's health plans and programs and the Employer shall continue
to furnish Executive with an office and a secretary in New York City in the
Borough of Manhattan for the remainder of the Employment Period as if he
remained employed for such period, such benefits and office to be comparable
in quality and location to those currently provided. For purposes of this
Agreement, "Good Reason" shall mean (A) a failure by the Employer to comply
with any material provision of this Agreement which has not been cured
within ten (10) days after notice of such noncompliance has been given by
the Executive to the Employer, (B) the assignment to the Executive by the
Employer of duties inconsistent with the Executive's position, authority,
duties, responsibilities or status with the Employer as in effect
immediately after the date of execution of this Agreement, including, but
not limited to, any reduction whatsoever in such position, authority,
duties, responsibilities or status, or a change in the Executive's titles or
offices, as then in effect, or any removal of the Executive from, or any
failure to reelect the Executive to, any of such positions, except in
connection with the termination of his employment on account of his death,
disability, or for Cause, (C) the requirement of excessive travel on the
part of the Executive, (D) a relocation by the Employer of the Executive's
principal place of employment to any location outside a thirty mile radius
from the Executive's current principal place of employment, (E) the failure
of the Employer to have any successor to the Employer assume the Agreement,
(F) the delivery to the Executive of notice of the Employer's decision to
terminate the Executive's employment without Cause, or (G) any other
material change in the conditions of employment if the Executive determines
in good faith that his customary duties can no longer be performed because
of the change.
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d. The Executive shall also have the right to resign voluntarily
without Good Reason from employment during the Employment Period by written
notice to the Employer at least 60 days prior to the effective date of the
resignation. Upon his resignation without Good Reason, the Executive shall
be entitled to receive any accrued but unpaid Base Salary. The Employer
shall have discretion whether or not to award the Executive a Bonus for any
calendar year in which he resigns without Good Reason.
e. If the Executive's employment is terminated for Cause pursuant to
Section 4(b), or if the Executive shall voluntarily resign for any reason
other than Good Reason, the Executive's right to receive the Base Salary
(except any accrued and unpaid salary), the Bonus, and any other
compensation and benefits to which he would otherwise be entitled under this
Agreement shall be forfeited as of the date of termination of employment.
f. Except as provided in Section 4(b) hereof or any relevant option
agreement, the Executive's death or termination of employment shall not
affect his rights under any Employer stock options.
g. Notwithstanding anything to the contrary herein, the Executive
may also terminate his employment upon a "Change in Control" (as hereinafter
defined). If the Executive terminates his employment upon a "Change in
Control" then:
(i) the Employer shall pay the Executive as severance pay in a lump
sum within thirty (30) days following such termination, the following
amounts, which shall not be discounted to take into account present
value:
(1) the Executive's Base Salary through the date of termination
at the rate in effect immediately prior to the termination
date; and
(2) an amount equal to the product of (x) the Executive's annual
Base Salary at the rate in effect immediately prior to the
date of termination, multiplied by (z) the number of years
(including partial years) then remaining in the Employment
Period; and
(3) an amount equal to the product of (x) the average annual
Bonus for the three calendar years immediately preceding the
date of termination, multiplied by (z) the number of years
(including partial years as full years) then remaining in
the Employment Period;
(ii) the Employer shall, at the Employer's expense, allow the
Executive to continue to participate, for the number of years
(including partial years) then remaining in the Employment Period, in
all the Employer's benefits, to the same extent and upon the same terms
and conditions as the Executive participated immediately prior to the
termination, provided that the Executive's continued participation is
permissible or otherwise practicable under the general terms and
provisions of such benefit plan; and
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(iii) the Employer shall, at the Employer's expense, continue to
furnish Executive with an office and a secretary in New York City in
the Borough of Manhattan for the number of years (including partial
years) then remaining in the Employment Period, such benefit to be
comparable in quality and location to that provided currently; and
(iv) on the later of (x) the day the Executive notifies the Employer
he is terminating upon a Change in Control, and (y) ten (10) days prior
to the date the Executive actually terminates his employment, all
remaining unvested options previously granted the Executive shall
become immediately exercisable on that date.
"Change in Control", as used in Section 4(g) of the Agreement, is
defined to mean the occurrence of any of the following three events:
(1) a change in control of a nature that would be required to be
reported in response to any form or report to the Securities and Exchange
Commission or any stock exchange on which the Employer's shares are listed
which requires the reporting of a change in control of the Employer;
(2) when any "person," as such terms is used in Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), is or becomes the "beneficial owner," as defined in Rule 13d-3 under
the Exchange Act, directly or indirectly, of 20% of the voting power of the
Employer's then outstanding securities, other than (x) beneficial owners of
more than 5% of the Employer's Common Stock on August 10, 1995, (y)
"Exempted Persons" as defined in Section 1(a) of the Employer's Rights
Agreement, dated as of November 10, 1994, (z) mutual funds, banks,
investment advisors registered under the Investment Advisers Act of 1940, as
amended, and other institutional investors, which either (i) became 20%
beneficial owners as a result of an acquisition of Common Stock by the
Employer which, by reducing the number of such shares then outstanding,
increases the proportionate number of shares beneficially owned by such
person to 20% or more of the outstanding Common Stock except that if such
person, after such share purchased by the Employer, becomes the beneficial
owner of any additional shares of Common Stock, then this exception would
not apply, or (ii) were exempted from the operation of this provision with
the prior approval of eighty percent of the Board of Directors of the
Employer; or
(3) when the individuals who, on the effective date of this
Agreement constitute the Board of Directors of the Employer cease for any
reason to constitute at least a majority thereof, provided, however, that a
director who was not a director on the effective date of this Agreement
shall be deemed to have been a director at that date if such director was
elected by, or on the recommendation of or with the approval of, at least
sixty percent of the directors who were directors on the effective date of
this Agreement (either directly or by prior operation of this provision);
provided, however, that an occurrence shall cease to be a "Change in
Control" for purposes of this Section 4(g) six months after the occurrence
of an event that would otherwise constitute a "Change in Control," except
that, for purposes of computing this six-month period, the six-month time
period shall not commence until, as to clause (1) above, the date on which a
change in control form or report is actually filed, and as to clause (2)
above, the date on which a beneficial owner discloses in a public filing
that it has crossed the 20% threshold.
