<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the Fiscal Year Ended: FEBRUARY 28, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
Commission File No. 0-2733
AZTEC MANUFACTURING CO.
(Exact name of registrant as specified in its charter)
TEXAS 75-0948250
(State of incorporation) (I.R.S. Employer Identification Number)
400 NORTH TARRANT 76036
CROWLEY, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (817) 297-4361
Securities registered pursuant to section 12(b) of the act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE
Securities registered pursuant to section 12(g) of the act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. __
The aggregate market value of Common Stock held by non-affiliates on May 4,
1998, was approximately $76,988,000. As of May 4, 1998, there were 5,923,828
shares of Aztec Manufacturing Co. Common Stock $1.00 par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part I, Part II and Part IV incorporate certain information by reference from
the Registrant's Annual Report to Shareholders for the year ended February 28,
1998. Part III incorporates information by reference from the Proxy Statement
for the 1998 Annual Meeting of Shareholders of Registrant.
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PART I
ITEM 1. BUSINESS
Aztec Manufacturing Co. ("Aztec" or the "Company") was incorporated under the
laws of the state of Texas on March 26, 1956. Aztec, through its subsidiaries,
operates under three segments. These segments are Electrical Products,
Galvanizing and Oil Field Products, which are discussed further below.
Aztec started in 1956 as an oil field-related company servicing oil field supply
companies and steel mills. The Company was located in Fort Worth, Texas, but
subsequently moved to Crowley, Texas. In 1965, Aztec diversified into the
galvanizing industry and opened its first location in Crowley, Texas. Oil field
operations were expanded with the opening of its Houston facility in 1967.
Galvanizing operations were expanded with the formation of Aztec Industries in
Jackson, Mississippi in 1969, the opening of a galvanizing facility in Houston
in 1975, the acquisition of Automatic Processing in Moss Point, Mississippi and
the formation of Aztec Mfg. Co. - Waskom in Waskom, Texas in 1986. Aztec added
to its Oil Field Products Segment in 1986 with the purchase of Parks Machine, a
job shop screw machine facility, located in Crowley, Texas. Aztec closed its
Houston Tubing facility in 1989 due to the depressed domestic oil industry. The
Electrical Products Segment was formed with the purchase of Rig-A-Lite
Partnership, LTD. in Houston, Texas, in March 1990 and the acquisition of The
Calvert Company located in Jackson, Mississippi, in September 1990. Aztec closed
and liquidated Parks Machine in November 1992, due to the low level of oil field
activity. Aztec added to its Electrical Products Segment with the acquisition of
Atkinson Industries, Inc., in March 1993. Gulf Coast Galvanizing, Inc., located
in Citronelle, Alabama, was acquired in January 1994. Aztec completed and opened
in November 1994 a new galvanizing facility near Phoenix in Goodyear, Arizona.
Arkansas Galvanizing, Inc., located in Prairie Grove, Arkansas, was acquired in
February 1996. The Company made three acquisitions in fiscal 1998. Hobson
Galvanizing, Inc. located in Belle Chase, Louisiana was acquired in March 1997,
and International Galvanizers, Inc. located in Beaumont, Texas was acquired in
December 1997. Drilling Rig Electrical Systems, Inc. located in Houston, Texas
was acquired and added to the Company's Electrical Segment in February 1998. The
Company now operates ten galvanizing facilities in six states, four electrical
facilities and one oil field products facility.
A three-year summary of sales, operating profit and identifiable assets by
industry segment is included in Note 10 to the Consolidated Financial Statements
on page 25 of the Registrant's 1998 Annual Report to Shareholders. Such
information is hereby incorporated by reference.
Aztec provides services and manufacturing of products in the following areas:
ELECTRICAL PRODUCTS SEGMENT
This segment includes Rig-A-Lite Partnership, LTD, which manufactures and
assembles lighting fixtures for hostile and hazardous environments in the
industrial market. Rig-A-Lite also engages in the assembly and installation of
electrical components and lighting fixtures on drilling rigs for the petroleum
industry. Drilling Rig Electrical Systems, Inc. (DRESCO) designs, furnishes and
contracts the installation of electrical systems for oil field drilling rigs,
drilling barges, etc. used for the production of oil and natural gas. DRESCO,
acquired in February 1998, operates in conjunction with Rig-A-Lite, utilizing
their lighting products. Also in this segment is The Calvert Company, which
designs, manufactures and installs electrical bus duct systems for the power
generation industry. A bus duct consists of insulated power conductors housed in
a metal enclosure. Individual pieces of bus duct are arranged in a variety of
physical configurations that may be required to distribute electrical power to
or from a generator, transformer, switching device or other electrical
apparatus. Bus duct systems that can be provided are non-segregated phase,
segregated phase and isolated phase styles with numerous amperage and voltage
ratings. Atkinson Industries, Inc., was acquired in March 1993 and added to
Aztec's Electrical Products Segment. Atkinson, located in Pittsburg, Kansas,
manufactures factory-fabricated electrical power centers and assemblies for the
industrial and power generation industries. The market for Aztec's Electrical
Products Segment is highly competitive and consists of a few large national
companies, as well as numerous small independents. Competition is based
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primarily on product quality, range of product line, price and service. The
Company believes that it can compete favorably with regard to each of these
factors. Copper, aluminum and steel are the primary raw materials used in this
segment and are readily available. This segment's products are sold through
manufacturers' representatives and its internal sales force. This segment is not
dependent on any single customer or limited number of customers for sales, and
the loss of any single customer would not have a material adverse effect on
consolidated revenues. Backlog of orders was approximately $14,082,000 at
February 28, 1998, $10,315,000 at February 28, 1997, and $7,600,000 at February
29, 1996. All of the year end 1998 backlog will be delivered in the next 18
months. Orders included in the backlog are represented by contracts and purchase
orders that the Company believes to be firm. Historically, no material amount of
orders included in the backlog has been canceled. The Company experiences no
seasonal fluctuations in this segment's business nor does it follow any unusual
practices relating to working capital items such as inventory, rights to return
merchandise, and extended payment terms to customers. Total employment in this
segment is 281 persons.
GALVANIZING SEGMENT
Custom hot-dip galvanizing service is provided for industries handling
fabricated metal products. This process provides corrosion protection of
fabricated steel for extended periods up to 50 years. Galvanizing is a highly
competitive business. Aztec competes with other independent galvanizing
companies, captive galvanizing facilities operated by manufacturers, and
alternate forms of corrosion protection such as paint. Market conditions are,
therefore, highly competitive in pricing. Aztec is limited to some extent in its
galvanizing market to areas within a close proximity of its existing locations,
due to freight cost. Zinc, the principal raw material used in the galvanizing
process, is readily available but has volatile pricing. Aztec has a broad
customer base in galvanizing. No one customer represented as much as 10 percent
of consolidated revenues. The backlog of galvanizing orders generally is nominal
due to the short time requirement involved in the process. The Company
experiences no seasonal fluctuations in this segment's business nor does it
follow any unusual practices relating to working capital items such as
inventory, rights to return merchandise, and extended payment terms to
customers. Total employment in this segment is 294 persons.