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5. Notices.
Any notice or other communication hereunder shall be made in writing
by hand-delivery or telecopier (and, if by telecopier, followed by a copy
either delivered by hand within three days thereafter or sent by registered
first-class mail on the next business day) and shall be deemed to have been
delivered and received when delivered by hand, if personally delivered, and
when receipt acknowledged, if telecopied, as follows: (a) if to the
Executive at the address shown at the beginning of this Agreement and at the
following telecopier numbers: (516) 329-2838 and (212) 307-9514 or to such
other person(s) or address(es) or telecopier number(s) as the Executive
shall have furnished to the Employer in writing, and (b) if to the Employer
at the address shown at the beginning of this Agreement and at the following
telecopier number: (901) 753-3000, attention of the Board of Directors,
with copies to the Employer at the same address, Attention: General
Counsel, and to Willkie Farr & Gallagher, One Citicorp Center, 153 E. 53rd
Street, New York, New York, Attention: Robert B. Hodes, Esq., telecopier
number (212) 821-8111, or to such other person(s) or address(es) or
telecopier number(s) as such persons or the Employer shall have furnished to
the Executive in writing.
6. Registration of Options.
The Employer agrees that, at the Employer's cost, it will file a
Registration Statement on Form S-8 (or its equivalent) relating to the
Executive's existing options to acquire shares of common stock of the
Employer. The Executive agrees to provide the Employer with reasonable
notice of the Executive's desire to have such a Registration Statement
prepared and filed with the Securities and Exchange Commission.
7. Certain Additional Payments by the Employer.
a. Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment, distribution, waiver of
Employer rights, acceleration of vesting of any stock options or restricted
stock, or any other payment or benefit in the nature of compensation to or
for the benefit of the Executive, alone or in combination (whether such
payment, distribution, waiver, acceleration or other benefit is made
pursuant to the terms of this Agreement or any other agreement, plan or
arrangement providing payments or benefits in the nature of compensation to
or for the benefit of the Executive, but determined without regard to any
additional payments required under this Section 7) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code (or any
successor provision) or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes with respect to the Gross-Up Payment
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.
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b. Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by the nationally recognized accounting firm then auditing the accounts of
the Employer (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Employer and the Executive within 15 business days
of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Employer. In the event that the
Accounting Firm is unwilling or unable to perform its obligations pursuant
to this Section 7, the Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to hereunder as the Accounting Firm).
All fees and expenses of the Accounting Firm shall be borne solely by the
Employer. Any Gross-Up Payment, determined pursuant to this Section 7,
shall be paid by the Employer to the Executive within five days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Employer and the Executive. The
parties hereto acknowledge that, as a result of the potential uncertainty in
the application of Section 4999 of the Code (or any successor provision) at
the time of the initial determination by the Accounting Firm hereunder, it
is possible that the Employer will not have made Gross-Up Payments which
should have been made consistent with the calculations required to be made
hereunder (an "Underpayment"). In the event that the Employer exhausts its
remedies pursuant to Section 7(c) and the Executive thereafter is required
to make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Employer to or for the benefit of the Executive.
c. The Executive shall notify the Employer in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Employer of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise the
Employer of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which he gives such
notice to the Employer (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Employer
notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(i) give the Employer any information reasonably requested by
the Employer relating to such claim,
(ii) take such action in connection with contesting such claim as
the Employer shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Employer,
(iii) cooperate with the Employer in good faith in order
effectively to contest such claim, and
(iv) permit the Employer to participate in any
proceedings relating to such claim;
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<PAGE>
provided, however, that the Employer shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limiting the
foregoing provisions of this Section 7(c), the Employer shall control all
proceedings taken in connection with such contest and, at its sole option,
may pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Employer shall determine; provided,
however, that if the Employer directs the Executive to pay such claim and
sue for a refund, the Employer shall advance the amount of such payment to
the Executive, on an interest-free basis, and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Employer's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
d. If, after the receipt by the Executive of an amount advanced by
the Employer pursuant to Section 7(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject
to the Employer's complying with the requirements of Section 7(c)) promptly
pay to the Employer the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Employer pursuant to
Section 7(c), a determination is made that the Executive shall not be
entitled to any refund with respect to such claim and the Employer does not
notify the Executive in writing of its intent to contest such denial of
refund prior to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to be repaid and
the amount of such advance shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.
8. Assignability.
This Agreement shall not be assignable by the Employer
except to a majority-owned subsidiary or parent entity of the Employer and
shall be binding upon and inure to the benefit of the Employer and its
successors and assigns. This Agreement shall not be assignable by the
Executive, but it shall be binding upon, and to the extent provided in
Section 4(a) shall inure to the benefit of, the Executive's heirs,
executors, administrators and legal representatives.
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9. Entire Agreement.
This Agreement supersedes the Existing Employment
Agreement and all prior understandings between the Executive and the
Employer as to the subject matter hereof.
10. Waivers, Amendments and Further Agreements.
Neither this Agreement nor any term or condition hereof,
including without limitation the terms and conditions of this Section 10,
may be waived, modified or amended in whole or in part as against the
Employer or the Executive except by written instrument executed by each of
the parties expressly stating that it is intended to operate as a waiver,
modification or amendment of this Agreement or the applicable term or
condition hereof. Each of the parties hereto agrees to execute all such
further instruments and documents and to take all such further action as the
other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
11. Severability.
In case one or more of the provisions contained in this
Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
12. No Conflicting Obligations.
The Executive represents and warrants to the Employer that
the Executive is not now under any obligation to anyone other than the
Employer and other entities of which he is a non-executive director and has
no interest which is inconsistent or in conflict with this Agreement, or
which would prevent, limit or impair, in any way, the Executive's
performance of any of the covenants or duties hereinabove set forth.
However, subject to Section 2 hereof, nothing herein shall be deemed to
limit the Executive's participation in, or pursuit of, non-conflicting
business interests.
13. Survival.
Except as otherwise provided herein, the covenants,
agreements, representations and warranties contained in or made pursuant to
this Agreement shall survive the Executive's termination of employment,
irrespective of any investigation made by or on behalf of any party.
14. Governing Law.
This Agreement shall be governed by and construed and
enforced in accordance with the law of the State of New York, without regard
to the principles of conflicts of law thereof.
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15. Arbitration; Legal Fees.
Any dispute, controversy or claim arising out of or
relating to this Agreement or the breach thereof shall be finally settled by
arbitration by a single arbitrator in accordance with the rules then in
effect of the American Arbitration Association in an arbitration in New
York, New York. Judgment upon an award rendered by the arbitrator may be
entered in any court of competent jurisdiction. To the extent that the
Executive prosecutes or defends, whether by arbitration or through a
judicial proceeding, a dispute, controversy or claim relating to this
Agreement which results in a judgment, award or settlement in the
Executive's favor in any material respect, the Employer shall reimburse the
Executive for all reasonable fees and costs (including legal fees) incurred
by the Executive in such successful prosecution or defense.
16. Headings.
The headings in this Agreement are solely for convenience
of reference and shall be given no effect in the construction or
interpretation of this Agreement.
17. Counterparts.
This Agreement may be executed in counterparts each of which
shall be deemed an original but which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed or caused to be
executed this Agreement effective as of the date first above written.
MUELLER INDUSTRIES, INC.
[Seal] By: /s/ William D. O'Hagan
Name: William D. O'Hagan
Title: Chief Executive Officer
Date: September 17, 1997
/s/ Harvey Karp
Harvey Karp
Date: September 17, 1997
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AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, effective as
of September 17, 1997, by and between MUELLER INDUSTRIES, INC., a
Delaware corporation having its principal address at 6799 Great
Oaks Road, Suite 200, Memphis, Tennessee 38138 (the "Employer"),
and WILLIAM D. O'HAGAN, an individual residing at 9563 South Fox
Hill Circle, Germantown, Tennessee (the "Executive").
WITNESSETH:
WHEREAS, the Executive has entered into an Employment
Agreement with the Employer, effective as of January 1, 1994, as
amended by an Amendment, effective as of August 10, 1995 and as
further amended by an Amendment effective as of June 6, 1997 (the
"Existing Employment Agreement"); and
WHEREAS, the Executive and the Employer wish to modify
the terms of the Existing Employment Agreement by amending and
restating the Existing Employment Agreement in the Form of this
Amended and Restated Employment Agreement (the "Agreement");
NOW THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the Executive and the Employer hereby
amend and restate the Existing Employment Agreement as follows:
1. Term of Employment.
The Employer agrees to employ the Executive, and
the Executive hereby accepts such employment, as President and
Chief Executive Officer of the Employer, for a term commencing as
of the date hereof, and ending on December 31, 2002 (the
"Employment Period"). The preceding sentence notwithstanding,
the Executive's employment hereunder may be terminated earlier in
accordance with Section 4 hereof.
2. Duties and Authority.
During the Employment Period the Executive shall
serve as President and Chief Executive Officer of the Employer.
The Executive shall devote his best efforts and full working time
and attention to services for the Employer. The Executive agrees
to hold any additional office or position with the Employer or
any of the Employer's manufacturing subsidiaries without
additional compensation if elected or appointed to such office or
position.
3. Compensation.
a. As compensation for the Executive's services
in all capacities during the Employment Period, the Employer
shall pay the Executive the following:
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i. a base salary at a rate of $413,430 per
annum to be paid in equal installments in accordance with normal
payroll practices of the Employer but not less frequently than
monthly, provided that in each subsequent calendar year or part
thereof during which the Executive is employed commencing in
1998, the Executive's base salary shall be adjusted upward
annually from the Executive's current base salary at a rate at
least commensurate with increases granted to other key executives
(the "Base Salary").
ii. a discretionary annual cash incentive
bonus (the "Bonus") for each calendar year or part thereof during
which the Executive is employed, the amount of such bonus to be
consistent with the executive bonus program which the Employer
establishes for other key executives.
b. The Executive shall be entitled to
reimbursement for reasonable business and travel expenses
incurred in the performance of his duties in accordance with the
Employer's normal reimbursement practices.
c. Subject to the terms of the applicable plan
and/or program, the Executive shall participate in all bonus,
incentive, stock option, pension, disability and health plans and
programs and all fringe benefits plans maintained by or on behalf
of the Employer and in which senior executives of the Employer
are entitled to participate.
d. Subject to Section 4(c) herein, the
Executive's existing stock options with respect to the Employer's
common stock shall continue to be governed by and subject to the
terms and conditions set forth in the respective option
agreements.
e. The Employer agrees that, at the Employer's
cost, it will file a Registration Statement on Form S-8 (or its
equivalent) relating to the Executive's options to acquire shares
of common stock of the Employer, granted on June 22, 1992 and May
7, 1997. The Executive agrees to provide the Employer with
reasonable notice of the Executive's desire to have such a
Registration Statement prepared and filed with the Securities and
Exchange Commission.