OIL FIELD PRODUCTS SEGMENT
Aztec processes and provides oil field tubular products to the extent of
upsetting, threading, testing and heat treating and also manufactures oil field
pup joints. The principal market is the oil industry, with distribution through
supply houses, steel mills and other manufacturers in the metal fittings
industry. This business is highly competitive and price sensitive, with
competition coming from several small oil field tubing processors and supply
houses. This segment is unpredictable due to the volatility of oil and natural
gas prices. The Company closed its Houston Tubing facility in March 1989. The
low level of activity in the Company's screw machine operation prompted the
Company to liquidate this facility in November 1992. Steel is the principal raw
material used in this segment and currently is readily available. Aztec has a
limited customer base in this area, but no one customer represents as much as 10
percent of consolidated revenues. Backlog consisted of approximately $5,854,000
at February 28, 1998, $630,000 at February 28, 1997, and $137,000 at February
29, 1996. Backlog is expected to be filled within the coming fiscal year. The
Company experiences no seasonal fluctuations in this segment's business nor does
it follow any unusual practices relating to working capital items such as
inventory, rights to return merchandise, and extended payment terms to
customers. Total employment in this segment is 104 persons
GENERAL
In fiscal 1998 the Company did not introduce a new product line or a new
industry segment or make public its intentions to introduce a new product or do
business in a new industry segment. The Company has established a $423,000
reserve at the end of fiscal 1998 against receivables for any possible loss of
these receivables.
There are no significant patents, trademarks, licenses, franchises or
concessions. The Company does not have a material portion of business that may
be subject to renegotiations of profits or termination of contracts or
subcontracts at the election of the government. There were no material amounts
spent on research and development activities during the preceding three fiscal
years.
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ENVIRONMENTAL
The Company complies, in all material respects, with the relevant legislation
and regulations affecting its operations and the discharge of waste material.
To date, the Company has not expended any material amounts to comply with such
regulations and management does not currently anticipate that future compliance
will have a material adverse effect on the consolidated financial position or
results of operations of the Company.
FORWARD-LOOKING STATEMENT
This Form 10-K contains forward looking statements. Such statements are
typically punctuated by words or phrases such as "anticipates," "estimate,"
"should," "may," "management believes," and words or phrases of similar import.
Such statements are subject to certain risks, uncertainties or assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. Factors that could cause or
contribute to such differences could include, but are not limited to, changes in
demand, prices, and raw materials cost, including zinc which is used in the
galvanizing segment; changes in the economic conditions of the various markets
the company serves, including the market price for oil and natural gas; as well
as the other risks detailed herein and in the Company's reports filed with the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE REGISTRANT
Business Experience for Past
Name Age Five Years; Position or Office with Registrant Held Since
- ----------------- --- ---------------------------------------------- ----------
<S> <C> <C> <C>
L. C. Martin 72 Chairman, President and Chief Executive Officer 1958
D. L. Perry 49 Vice President of Finance, and Chief Financial Officer 1992
Assistant Secretary 1977
F. L. Wright, Jr. 57 Senior Vice President/Galvanizing Segment 1992
Vice President/Galvanizing Segment 1989
General Mgr./Galvanizing Segment 1987
R. T. Skowron 53 Vice President/Electrical Segment of the Company 1997
Vice President/Kearney National 1995-1997
Vice President and Director International Sales/ 1993-1995
ABB Power Transmission & Dist. Co.
</TABLE>
Each executive officer was elected by the Board of Directors to hold office
until the next Annual Meeting or until his successor is elected. There are no
family relationships between Executive Officers of the Registrant.
ITEM 2. PROPERTIES
The following table sets forth information about the Company's principal
facilities owned on February 28, 1998:
<TABLE>
<CAPTION>
Location Acres Sq. Footage Segment/Occupant
- -------- ----- ----------- ----------------
<S> <C> <C> <C>
Crowley, Texas 152.0 7,772 Corporate Office
25,600 Galvanizing
193,245 Oil Field Products
Houston, Texas 8.7 25,800 Galvanizing
37.0 36,000 Electrical Products
5.4 67,440 Electrical Products
1.8 6,500 Electrical Products
</TABLE>
I-3
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<TABLE>
<CAPTION>
Location Acres Sq. Footage Segment/Occupant
- -------- ----- ----------- ----------------
<S> <C> <C> <C>
Waskom, Texas 10.6 30,400 Galvanizing
Moss Point, Mississippi 13.5 16,000 Galvanizing
Jackson, Mississippi 5.6 22,800 Galvanizing
5.1 36,160 Electrical Products
Pittsburg, Kansas 15.3 42,000 Electrical Products
Citronelle, Alabama 10.8 33,960 Galvanizing
Goodyear, Arizona 11.75 36,750 Galvanizing
Prairie Grove, Arkansas 11.5 34,000 Galvanizing
Belle Chasse, Louisiana 9.5 34,000 Galvanizing
Beaumont, Texas 12.9 33,700 Galvanizing
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
ENVIRONMENTAL PROCEEDINGS
In the course of its galvanizing operations, the Company is subject to
occasional governmental proceedings and orders pertaining to noise, air
emissions, and water discharges into the environment. As part of its continuing
environmental program, the Company has complied with such proceedings and orders
without any materially adverse effect on its business.
The registrant is not a party to, nor is its property the subject of, any
material pending legal proceedings. The registrant is involved in ordinary
routine litigation incidental to business. For additional information relating
to contingencies, see Note 11 to the Consolidated Financial Statements on page
27 of the Registrant's 1998 Annual Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fiscal year ended February 28, 1998, to a
vote of security holders through the solicitation of proxies or otherwise.
I-4
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock, $1.00 par value, of Registrant ("common stock") is traded on
the New York Stock Exchange. The Company was listed on the New York Stock
Exchange and started trading on March 20, 1997. The information contained under
the caption "Stock Prices and Dividends Per Share" on Page 11 of Registrant's
1998 Annual Report to Shareholders is incorporated herein by reference.
The approximate number of holders of record of common stock of Registrant at May
4, 1998 was 986.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Selected Financial Information" on
page 1 of Registrant's 1998 Annual Report to Shareholders is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 12, 13, 14
and 15 of Registrant's 1998 Annual Report to Shareholders is incorporated herein
by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated balance sheets of Aztec Manufacturing Co. as of February 28,
1998 and February 28, 1997, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended February 28, 1998, and the report of independent auditors and the
information required by item 302 of Regulation of S-K are on pages 16 through 28
of Registrant's 1998 Annual Report to Shareholders and are incorporated herein
by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No changes in accountants or disagreements with accountants on accounting and/or
financial disclosure have arisen.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The information required by this item with regard to executive officers is
included in Part I, Item 1 of this report under the heading "Executive Officers
of the Registrant."
The other information required by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the
Registrant's Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the
Registrant's Proxy Statement for the 1998 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to the
Registrant's Proxy Statement for the 1998 Annual Meeting of Shareholders.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
The following financial statements and report of independent auditors have been
incorporated herein by reference to pages 16 through 28 of Registrant's 1998
Annual Report to Shareholders.
<TABLE>
<CAPTION>
Pages of 1998 Annual
Report to Shareholders
----------------------
<S> <C>
Consolidated Balance Sheets as of February 28, 1998 and February 28, 1997 16
Consolidated Statements of Income for the years ended 17
February 28, 1998, February 28, 1997, and February 29, 1996
Consolidated Statements of Shareholders' Equity for the years ended 17
February 28, 1998, February 28, 1997, and February 29, 1996
Consolidated Statements of Cash Flows for the years ended 18
February 28, 1998, February 28, 1997, and February 29, 1996
Notes to Consolidated Financial Statements 19-28
Report of Independent Auditors 28
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES
All schedules and compliance information have been omitted since the required
information is not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is included in
the consolidated financial statements and the notes thereto.
3. EXHIBITS
The following exhibits are filed as a part of this report:
3(i) - Articles of Incorporation, and all amendments thereto (incorporated by
reference to the Annual Report on Form 10-K filed by Registrant for the fiscal
year ended February 28, 1981).
3(ii) - Bylaws including the amendment adopted by the Board of Directors of
Registrant on May 17, 1993. *
10a - 1982 Incentive Stock Option Plan of Registrant (incorporated by
reference to the Annual Report on Form 10-K filed by Registrant for the fiscal
year ended February 29, 1984).
10b - Employees Benefit Plan and Trust of Aztec Manufacturing Co.
(incorporated by reference to the Annual Report on Form 10-K filed by Registrant
for the fiscal year ended February 28, 1985).
10c - Amendment No. 1 to the Employees Benefit Plan and Trust of Aztec
Manufacturing Co. (incorporated by reference to Exhibit 10c of the Annual Report
on Form 10-K filed by Registrant for the fiscal year ended February 28, 1987).
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10d - 1986 Incentive Stock Option Plan of Aztec Manufacturing Co.
(incorporated by reference to the Annual Report on Form 10-K filed by Registrant
for the fiscal year ended February 28, 1986).
10e - Change In Control Agreement between Registrant and Mr. L. C. Martin
dated March 1, 1986 (incorporated by reference to Exhibit 10e of the Annual
Report on Form 10-K filed by Registrant for the fiscal year ended February 28,
1987).
10g - 1988 Nonstatutory Stock Option Plan of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10g of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 29, 1988).
10h - 1991 Incentive Stock Option Plan of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10h of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1991).
10i - 1991 Nonstatutory Stock Option Plan of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10i of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1991).
10j - Buy-Sell and Termination Agreement between Registrant and Mr. L.C.
Martin dated January 27, 1994 (incorporated by reference to Exhibit 10j of the
Annual Report on Form 10-K filed by Registrant for the fiscal year ended
February 28, 1994).
10k - 1998 Incentive Stock Option plan of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10k of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1998). *
10l- 1998 Nonstatutory Stock Option plan of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10l of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1998). *
10m- 1997 Nonstatutory Stock Option Grants of Aztec Manufacturing Co.
(incorporated by reference to Exhibit 10m of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1998). *
13 - Annual Report to Shareholders for the fiscal year ended February 28,
1998 (including the Registrant Proxy Statement for the 1998 Annual Meeting of
Shareholders).*
21 - Subsidiaries of Registrant*.
23 - Consent of Ernst & Young LLP*.
24 - Power of Attorney*.
- -------------------
*Filed herewith.
(b) REPORTS ON FORM 8-K
The Registrant filed no reports on Form 8-K during the fiscal year ended
February 28, 1998.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AZTEC MANUFACTURING CO.
(Registrant)
Date: 5/27/98 By: /s/ L.C. Martin
--------------------------- ---------------------------------------
L. C. Martin, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant and in
the capacities and on the dates indicated.
/s/ L.C. Martin /s/ Dana L. Perry
- --------------------------------- ------------------------------------------
L. C. Martin, Principal Executive Dana L. Perry, Principal Accounting Officer
Officer and Director Principal Financial Officer, and Director
/s/ Robert H. Johnson /s/ Sam Rosen
- --------------------------------- ------------------------------------------
Robert H. Johnson, Director Sam Rosen, Director
Dr. H. Kirk Downey* R. J. Schumacher*
- --------------------------------- ------------------------------------------
Dr. H. Kirk Downey, Director R. J. Schumacher, Director
Martin C. Bowen* Kevern R. Joyce*
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Martin C. Bowen, Director Kevern R. Joyce, Director
W.C. Walker*
- ---------------------------------
W. C. Walker, Director
* /s/ L.C. Martin
- ---------------------------------
L. C. Martin, Attorney-in-Fact
IV-3
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EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<S> <C> <C>
3(i) Articles of Incorporation, and all amendments thereto (incorporated by reference
to the Annual Report on Form 10-K filed by Registrant for the fiscal year
February 28, 1981).
-------------
3(ii) Bylaws including the amendment adopted by the Board of Directors of registrant on
May 17, 1993.
-------------
10a 1982 Incentive Stock Option Plan of Registrant (incorporated by reference to the
Annual Report of Form 10-K filed by Registrant for the fiscal year ended February
29, 1984).
-------------
10b Employees Benefit Plan and Trust of Aztec Manufacturing Co. (incorporated by
reference to the Annual Report on Form 10-K filed by Registrant for the fiscal
year ended February 28, 1985).
-------------
10c Amendment No. 1 to the Employees Benefit Plan and Trust of Aztec Manufacturing
Co. (incorporated by reference to Exhibit 10c of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 28, 1987).
-------------
10d 1986 Incentive Stock Option Plan of Registrant (incorporated by reference to the
Annual Report on Form 10-K filed by Registrant for the fiscal year ended February
28, 1986).
-------------
10e Change in Control Agreement between Registrant and Mr. L.C. Martin dated March 1,
1986 (incorporated by reference to Exhibit 10e of the Annual Report on Form 10-K
filed by Registrant for the fiscal year ended February 29, 1987).
-------------
10g 1988 Nonstatutory Stock Option Plan of Registrant (incorporated by reference to
Exhibit 10g of the Annual Report on Form 10-K filed by Registrant for the fiscal
year ended February 29, 1988).
-------------
10h 1991 Incentive Stock Option Plan of Aztec Manufacturing Co. (incorporated by
reference to Exhibit 10h of the Annual Report on Form 10-K filed by Registrant
for the fiscal year ended February 28, 1991).
-------------
10i 1991 Nonstatutory Stock Option Plan of Aztec Manufacturing Co. (incorporated by
reference to Exhibit 10i of the Annual Report on Form 10-K filed by Registrant
for the fiscal year ended February 28, 1991).
-------------
10j Buy-Sell and Termination Agreement between Registrant and Mr. L.C. Martin dated
January 27, 1994 (incorporated by reference to Exhibit 10j of the Annual Report
on Form 10-K filed by Registrant for the fiscal year ended February 28, 1994).