4. Termination of Employment.
a. The Executive's employment hereunder shall
terminate upon the Executive's death, and the Employer shall have
the right to terminate the Executive's employment upon his
permanent disability. A permanent disability is a physical or
mental disability which results in the Executive's inability to
substantially perform his duties hereunder for a period of 180
consecutive days or for a period of 200 days within any period of
12 consecutive months, except that a permanent disability shall
not include a physical or mental disability which occurs in
connection with the Executive's employment hereunder. In the
event of termination by reason of death or permanent disability,
the Employer's obligation to pay further compensation hereunder
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shall cease on the date of termination, except that the Executive
(or, in the case of death, his beneficiaries, or his estate if no
beneficiary has been named) shall be entitled to receive his Base
Salary and Bonus prorated on a calendar day basis through the
date of such termination.
b. The Employer may terminate the Executive's
employment hereunder for Cause (as defined below) upon not less
than 30 days prior written notice specifying such Cause. If the
Executive's employment hereunder is terminated for Cause, the
Executive shall forfeit the Employer stock options, granted on
November 4, 1993, effective as of the date of the termination of
his employment, but such options shall remain exercisable for the
30-day period following the Executive's receipt of written notice
required under this Section 4(b). For purposes of this
Agreement, the term "Cause" shall mean (i) the Executive's
willful and continued failure to substantially perform his duties
hereunder, (ii) the engaging by the Executive in willful
misconduct which is demonstrably and materially injurious to the
Employer, or (iii) the Executive's conviction of a felony for a
crime of moral turpitude. For purposes of this Section 4(b), no
act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by him
not in good faith and without reasonable belief that his action
or omission was in the best interest of the Employer. The
Executive shall not be terminated for Cause in the case of
actions or omissions described in clauses (i) or (ii) of this
Section 4(b) unless the Employer shall have given the Executive
an opportunity to cure any such actions or omissions during the
30-day period after the Executive's receipt of written notice
required under this Section 4(b).
c. The Executive's employment hereunder may be
terminated by the Employer without Cause upon not less than 90
days prior written notice or by the Executive for "Good Reason"
(as defined below) upon not less than 10 days prior written
notice. In such event, (i) the Executive shall continue to
receive his then current Base Salary otherwise payable pursuant
to Section 3 hereof as if his employment had continued for the
remainder of the Employment Period and an annual bonus for the
remainder of the Employment Period equal to the average Bonus for
the three calendar years immediately preceding the written
notice, such bonus to be paid in the normal course at the time
other executive bonuses are normally paid, and (ii) all of the
outstanding unvested Employer stock options then held by
Executive shall immediately vest and become exercisable upon such
notice. In addition, at the Employer's expense, the Executive
shall continue to participate in all of the Employer's health
plans and programs until he reaches age 65 as if he remained
employed until such time. For purposes of this Agreement, "Good
Reason" shall mean (A) a failure by the Employer to comply with
any material provision of this Agreement which has not been cured
within ten (10) days after notice of such noncompliance has been
given by the Executive to the Employer, (B) other than as
provided in Section 2 herein, the assignment to the Executive by
the Employer of duties inconsistent with the Executive's
position, authority, duties, responsibilities or status with the
-3-
<PAGE>
Employer as in effect immediately after the date of execution of
this Agreement, including, but not limited to, any reduction
whatsoever in such position, authority, duties, responsibilities
or status, or a change in the Executive's titles or offices, as
then in effect, or any removal of the Executive from, or any
failure to reelect the Executive to, any of such positions,
except in connection with the termination of his employment on
account of his death, disability, or for Cause, (C) the
requirement of excessive travel on the part of the Executive,
(D) a relocation by the Employer of the Executive's principal
place of employment to any location outside a thirty mile radius
from the Executive's current principal place of employment, (E)
the failure of the Employer to have any successor to the Employer
assume the Agreement, (F) the delivery to the Executive of notice
of the Employer's decision to terminate the Executive's
employment without Cause, or (G) any other material change in the
conditions of employment if the Executive determines in good
faith that his customary duties can no longer be performed
because of the change.
d. The Executive shall also have the right to
resign voluntarily without Good Reason from employment during the
Employment Period by written notice to the Employer at least 60
days prior to the effective date of the resignation. Upon such
resignation without Good Reason, the Executive shall be entitled
to receive any accrued but unpaid Base Salary. The Employer
shall have discretion whether or not to award the Executive a
Bonus for any calendar year in which he resigns without Good
Reason.
e. If the Executive's employment shall terminate
by expiration of the Employment Period or is terminated by the
Employer for Cause pursuant to Section 4(b), or if the Executive
shall voluntarily resign for any reason other than Good Reason,
the Executive's right to receive the Base Salary (except any
accrued and unpaid salary and except as set forth in Section 4(f)
below), the Bonus, and any other compensation and benefits to
which he would otherwise be entitled under this Agreement shall
be forfeited as of the date of termination of employment;
provided, however, that if the Executive's employment hereunder
shall terminate by expiration of the Employment Period, in
accordance with Section 1 hereof, on December 31, 2002, and the
Employer and the Executive have not entered into a new employment
agreement on mutually satisfactory terms, the Executive shall be
entitled to receive the Bonus for calendar year 2002 in
accordance with Section 3(a)(ii) hereof. Employer shall be
entitled to make required withholdings from any such payment.