-------------
10k 1998 Incentive Stock Option Plan of Aztec Manufacturing Co. (incorporated by
reference to Exhibit 10k of the Annual Report on Form 10-K filed by Registrant
for the fiscal year ended February 28, 1998).*
-------------
10l 1998 Nonstatutory Stock Option Plan of Aztec Manufacturing Co. (incorporated by
reference to Exhibit 10l of the Annual Report on Form 10-K filed by Registrant
for the fiscal year ended February 28, 1998).*
-------------
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION NUMBERED PAGE
------- ----------- -------------
<S> <C> <C>
10m 1997 Nonstatutory Stock Option Grants of Aztec Manufacturing Co. (incorporated
by reference to Exhibit 10m of the Annual Report on Form 10-K filed by Registrant
for the fiscal year ended February 28, 1998).*
-------------
13 Annual Report to Shareholders for the fiscal year ended February 28, 1998
(including the Registrant Proxy Statement for the 1998 Annual Meeting of
Shareholders).*
-------------
21 Subsidiaries of Registrant.*
-------------
23 Consent of Ernst & Young LLP.*
-------------
24 Power of Attorney.*
-------------
</TABLE>
- -------------------
*FILED HEREWITH
<PAGE>
EXHIBIT 13
----------
ANNUAL REPORT
PROXY STATEMENT
PROXY CARD
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Page 1
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------------------------------------------
1998(a) 1997 1996(b) 1995 1994(c)
------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
(In thousands, except per share amounts, percentages and ratios)
Summary of operations:
Net sales $75,479 $57,703 $49,184 $44,608 $40,834
Net income 7,220 4,328 2,582 1,578 2,172
Earnings per share:
Basic earnings per common share $1.21 (d) $ .75 $ .46 $ .28 $ .39
Diluted earnings per common share 1.19 (d) .74 .45 .27 .37
Return on average shareholders'
equity 23% 16.7% 11.6% 7.7% 11.7%
Pretax profits to sales 13.1% 12.4% 8.7% 5.8% 8.7%
Net income to sales 9.6% 7.5% 5.2% 3.5% 5.3%
Total assets $57,902 $45,995 $42,621 $40,791 $34,060
Long-term debt, excluding current
portion 11,321 7,527 9,516 10,484 6,622
Total liabilities 23,582 17,421 19,461 19,415 14,512
Shareholders' equity 34,320 28,573 23,160 21,376 19,548
Working capital 16,731 12,220 7,879 10,117 7,389
Shareholders' equity per share 5.75 4.96 4.11 3.75 3.48
Long term debt to equity ratio .33 to 1 .26 to 1 .41 to 1 .49 to 1 .34 to 1
Current ratio 2.43 to 1 2.30 to 1 1.89 to 1 2.22 to 1 2.06 to 1
EBITDA $13,682 $10,691 $ 7,407 $ 5,185 $ 5,839
Cash provided by operations 2,698 6,821 9,103 40 3,765
Capital expenditures 3,395 2,037 3,434 4,890 2,713
EBITDA per share 2.29 1.86 1.31 .91 1.04
Cash dividends per share .10 .06 .03 .02 .045
Average shares outstanding 5,968 5,761 5,634 5,698 5,625
</TABLE>
(a) Includes the acquisition of three subsidiaries in March 1997, December
1997, and February 1998.
(b) Includes the acquisition of a subsidiary in February 1996.
(c) Includes the acquisition of two subsidiaries in March 1993 and January
1994.
(d) Includes a tax benefit of approximately $1,076,000 (or 18 cents per share),
primarily related to the exercise of stock options in fiscal 1998.
NET SALES NET INCOME SHAREHOLDERS' EQUITY
(dollars in millions) (dollars in millions) (dollars in millions)
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
<PAGE>
Page 2
LETTER TO OUR SHAREHOLDERS
Aztec Manufacturing Co. recorded record revenues of $75.5 million for its fiscal
year ending February 28, 1998. This compares to the $57.7 million recorded in
the previous fiscal year, which was also a record at the time. Revenues
increased a healthy 30.8 percent. Management anticipates the $75.5 million just
recorded will be broken in the fiscal year ending February 28, 1999. Net income
increased 67 percent to $7.2 million from the previous year's $4.3 million. Net
income was impacted by two occurrences; one positive, one negative, and are
discussed in the operational portion of this report. The positive was a $1.1
million tax benefit primarily due to the exercise of stock options. The negative
was a $.5 million pretax non cash write down of zinc inventory to market price
at year end.
The Oil Field Tubing Segment of Aztec's business was positively impacted by
higher prices for crude oil, as well as higher prices for natural gas which
improved exploration and development activity. Prices for these commodities have
eased near term but we believe this is a temporary phenomenon. We expect another
strong year.
The Electrical Segment of Aztec's business remains strong with improved margins
and backlogs. We continued to expand this segment with the acquisition of
Drilling Rig Electrical Systems Co. in February of 1998. We have also started a
building expansion at Atkinson Industries that will double our production
capabilities at this facility. With deregulation in the public utility industry
and a strong economy, this segment should have another record year. We will
continue to take advantage of expansion opportunities in the Electrical and Oil
Field Segments as they arise.
The Galvanizing Segment was expanded with two major acquisitions during the
year. In March 1997 Hobson Galvanizing in New Orleans was acquired and in
December 1997 International Galvanizers in Beaumont, Texas was acquired. This
segment now has ten facilities operating in six different states.
Upon review of the operational portion of this report, you will find that all
three segments of our business showed an appreciable improvement in operating
income for the fiscal year just ended. These improvements hold much
significance for the future of Aztec and its shareholders, and we hope you will
take the time to learn about them. Aztec is a far different company than it was
when we began the decade of the nineties. Management is pleased with the
results attained over the past years, but we are disappointed that the
investment community has not looked more favorably on these results. But that
will pass.
Aztec's primary focus for growth will be in the galvanizing industry. This
industry is consolidating and Aztec is and intends to remain in the forefront of
this accelerating consolidation trend. Aztec is in a strong position to
capitalize on the pending consolidation wave and should emerge as a premier
industry "consolidator" for several reasons: 1) Aztec has a strong and rapidly
growing cash flow. 2) Aztec has a well-developed management team, experienced in
running a multi-plant operation. 3) The Company has a large enough presence in
its regional area to begin to achieve some synergies as it makes acquisitions.
Therefore, Aztec can offer a better price than most of its competitors and still
achieve a superior rate of return on invested capital. 4) Management has a
commitment to pursue acquisitions as a source of future growth for the
galvanizing division. Aztec is not approaching the exercise on an opportunistic
basis, but has made this an integral part of its growth strategy. As we continue
to execute this strategy, the investment community should recognize the
sustainability of our growth and our shareholders will be rewarded accordingly.
Great emphasis will be placed on improving shareholder value in the coming
years.
The board of directors, on February 17, 1998, declared a year-end cash dividend
of 10 cents per share, which was a 67% increase over the previous year's
dividend. This 10 cent dividend was paid March 27, 1998, to shareholders of
record as of March 6, 1998.
Aztec's Annual Meeting is scheduled for 10:00 a.m. Tuesday, July 14, 1998, at
the Petroleum Club, in the Derrick I Room, on the 39th floor of the Continental
Plaza, Fort Worth, Texas. We invite all shareholders to attend.
Thank you for your interest and your support of Aztec. The year ahead should
bring good things for our Company. We will keep you informed.