f. If the Executive and the Employer shall not
have entered into a new employment agreement on mutually
satisfactory terms on or prior to December 31, 2002, then
beginning on January 1, 2003, after the expiration of the
Employment Period, the Executive shall be placed on a temporary
leave of absence for six months. During said time period,
Executive shall (i) have the status of an employee of the
Company, and (ii) continue to receive Base Salary payments, but
the Employer shall have the right, at its sole election, to
-4-
<PAGE>
replace the Executive as the Chief Executive Officer and
President. During this leave of absence, the Executive shall not
be precluded by this Agreement from seeking or obtaining new full
time employment. At the end of said six-month temporary leave of
absence, if the Executive and the Employer shall not have entered
into a new employment arrangement, the Executive's employment
shall be automatically terminated. In such event, the Executive
shall not be entitled to any severance payments.
g. Except as provided in Section 4(b) hereof, or
any relevant option agreement, the Executive's death or
termination of employment shall not affect his rights under any
Employer stock options.
h. Notwithstanding anything to the contrary
herein, the Executive may also terminate his employment upon a
"Change in Control" (as hereinafter defined). If the Executive
terminates his employment upon a "Change in Control" then:
i. the Employer shall pay the Executive as
severance pay in a lump sum within thirty (30) days following
such termination, the following amounts, which shall not be
discounted to take into account present value:
(1) the Executive's Base Salary through
the date of termination at the rate
in effect immediately prior to the
termination date;
(2) an amount equal to the product of
(x) the Executive's annual Base
Salary at the rate in effect
immediately prior to the date of
termination, multiplied by (z) the
number of years (including partial
years) then remaining in the
Employment Period; and
(3) an amount equal to the product of
(x) the average annual Bonus for
the three calendar years
immediately preceding the date of
termination, multiplied by (z) the
number of years (including partial
years as full years) then remaining
in the Employment Period;
ii. the Employer shall, at the Employer's
expense, allow the Executive to continue to participate, until he
reaches age 65, in all the Employer's benefits, to the same
extent and upon the same terms and conditions as the Executive
participated immediately prior to the termination, provided that
the Executive's continued participation is permissible or
otherwise practicable under the general terms and provisions of
such benefit plan; and
-5-
<PAGE>
iii. on the later of (x) the day the
Executive notifies the Employer he is terminating upon a Change
in Control, and (y) ten (10) days prior to the date the Executive
actually terminates his employment, all remaining unvested
options previously granted the Executive shall become immediately
exercisable on that date.
"Change in Control", as used in Section 4(h) of the
Agreement, is defined to mean the occurrence of any of the
following three events:
(i) a change in control of a nature that
would be required to be reported in response to any form or
report to the Securities and Exchange Commission or any stock
exchange on which the Employer's shares are listed which requires
the reporting of a change in control of the Employer;
(ii) when any "person," as such terms is used
in Section 13(d) or 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), is or becomes the "beneficial
owner," as defined in Rule 13d-3 under the Exchange Act, directly
or indirectly, of 20% of the voting power of the Employer's then
outstanding securities, other than (x) beneficial owners of more
than 5% of the Employer's Common Stock on August 10, 1995, (y)
"Exempted Persons" as defined in Section 1(a) of the Employer's
Rights Agreement, dated as of November 10, 1994, (z) mutual
funds, banks, investment advisors registered under the Investment
Advisers Act of 1940, as amended, and other institutional
investors, which either (i) became 20% beneficial owners as a
result of an acquisition of Common Stock by the Employer which,
by reducing the number of such shares then outstanding, increases
the proportionate number of shares beneficially owned by such
person to 20% or more of the outstanding Common Stock except that
if such person, after such share purchased by the Employer,
becomes the beneficial owner of any additional shares of Common
Stock, then this exception would not apply, or (ii) were exempted
from the operation of this provision with the prior approval of
eighty percent of the Board of Directors of the Employer; or
(iii) when the individuals who, on the
effective date of this Agreement constitute the Board of
Directors of the Employer cease for any reason to constitute at
least a majority thereof, provided, however, that a director who
was not a director on the effective date of this Agreement shall
be deemed to have been a director at that date if such director
was elected by, or on the recommendation of or with the approval
of, at least sixty percent of the directors who were directors on
the effective date of this Agreement (either directly or by prior
operation of this provision);
provided, however, that an occurrence shall cease to be a "Change
in Control" for purposes of this Section 4(h) six months after
the occurrence of an event that would otherwise constitute a
"Change in Control," except that, for purposes of computing this
six-month period, the six-month time period shall not commence
until, as to clause (i), the date on which a change in control
form or report is actually filed, and as to clause (ii), the date
-6-
<PAGE>
on which a beneficial owner discloses in a public filing that it
has crossed the 20% threshold.
5. Notices.
Any notice or other communication hereunder shall
be made in writing by hand-delivery and shall be deemed to have
been delivered and received when delivered by hand, if personally
delivered, as follows: (a) if to the Executive at the address
shown at the beginning of this Agreement or to such other
person(s) or address(es) as the Executive shall have furnished to
the Employer in writing, and (b) if to the Employer at the
address shown at the beginning of this Agreement, attention of
the Board of Directors, with copies to the Employer at the same
address, Attention: General Counsel, and to Willkie Farr &
Gallagher, One Citicorp Center, 153 E. 53rd Street, New York, New
York 10022, Attention: Robert B. Hodes, Esq., or to such other
person(s) or address(es) as such persons or the Employer shall
have furnished to the Executive in writing.