Sincerely,
L.C. Martin
Chairman of the Board
President and Chief Executive Officer
<PAGE>
Page 3
A GAMEPLAN FOR GROWTH
BENCHMARKS TO MEASURE PROGRESS
Aztec operates in three distinct businesses, Electrical Products, Hot Dip
Galvanizing and Oil Field Tubular Products. Each has distinct growth
characteristics and capital requirements.
Last year in these pages the growth opportunities for each segment were briefly
outlined, a framework for capital reinvestment of the rising cash flow was
discussed, and the specialized returns and/or productivity benchmarks of asset
turnover and pretax return on assets were introduced.
Progress has been made on all fronts. In the electrical group, Rig-A-Lite grew
sales and operating income by 7%, and maintained operating margins above 25%.
Calvert, despite the uncertainty in the Far East, expanded revenues by more than
40%, operating income by more than 50% and entered the new fiscal year with an
expanding backlog. Atkinson increased its operating income by 14% and commenced
a two million dollar plant expansion, which should double capacity by fall 1998.
And in late February, Aztec acquired DRESCO (Drilling Rig Electrical Systems
Partnership, Ltd) which offers significant synergies with Rig-A-Lite (they buy,
rig and install products which Rig-A-Lite makes and sells) and whose revenues
should add meaningfully to Aztec's total this year.
EBITDA
(dollars in millions)
[BAR GRAPH APPEARS HERE]
The Galvanizing Segment made two acquisitions in fiscal 1998. Hobson, located
outside of New Orleans, in the beginning of the fiscal year and International
Galvanizers in Beaumont, Texas in December 1997.
And as forecasted last year, the Oil Field Segment turned positive; revenues
more than doubled to $8.5 million and a solid operating profit and cash flow
were achieved.
Clearly, fiscal 1998 was another year of growth and we continued to reinvest in
our businesses. But is our new investment earning a marginally superior rate of
return and yielding productivity gains to make our growth plan sustainable?
And, most importantly, will shareholders reap the benefits?
RETURN ON SALES
[BAR GRAPH APPEARS HERE]
ASSET TURNOVER is the ratio of sales per dollar employed during the year. It is
calculated by dividing net sales by the average assets.
(dollars in thousands)
Fiscal 1995 Sales = $44,608 = 1.19
----- -------
Avg. Assets 37,425
Fiscal 1996 Sales = $49,184 = 1.18
----- -------
Avg. Assets 41,706
Fiscal 1997 Sales = $57,703 = 1.30
----- -------
Avg. Assets 44,308
Fiscal 1998 Sales = $75,479 = 1.45
----- -------
Avg. Assets 51,948
<PAGE>
Page 4
A GAMEPLAN FOR GROWTH
BENCHMARKS TO MEASURE PROGRESS
RETURN ON ASSETS
[BAR GRAPHS APPEARS HERE]
PRETAX RETURN ON AVERAGE ASSETS is earnings before taxes and extraordinary items
divided by average assets.
(dollars in thousands)
Fiscal 1995 Pretax Earnings = $2,608 = 7.0%
--------------- ------
Avg. Assets 37,425
Fiscal 1996 Pretax Earnings = $4,267 = 10.2%
--------------- ------
Avg. Assets 41,706
Fiscal 1997 Pretax Earnings = $7,153 = 16.1%
--------------- ------
Avg. Assets 44,308
Fiscal 1998 Pretax Earnings = $9,909 = 19.1%
--------------- ------
Avg. Assets 51,948
Asset turnover and return on assets again showed a rising trend for the fourth
consecutive year. Other measures of productivity and efficiency which we
monitor are sales per employee and pretax earnings per employee.
SALES PER AVERAGE EMPLOYEE is sales divided by average number of employees.
(dollars in thousands)
Fiscal 1995 Sales = $44,608 = $106
----- -------
Avg. Employees 419
Fiscal 1996 Sales = $49,184 = $105
----- -------
Avg. Employees 469
Fiscal 1997 Sales = $57,703 = $110
----- -------
Avg. Employees 524
Fiscal 1998 Sales = $75,479 = $120
----- -------
Avg. Employees 627
PRETAX INCOME PER AVERAGE EMPLOYEE is earnings before taxes and extraordinary
items divided by average employees.
(dollars in thousands)
Fiscal 1995 Pretax Profits = $2,608 = $ 6
-------------- ------
Avg. Employees 419
Fiscal 1996 Pretax Profits = $4,267 = $ 9
-------------- ------
Avg. Employees 469
Fiscal 1997 Pretax Profits = $7,153 = $14
-------------- ------
Avg. Employees 524
Fiscal 1998 Pretax Profits = $9,909 = $16
-------------- ------
Avg. Employees 627
There is no optimal level for these measurements and different industries have
different parameters. Retailers and wholesalers for example would likely show
higher sales per employee, but smaller profits per employee than manufacturing
businesses. THE TREND OVER MULTIPLE YEARS IS WHAT IS RELEVANT. Aztec strives
for steady improvement and the charts above indicate that we have had some
success in bringing genuine efficiencies to the acquisitions of recent years.
Obviously, the timing of an acquisition can distort these measurements, but a
radical change up or down in any year is worth a closer examination. In this
era of corporate restructuring, we have seen companies fall victim to excessive
overhead, but there have also been cases of companies that have become too lean
to exploit the growth opportunities presented.
COMMON STOCK PRICE
[BAR GRAPH APPEARS HERE]
<PAGE>
Page 5
A GAMEPLAN FOR GROWTH
BENCHMARKS TO MEASURE PROGRESS
RETURN ON INVESTMENT - Are we making enough money for our shareholders?
RETURN ON EQUITY - The definitive measure of profitability for our shareholders
is calculated by dividing net income by the average equity capital employed
during the year to achieve the earnings.
(dollars in thousands)
Fiscal 1995 $1,578 = 7.7%
------
20,462
Fiscal 1996 $2,582 = 11.6%
------
22,268
Fiscal 1997 $4,328 = 16.7%
------
25,867
Fiscal 1998 $7,220 = 23.0%
------
31,447
The graphs below show Aztec's progress in shareholder's return on equity over
the last four years. To put these returns in context, the accompanying graph
plots Aztec's ROE together with the ROE of the Standard & Poors 500 index. The
superior rate of return achieved is the major reason we keep our dividend pay-
out at a low level of total earnings. While we have increased dividends each
year since 1996, we are firmly convinced that reinvesting the majority of
earnings at above market rates of return will best serve our shareholders over
the long term.
STANDARD & POORS 500 ROE AZTEC'S ROE
[BAR GRAPH APPEARS HERE] [BAR GRAPH APPEARS HERE]
FIVE YEAR TOTAL RETURN - $100 invested in Aztec Manufacturing Co. Common Stock
on February 28, 1993 has grown, with dividends reinvested, to $520.