6. Certain Additional Payments by the Employer.
a. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment, distribution, waiver of Employer rights, acceleration of
vesting of any stock options or restricted stock, or any other
payment or benefit in the nature of compensation to or for the
benefit of the Executive, alone or in combination (whether such
payment, distribution, waiver, acceleration or other benefit is
made pursuant to the terms of this Agreement or any other
agreement, plan or arrangement providing payments or benefits in
the nature of compensation to or for the benefit of the
Executive, but determined without regard to any additional
payments required under this Section 6) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code (or
any successor provision) or any interest or penalties are
incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes with respect to the Gross-Up Payment
(including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payments.
b. Subject to the provisions of Section 6(c),
all determinations required to be made under this Section 6,
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by the
nationally recognized accounting firm then auditing the accounts
of the Employer (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Employer and the
-7-
<PAGE>
Executive within 15 business days of the receipt of notice from
the Executive that there has been a Payment, or such earlier time
as is requested by the Employer. In the event that the
Accounting Firm is unwilling or unable to perform its obligations
pursuant to this Section 6, the Executive shall appoint another
nationally recognized accounting firm to make the determinations
required hereunder (which accounting firm shall then be referred
to hereunder as the Accounting Firm). All fees and expenses of
the Accounting Firm shall be borne solely by the Employer. Any
Gross-Up Payment, determined pursuant to this Section 6, shall be
paid by the Employer to the Executive within five days of the
receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the
Employer and the Executive. The parties hereto acknowledge that,
as a result of the potential uncertainty in the application of
Section 4999 of the Code (or any successor provision) at the time
of the initial determination by the Accounting Firm hereunder, it
is possible that the Employer will not have made Gross-Up
Payments which should have been made consistent with the
calculations required to be made hereunder (an "Underpayment").
In the event that the Employer exhausts its remedies pursuant to
Section 6(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Employer to or for the
benefit of the Executive.
c. The Executive shall notify the Employer in
writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Employer of the
Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than 20 business days after the
Executive is informed in writing of such claim and shall apprise
the Employer of the nature of such claim and the date on which
such claim is requested to be paid. The Executive shall not pay
such claim prior to the expiration of the 30-day period following
the date on which he gives such notice to the Employer (or such
shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Employer notifies the
Executive in writing prior to the expiration of such period that
it desires to contest such claim, the Executive shall:
i. give the Employer any information
reasonably requested by the Employer relating to such claim,
ii. take such action in connection with
contesting such claim as the Employer shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney reasonably selected by the Employer,
iii. cooperate with the Employer in good
faith in order effectively to contest such claim, and
iv. permit the Employer to participate in
any proceedings relating to such claim;
-8-
<PAGE>
provided, however, that the Employer shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limiting the foregoing provisions of this Section 6(c), the
Employer shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Employer shall determine; provided, however, that
if the Employer directs the Executive to pay such claim and sue
for a refund, the Employer shall advance the amount of such
payment to the Executive, on an interest-free basis, and shall
indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Employer's control of the
contest shall be limited to issues with respect to which a Gross-
Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
d. If, after the receipt by the Executive of an
amount advanced by the Employer pursuant to Section 6(c), the
Executive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Employer's
complying with the requirements of Section 6(c)) promptly pay to
the Employer the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Employer pursuant to Section 6(c), a
determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Employer does not
notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
-9-
<PAGE>
7. Executive Loan.
The Employer agrees, at Executive's option, to
lend Executive up to five million dollars ($5,000,000), on a full
recourse basis, which loan would be evidenced by a promissory
note in favor of the Employer, in the form attached as Exhibit 1
to the Agreement.
8. Assignability.
This Agreement shall not be assignable by the
Employer except to a majority-owned subsidiary or parent entity
of the Employer and shall be binding upon and inure to the
benefit of the Employer and its successors and assigns. This
Agreement shall not be assignable by the Executive, but it shall
be binding upon, and to the extent provided in Section 4(a) shall
inure to the benefit of, the Executive's heirs, executors,
administrators and legal representatives.
9. Entire Agreement.
This Agreement supersedes the Existing Employment
Agreement and all prior understandings between the Executive and
the Employer as to the subject matter hereof.
10. Waivers, Amendments and Further Agreements.
Neither this Agreement nor any term or condition
hereof, including without limitation the terms and conditions of
this Section 10, may be waived, modified or amended in whole or
in part as against the Employer or the Executive except by
written instrument executed by each of the parties expressly
stating that it is intended to operate as a waiver, modification
or amendment of this Agreement or the applicable term or
condition hereof. Each of the parties hereto agrees to execute
all such further instruments and documents and to take all such
further action as the other party may reasonably require in order
to effectuate the terms and purposes of this Agreement.
11. Severability.
In case one or more of the provisions contained in
this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
12. No Conflicting Obligations.
The Executive represents and warrants to the
Employer that the Executive is not now under any obligation to
anyone other than the Employer and other entities of which he is
a non-executive director and has no interest which is
inconsistent or in conflict with this Agreement, or would
prevent, limit or impair, in any way, the Executive's performance
of any of the covenants or duties hereinabove set forth.
However, subject to Section 2 hereof, nothing herein shall be
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<PAGE>
deemed to limit the Executive's participation in, or pursuit of,
non-conflicting business interests.
13. Survival.
Except as otherwise provided herein, the
covenants, agreements, representations and warranties contained
in or made pursuant to this Agreement shall survive the
Executive's termination of employment, irrespective of any
investigation made by or on behalf of any party.
14. Governing Law.
This Agreement shall be governed by and construed
and enforced in accordance with the law of the State of
Tennessee, without regard to the principles of conflicts of law
thereof.
15. Arbitration; Legal Fees.
Any dispute, controversy or claim arising out of
or relating to this Agreement or the breach thereof shall be
finally settled by arbitration by a single arbitrator in
accordance with the rules then in effect of the American
Arbitration Association in an arbitration in Memphis, Tennessee.
Judgment upon an award rendered by the arbitrator may be entered
in any court of competent jurisdiction. To the extent that the
Executive prosecutes or defends, whether by arbitration or
through a judicial proceeding, a dispute, controversy or claim
relating to this Agreement which results in a judgment, award or
settlement in the Executive's favor in any material respect, the
Employer shall reimburse the Executive for all reasonable fees
and costs (including legal fees) incurred by the Executive in
such successful prosecution or defense.
16. Headings.
The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the
construction or interpretation of this Agreement.
17. Counterparts.
This Agreement may be executed in counterparts each of
which shall be deemed an original but which together shall
constitute one and the same instrument
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have executed or caused to be
executed this Agreement effective as of the date first above
written.
MUELLER INDUSTRIES, INC.
By: /s/ Harvey L. Karp
Name: Harvey L. Karp
Title: Chairman of the Board
Date: September 17, 1997
/s/ William D. O'Hagan
William D. O'Hagan
Date: September 17, 1997
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<PAGE>
EXHIBIT 1
[Form of Promissory Note]
PROMISSORY NOTE
$_____[1]_____ _____[2]_____
William D. O'Hagan, an individual living at ___________________________
_________[3]_____________("Borrower"), hereby promises to pay to Mueller
Industries, Inc., a Delaware corporation ("Mueller") the
principal sum of _____[1]_____ ($________[1]________), on the
earlier of (i) the date Mueller pays Borrower any severance pay
pursuant to Section 4 of Borrower's Employment Agreement with
Mueller, and (ii) December 31, 2002, and to pay interest
(computed on the basis of a 360-day year) on the unpaid principal
balance thereof from the date of this Note at the rate of
________[4]________ percent (__[4]__%) per annum until the principal
amount hereof shall become due and payable. Interest is payable
on March 15 of each year, but, at Borrower's option, can be
deferred until the maturity date of the Note to the extent such
interest payment exceeds the after-tax portion of Executive's
bonus for the preceding fiscal year.
Payments of principal and interest shall be made in
such coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and
private debts to the address designated by Mueller.
This Note shall be secured by either (A) common stock
of Mueller having, at the time the Note is executed, a fair
market value of at least 125% of the face amount of the Note, or
(B) other marketable property acceptable to Mueller having, at
the time the note is executed, a fair market value of at least
150% of the face amount of the Note. Borrower shall deliver such
stock or other acceptable property to Mueller within ten (10)
days of the time this Note is executed, and shall take such
further action, and execute such further documents, as Mueller
deems necessary to fully perfect its security interest in the
pledged collateral. Borrower represents that the pledged
collateral is currently unencumbered and agrees that he will not
otherwise sell, assign, pledge, encumber, transfer or otherwise
hypothecate said stock or other acceptable property so long as
this Note is outstanding, provided, however, that if Borrower has
pledged shares of common stock of Mueller, Borrower is free to
sell any or all such shares so long as the Borrower pays down
this Note with the net after-tax proceeds from any such sale.
Borrower and Mueller agree to cooperate, in the event of a
partial sale, in order to facilitate such a sale, while
preserving Mueller's security interest in the remaining shares.
If Borrower shall default in the payment of interest or
principal on the Note when the same shall become due and payable
and such default continues for more than ten (10) days after
receipt of written notice from Mueller, Mueller shall have and
may execute all rights and remedies afforded to a secured party
under the Tennessee Uniform Commercial Code applicable thereto,
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<PAGE>
including, without limitation, the right to sell the pledged
collateral at a public or private sale (provided that Mueller
shall give Borrower at least fifteen (15) days prior written
notice of the date in which any public sale is to be held or the
date after which any private sale may be made), at which sale
Mueller may purchase such pledged collateral and have the right
to retain such pledged collateral in partial or full satisfaction
of Borrower's obligations under the Note in accordance with the
provisions of the Tennessee Uniform Commercial Code.
This Note may be prepaid, at any time, in whole or in
part, without penalty.
THIS NOTE IS GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, INTERNAL TENNESSEE LAW.
_____________________
William D. O'Hagan
1. Principal amount of Note is equal to the amount requested be
loaned, up to $5,000,000.00.
2. Date shall be date Borrower borrows money from Mueller
pursuant to this Note.
3. Borrower's then current residential address shall be inserted.
4. The interest rate shall be the higher of (i) the comparable
treasury rate in effect when this Note is executed, and (ii)
the rate at which Mueller is itself then able to borrow funds
having a comparable maturity, in each case based on the length
of time between the date the note is executed and December 31,
2002.
-14-
TO OUR STOCKHOLDERS, CUSTOMERS AND EMPLOYEES
The third quarter of 1997 was the best quarter in Mueller's history.
Operating income, net earnings, and pounds of product manufactured and
shipped all reached record levels. Net earnings for the third quarter of
1997 were $18.1 million, or 92 cents per share, compared to $16.2 million,
or 83 cents per share, for the third quarter of 1996.
This earnings record was achieved even though our recently acquired
European copper tube businesses incurred operating losses of approximately
$2 million. We acquired these businesses for a modest investment, with the
objective of improving their cost structure and productivity. We see great
opportunity to build substantial values in Europe.
Net sales for the third quarter of 1997 totaled $229.1 million, an
increase of 30 percent over sales of $176.0 million for the same quarter of
1996. Pounds shipped increased by 24 percent.
Volume in the U.S. copper tube business continues to be strong; spreads
have improved from the second quarter of 1997, though they remain
significantly below levels achieved in the third quarter of 1996. Earnings
at our copper fittings operations were the best ever. Brass rod also
operated with solid volume and earnings.