[LINE GRAPH APPEARS HERE]
<PAGE>
Page 6
REVIEW OF OPERATIONS
ELECTRICAL PRODUCTS
Aztec's Electrical Products Segment is one of the Company's core strengths and
remains the largest generator of revenues. This segment generated approximately
48% of total revenues and 46% of operating profit. Sales were up significantly,
while operating margins were down slightly in fiscal 1998. Revenues advanced
20% to $36.4 million and operating income rose 16% to $6.2 million. Our
strategy is to enhance our world-class status while continuing to grow our
global customer base, offering them an integrated and innovative, one-stop total
solution to their needs.
Aztec's Electrical Products Segment is now comprised of four operating entities:
Rig-A-Lite Partnership, Ltd., The Calvert Company, Atkinson Industries, Inc. and
DRESCO (Drilling Rig Electrical Systems Partnership, Ltd.), our latest
acquisition at the end of fiscal 1998.
ELECTRICAL PRODUCTS
(dollars in thousands)
===================================================================
1995 1996 1997 1998
- -------------------------------------------------------------------
Sales $27,547 $30,172 $30,276 $36,368
- -------------------------------------------------------------------
% Change -0- 10% -0- 20%
- -------------------------------------------------------------------
OP Income $ 1,358 $ 4,264 $ 5,317 $ 6,180
- -------------------------------------------------------------------
% Change (67%) 214% 25% 16%
- -------------------------------------------------------------------
OP Margin
Return on Sales 5% 14% 18% 17%
- -------------------------------------------------------------------
Avg. Assets
Employed $18,314 $18,100 $15,925 $17,559
- -------------------------------------------------------------------
Return on
Assets 7% 24% 33% 35%
===================================================================
RIG-A-LITE PARTNERSHIP, LTD.-HOUSTON, TEXAS
Rig-A-Lite, a leading manufacturer of hazardous and severe environment lighting
fixtures, experienced another year of record sales and profits.
Of the four primary established market segments for our products, food
processing, commercial/industrial, petrochemical and international,
petrochemical experienced substantial sales gains during fiscal 1998. Benefiting
from the strong energy-related pricing and related drilling and production
activity, Rig-A-Lite took full advantage of the increased drilling rig activity
both on and offshore. The market was mixed between refurbished land rigs, barge
conversions and new rigs for land and offshore drilling. This market should
continue to show strength through the year 2000, despite the recent softness in
oil prices. Natural gas prices have not declined appreciably and the offshore
gulf projects are multi-year, long term projects.
The domestic petrochemical market comprised approximately one-quarter of Rig-A-
Lite's sales. Products for this market are normally sold through specialized
petrochemical distributors, but are also sold directly to large end users. In
this market, Rig-A-Lite enjoys the advantage of having its products known by
name as the "best in the business." The major customers in this market are those
involved with domestic exploration and/or production of oil and gas.
Furthermore, the vast majority of Rig-A-Lite's customer base in this market is
located in the South Central states, such as Texas, Louisiana, and Mississippi,
where most domestic exploration takes place.
The recent decline in crude oil prices has raised concerns that drilling
activity will decline precipitously. There has been some moderation in onshore
drilling in recent months, but several trends are becoming evident, which augur
well for demand of Rig-A-Lite product in this arena.
First, because there has been a prolonged drought in new construction of
drilling rigs, onshore and offshore, capital investment in this area has
accelerated substantially in recent years. Secondly, new technology has come to
the oil patch. As a result not only has new construction of rigs, barges,
support boats, offshore platforms, etc. revived, but refurbishment and updating
of the existing equipment stock has also accelerated (see discussion of DRESCO
below).
<PAGE>
Page 7
REVIEW OF OPERATIONS
The food processing fixture market, primarily fresh poultry and red meat
products, a market pioneered by Rig-A-Lite, has shifted to new construction
projects. Sales opportunities into other food groups as well as secondary
processors expanded growth potential within this sector, which contributed to
sales growth in the last half of fiscal 1998. This trend should continue into
fiscal 1999. A new generation, state-of-the art, energy efficient product was
developed during the fourth quarter which has great potential to replace
existing R-A-L's 3-5 year old, first generation, food processing fixture. The
marketing success of this new fixture should build during fiscal 1999,
especially with the larger energy conservative end users.
Over half of Rig-A-Lite sales are found within the commercial/industrial and
international markets. Aggressive proactive sales programs were developed during
the year, which provided increased sales growth during the second half of the
year. These programs, which included an intensive field training program, new
product development and increased agent involvement, should continue to gain
momentum into the new fiscal year.
The international market for R-A-L consists of not only the petrochemical sector
but also food and commercial projects as well. With the advent of lower crude
oil prices and political and economic unrest, sales have been inconsistent and
difficult to close. The first half of the new fiscal year should see this trend
turn more positive. In an effort to increase and diversify R-A-L's market
presence, new relationships are being developed within the international
commercial and food processing end user accounts. This proactive market approach
will be augmented with new product, designed around international
specifications, as well as application for ISO-9000 certification.
Late in the fiscal year, Rig-A-Lite involved the parent company in an
acquisition allowing Rig-A-Lite to reenter the drilling rig electrical service
business. Drilling Rig Electrical System Partnership, Ltd. or DRESCO was formed
in January 1977 for the purpose of designing and installing electrical systems
on drilling rigs. Over the years, DRESCO has established itself as a leader of
quality design, workmanship and service. These qualities are very consistent
with the market perception of Rig-A-Lite products and service. The combination
of Rig-A-Lite and DRESCO should provide expanded market capabilities with
synergy of organization, capital and aggressive marketing to provide strong
sales growth for the 1999 fiscal year.
THE CALVERT COMPANY RICHLAND, MISSISSIPPI
The Calvert Company is a leading manufacturer of custom design electrical
distribution systems in the fields of isolated phase bus, segregated and non-
segregated phase bus, cable bus, and grounding cubicles, plus installation
services.
Calvert experienced vigorous growth, with sales up 43% and profits up 52%. The
major growth came in two product areas. Our segregated and non-segregated bar
bus systems increased by 35% and our isolated phase bus systems grew by 181%
over the previous year. We are expecting good growth, especially with our
isolated phase bus product line and with our new product design of the generator
termination cubicle. We have also refocused our efforts in the installation and
service area and are experiencing growth in this area as well.
Calvert operates in three primary global markets: OEM (original equipment
manufacturers), engineering design firms, and the utility markets. In general,
Calvert's customer base is with U.S. companies. This past year nearly 80% of
all our projects were shipped overseas. Despite this dependence on foreign
sales, Calvert has no currency exposure since we are dealing primarily with U.S.
companies and quote in U.S. dollars.
Calvert's customers continue to be the major worldwide engineering design firms,
power generation manufacturers, investor owned electric utilities, independent
power producers and industrial companies.
With the still uncertain future of the U.S. domestic market due to deregulation
of the electric utility industry, domestic sales will likely continue to be
limited to a replacement market.
<PAGE>
Page 8
REVIEW OF OPERATIONS
Therefore, our focus now is to grow our international presence. We are doing
this two ways: Strategic partnering and by strengthening our direct
international sales representation. Our efforts in Asia Pacific are now
beginning to pay dividends. We are now also focusing our attention in Latin
America. Both regions have vast business opportunities that will help our
international growth strategy. Despite the financial set backs experienced
recently by several countries in Northeast and Southeast Asia, we see a recovery
in progress. Our only direct impact was the delay of several projects, which we
were able to replace from our strong backlog with no adverse impact.
We are monitoring the emerging trends of the deregulated U.S. electric utility
industry and devoting the required resources to capitalize on it. Efforts by the
utilities to downsize their support staff in a cost cutting environment, as a
result of deregulation, have resulted in an increase in outsourcing many of
their internal maintenance and repair projects. Calvert's Installation Services
(CIS) unit has been expanded to meet this rising demand. Our CIS group is
providing bus duct replacement installation, bus maintenance, and installation
supervision of bus duct systems. This trend by the U.S. utilities is an
important factor in our growth plan.
The fiscal year 1998 ended with a strong backlog. Prospects are good for the
coming fiscal year and into the next millennium. Our reputation worldwide is
continuing to grow and with our growth strategy we see a bright future for The
Calvert Company.
ATKINSON INDUSTRIES - PITTSBURG, KANSAS
Atkinsons' primary line of business is the manufacture and selling of custom
engineered factory fabricated modular enclosures. The concept of factory
fabricated modular enclosures was developed in the 1960's to provide
environmentally controlled protection for power distribution equipment in
hazardous areas, primarily refineries. Due to pioneering efforts of Atkinson and
others in the industry, acceptance of the factory fabricated modular enclosure
has been transported across a wider range of industries including petroleum,
chemical, paper, automotive, steel, telecommunications, as well as general
industrials, utilities, and municipalities.
Recent years have shown greater opportunities for Atkinson type enclosures as
the previously mentioned greater acceptance has led to applications beyond the
original power distribution concept. Enclosures are now used to house
instrumentation, analyzing equipment, programmable logic controllers, and
numerous other applications involving microprocessor based equipment. In
addition to the environmental protection of equipment provided by the enclosure,
the Atkinson "turnkey" package reduces user purchasing and coordinating efforts,
as well as reducing project leadtimes. The Atkinson package provides all of
these benefits at a lower cost to the end user.
Fiscal 1998 was an excellent year for Atkinson as the business grew by 18% over
the previous year with improved orders, sales, and operating margins. Several
alliances were developed during the year that should result in positive business
flow in the years to come. Atkinson's network of manufacturer representatives
was solidified and strengthened to provide better and wider market coverage.
Ground was broken on January 29, 1998, for a major expansion at the Pittsburg,
Kansas facility. The expansion will increase Atkinson's capacity and
capabilities needed to keep pace with increased market presence and the
escalating acceptance of the factory fabricated modular enclosure concept.
Fiscal year 1999 beginning backlog was up 27% from the previous year and 58%
ahead of two years ago. Prospects are bright for fiscal 1999 and into the future
as Atkinson capitalizes on the growing acceptance of factory fabricated modular
enclosures across broader applications and geographic markets.
<PAGE>
Page 9
REVIEW OF OPERATIONS
GALVANIZING
Fiscal 1998 saw continuing sales and operating momentum in the Galvanizing
Segment of Aztec. Fueled by two acquisitions, Hobson Galvanizing, Inc. located
outside New Orleans in March and International Galvanizers, Inc. in Beaumont,
Texas in December, sales increased 29% and operating income rose 10%. Of
significance was that these results were achieved against the backdrop of the
greatest volatility of zinc prices in a decade, which necessitated a downward
inventory adjustment of $482,000 at year end.
GALVANIZING SEGMENT
(dollars in thousands)
==================================================================
1995 1996 1997 1998
- ------------------------------------------------------------------
Sales $12,761 $16,920 $23,646 $30,540
- ------------------------------------------------------------------
% Change 35% 33% 40% 29%
- ------------------------------------------------------------------
OP Income $ 3,056 $ 4,270 $ 5,930 $ 6,543
- ------------------------------------------------------------------
% Change 54% 40% 39% 10%
- ------------------------------------------------------------------
OP Margin
Return on Sales 24% 25% 25% 21%
- ------------------------------------------------------------------
Avg. Assets
Employed $11,267 $16,594 $19,313 $22,522
- ------------------------------------------------------------------
Return on
Assets 27% 26% 31% 29%
==================================================================
Aztec Manufacturing now operates ten galvanizing plants. Due to the geographic
restrictions (primarily freight) of the business, each of the plants serves a
different customer base. Galvanizers generally service the steel fabricators in
their area. Most of the customer base is located within a 150 mile radius of the
plant and Aztec plants compete with respective galvanizing facilities contiguous
to their area.
According to the American Galvanizers Association, in 1997, U.S. steel companies
produced 94.9 million tons of steel. Of that, only 2.88 million tons were hot
dip galvanized, about 3%. The significant factor here is that 2.88 million tons
represents a 9.5% increase over the prior years 2.63 million tons. For 1998, the
American Galvanizers Association has projected a 5% increase in tonnage
available to 99.7 tons.
Industry growth trends are not necessarily meaningful because of the regional
nature of the business. Galvanizing is a regional business mainly because
freight quickly becomes a significant cost factor in the pricing equation.
The hot dip galvanizing industry typically serves fabricators and/or
manufacturers involved in the highway, power generation, transportation, water
treatment, agriculture, petrochemical and chemical, pulp and paper and various
types of OEM industries. To maintain its higher margins, Aztec typically pursues
the custom miscellaneous fabrication industries rather than the lower priced
large structural market. Product such as bleacher stands, boat trailers, awning
supports, and elevator components fall into this category. The communication
industry is burgeoning and many of our plants are involved in processing towers
for the cellular industry. Highway products such as light poles and sign
structures represent a large portion of material processed.
Aztec operates plants throughout the South and Southeast and the above average
industry growth rate exhibited by the Company's Galvanizing Segment has clearly
benefited by the overall healthy economic progress of the geographical areas in
which it operates.
Because of the regional nature of the business, the galvanizing industry is
highly fragmented with over 125 job shop type galvanizing plants in the United
States. Even though Aztec processed 95,000 tons of steel in the most recent
year, up 14% from the 83,000 tons in fiscal 1997, that still represents only
slightly more than 3% of industry shipments.
In fiscal 1999, Aztec plans further growth investments. A new kettle will be
installed in the Company's Crowley, Texas plant and also a new and larger kettle
will be installed in the New Orleans plant. Aztec is forecasting increased
output this year of 13% to more than 107,000 tons. In addition, your management
remains ever vigilant and proactive in pursuing acquisition opportunities in
this growing and consolidating industry.
<PAGE>
Page 10
REVIEW OF OPERATIONS
OIL FIELD PRODUCTS
In the early eighties, Aztec was the largest independent processor of oil field
tubing in the United States. After the boom and subsequent bust a decade ago,
the Oil Field Segment has been a very minor part of operations, breaking even or
losing money in the past few years. But as of two years ago, Aztec decided to
make a major business strategy change and began the process of offering finished
tubes.
Fiscal 1998 is the first full year Aztec has offered finished tubing into the
market place. The results for fiscal 1998 are extremely encouraging with revenue
increases of 127% over 1997, as well as showing an operating income versus a
loss in 1997.