Our DWV plastics business continues to grow. We recently purchased a
factory building, which is contiguous to our existing plant in Kalamazoo,
Michigan. Nineteen additional injection molding presses were installed in
this expansion, and in other facilities.
Our copper refinery project in Fulton, Mississippi is on
schedule. This $25 million investment, when completed in 1999, will allow
our Fulton tube mill to use a lower cost mix of scrap and cathode.
Financing was established for this project through a Mississippi Industrial
Revenue Bond, which will generate ongoing tax benefits.
U.S. economic conditions remain favorable for our business. Fixed 30-
year mortgage rates are near 7.5 percent. Unemployment is close to its
lowest level in more than 25 years. Inflation is modest. Consumer
confidence is high. Although new housing starts declined slightly during the
third quarter, the housing market remains solid. Consequently, we are
optimistic that Mueller's business will be sound through the end of the
year, and into 1998.
Sincerely,
/s/ Harvey L. Karp
Harvey L. Karp
Chairman of the Board
/s/ William D. O'Hagan
William D. O'Hagan
President and Chief
Executive Officer
October 14, 1997
<PAGE>
Corporate News
Plastics Business Continues
Consistent Improvement
Profits at Mueller's DWV plastic fittings business have improved
dramatically since 1996. The plastic fittings unit earned the prestigious
Harvey L. Karp EBIT ("Everyone Benefits In Teamwork") Award in five
consecutive quarters commencing with the second quarter of 1996. This
deserves special recognition because we have never had back-to-back winners
before.
This internal award recognizes the business which demonstrates the best
earnings improvement over the preceding quarter. The award was established
in 1993, and has encouraged a healthy rivalry among the Company's operating
units.
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<PAGE>
<TABLE>
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
For the Quarter Ended
September 27, September 28,
1997 1996
<S> <C> <C>
Net sales $ 229,133 $ 175,991
Costs of goods sold 181,376 133,204
Depreciation and amortization 5,593 4,697
Selling, general, and administrative expense 15,120 12,809
----------- -----------
Operating income 27,044 25,281
Interest expense (1,818) (1,400)
Environmental reserves (1,100) (1,945)
Other income, net 1,661 1,424
----------- -----------
Income before taxes 25,787 23,360
Income tax expense (7,736) (7,178)
----------- -----------
Net income $ 18,051 $ 16,182
=========== ===========
Net income per share:
Primary:
Average shares outstanding 19,641 19,520
Net income $ 0.92 $ 0.83
=========== ===========
Fully diluted:
Average shares outstanding 19,648 19,550
Net income $ 0.92 $ 0.83
=========== ===========
</TABLE>
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<PAGE>
<TABLE>
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
For the Nine-Months Ended
September 27, September 28,
1997 1996
<S> <C> <C>
Net sales $ 645,936 $ 546,063
Costs of goods sold 509,845 426,272
Depreciation and amortization 15,409 13,718
Selling, general, and administrative expense 45,850 41,632
----------- -----------
Operating income 74,832 64,441
Interest expense (4,114) (4,113)
Environmental reserves (3,100) (1,945)
Other income, net 4,857 4,364
----------- -----------
Income before taxes 72,475 62,747
Income tax expense (22,327) (19,376)
----------- -----------
Net income $ 50,148 $ 43,371
=========== ===========
Net income per share:
Primary:
Average shares outstanding 19,604 19,477
Net income $ 2.56 $ 2.23
=========== ===========
Fully diluted:
Average shares outstanding 19,641 19,534
Net income $ 2.55 $ 2.22
=========== ===========
</TABLE>
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<PAGE>
<TABLE>
MUELLER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)
<CAPTION>
September 27, 1997 December 28, 1996
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 44,333 $ 96,956
Accounts receivable, net 139,254 88,905
Inventories 113,162 76,647
Other current assets 13,383 12,204
--------- ---------
Total current assets 310,132 274,712
Property, plant and equipment, net 256,391 219,855
Other assets 43,120 14,790
--------- ---------
$ 609,643 $ 509,357
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt $ 19,083 $ 14,844
Accounts payable 36,805 18,305
Other current liabilities 53,494 45,807
--------- ---------
Total current liabilities 109,382 78,956
Long-term debt 61,094 44,806
Other noncurrent liabilities 41,340 37,116
--------- ---------
Total liabilities 211,816 160,878
Minority interest in subsidiaries 641 397
Stockholders' equity 397,186 348,082
--------- ---------
$ 609,643 $ 509,357
========= =========
Book value per share $ 22.69 $ 19.96
========= =========
</TABLE>
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE FISCAL PERIOD ENDED SEPTEMBER 27, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000089439
<NAME> MUELLER INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> SEP-27-1997
<CASH> 44,333
<SECURITIES> 0
<RECEIVABLES> 142,483
<ALLOWANCES> 3,229
<INVENTORY> 113,162
<CURRENT-ASSETS> 310,132
<PP&E> 352,417
<DEPRECIATION> 96,026
<TOTAL-ASSETS> 609,643
<CURRENT-LIABILITIES> 109,382
<BONDS> 61,094
<COMMON> 200
0
0
<OTHER-SE> 396,986
<TOTAL-LIABILITY-AND-EQUITY> 609,643
<SALES> 645,936
<TOTAL-REVENUES> 645,936
<CGS> 509,845
<TOTAL-COSTS> 509,845
<OTHER-EXPENSES> 61,259
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,114
<INCOME-PRETAX> 72,475
<INCOME-TAX> 22,327
<INCOME-CONTINUING> 50,148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,148
<EPS-PRIMARY> 2.56
<EPS-DILUTED> 2.55