OIL FIELD PRODUCTS
(dollars in thousands)
==================================================================
1995 1996 1997 1998
- ------------------------------------------------------------------
Sales $4,300 $2,092 $3,781 $8,572
- ------------------------------------------------------------------
% Change 13% (51)% 81% 127%
- ------------------------------------------------------------------
OP Income $1,084 $(428) $ (56) $ 724
- ------------------------------------------------------------------
% Change 138% (139)% 87% 1393%
- ------------------------------------------------------------------
OP Margin
Return on Sales 25% NM NM 9%
- ------------------------------------------------------------------
Avg. Assets
Employed $3,983 $3,583 $3,960 $7,271
- ------------------------------------------------------------------
Return on
Assets 27% NM NM 10%
==================================================================
Up to the fourth quarter of fiscal 1997, Aztec was a processor of oil well
tubing. As a processor, Aztec would upset, thread and test tubing produced by a
steel mill for the mill or for a third party. At its peak, revenues from the
business exceeded $50 million annually. The industry collapsed in 1986 and Aztec
collapsed with it. Over the course of the following eleven years a major
restructuring of how tubing is marketed has taken place. The steel mills that
remained in the tubing business have brought the processing in-house,
eliminating the need for third party processors. Aztec has now taken the steps
needed to offer the pipe to customers complete. Aztec purchases tubing from
steel mills, processes the tubes and sells the finished product. This approach
has put Aztec's products in the position to compete on the open market with the
best tubes offered in the world.
Calendar 1997 was a good year for oil and gas exploration due to strong oil and
gas prices and advances in technology that have improved economics in marginal
fields. This has been a good springboard in establishing our position in the
market. Although 1997 was a growth year for most oil and gas companies, Aztec's
growth came from strong demand and our success at taking market share from our
competitors.
While revenues more than doubled in tubing products, sales were limited most of
the year by sporadic supplies of new tube. Because of tight industry supplies
and strong demand, Aztec was forced to rely primarily on offshore sources of new
tubes. During the year Aztec purchased raw supplies from Spain, Romania and
Russia among others to fill our requirements. Unfortunately this often meant
that deliveries were sporadic and not timely. In other words even though sales
doubled in the fiscal year, we could have sold more if material had been
available.
With the recent decline in oil prices, there is much uncertainty and concern as
to whether demand and pricing in this marketplace will be healthy in the current
fiscal year. Although oil prices have fallen dramatically in late calendar 1998,
gas prices have remained strong and this should allow a receptive business
atmosphere for us to continue to claim market share. For this reason, Aztec
believes our market share should increase, allowing us a healthy increase in
revenue and income for the coming year. The growth pattern that helped us
achieve our objectives in fiscal 1998 has not shown any signs of slowing through
April 1998. Drilling rig activity remains robust, with rigs in service averaging
850 to 900 monthly through the first quarter of calendar 1998.
It is important to put Aztec's tubing operation in an industry prospective.
Aztec only produced 8,740 tons in fiscal 1998 out of a total industry production
in calendar 1997 of approximately 2.5 million tons, less than 0.3% of total
industry shipments.
<PAGE>
Page 11
REVIEW OF OPERATIONS
After the industry bust of 1985-86, most steel companies abandoned the
production of tubular products altogether, or at the very least the small
diameter (under two inches, referred to in the industry as macaroni tubing) part
of the business. Those that remain have concentrated on large diameter tubing
and casing products. Gas wells use the smaller diameter tubing which is Aztec's
forte, and gas well drilling and rework activity remains vibrant.
Aztec management is budgeting a meaningful increase in revenue and tonnage in
oil field tubular goods in fiscal 1999. We have the capacity in place and can do
so with only minimal additional investment in inventory of new tubes. The
potential return is outstanding, given the low depreciated cost basis in our
plant and equipment as well as the incremental free cash flow contributions
which helps fund our continuing acquisition strategy in our galvanizing segment.
The point to be made here is that if we double, triple or even quadruple our oil
field tubular revenues, we would still probably be less than 1% of industry
shipments.
STOCK PRICES AND DIVIDENDS PER SHARE
Fiscal 1998
High Low Cash Dividend
-------------------- --------------- ---------------
1st Quarter $ 12-3/8 $ 9-1/8 $.00
2nd Quarter 19-7/8 12-1/2 .00
3rd Quarter 24-9/16 15-3/4 .00
4th Quarter 18-15/16 10-3/4 .10
Whole Year 24- 9/16 9-1/8 .10
Fiscal 1997
High Low Cash Dividend
------------------- --------------- ---------------
1st Quarter $ 6-3/8 $4-3/8 $.00
2nd Quarter 8-1/4 6 .00
3rd Quarter 9-1/8 6-1/2 .00
4th Quarter 11-3/8 6-3/4 .06
Whole Year 11-3/8 4-3/8 .06
Stock Prices: Aztec's common stock is listed for trading on the New York Stock
Exchange and its symbol is AZZ. Prior to March 20, 1997, its common stock was
listed on the NASDAQ Stock Market. The above table sets forth the high and low
sales prices for the Company's common stock on the New York and NASDAQ Stock
Exchanges, as appropriate, on a quarterly basis.
<PAGE>
Page 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Aztec Manufacturing Co. (the "Company") focuses on three industrial markets:
Electrical Products, Galvanizing, and Oil Field Services. The Company reported
sales of $75.5 million for fiscal 1998 compared with $57.7 million in the
previous year. Net income for fiscal 1998 was $7.2 million or $1.19 per share
compared with $4.3 million or 74 cents per share on a diluted basis. Fiscal
1998 earnings included a tax benefit in the amount of approximately $1.1 million
or 18 cents per share, primarily related to the exercise of stock options. A
discussion concerning effects of new accounting standards can be found in Note 1
of Notes to Consolidated Financial Statements.
RESULTS OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1998 (1998) COMPARED WITH YEAR ENDED FEBRUARY 28, 1997
(1997)
Consolidated net sales for 1998 grew by $17.8 million or 31% over 1997.
Revenues from the Company's Electrical Products Segment, which is made up of
Rig-A-Lite Partnership, Ltd. ("Rig-A-Lite"), The Calvert Company ("Calvert"),
Atkinson Industries, Inc. ("Atkinson") and Drilling Rig Electrical Systems
Partnership, Ltd. ("DRESCO") were up $6.1 million or 20% for 1998 as compared to
1997. Total backlog in the Electrical Segment was $14.1 million at the end of
fiscal 1998 compared to $10.3 million in 1997. Rig-A-Lite's revenues were up 7%
for 1998. Rig-A-Lite's revenue increase was a direct result of an improved
petroleum industry. Calvert's revenues were up 43% for 1998 compared to 1997,
due to continued market penetration in international markets which represents
80% of Calvert's revenues and Calvert's domestic customer installation service
business was up 11% for the year. Revenues at Atkinson were up 18% for 1998 as
compared to 1997. Sales of Atkinson's factory fabricated power centers, which
represented 91% of Atkinson's revenues, were up 24% over 1997. DRESCO, acquired
on February 23, 1998, designs and installs electrical systems on drilling rigs.
DRESCO, which did not contribute to fiscal 1998 revenues, is expected to make a
significant contribution in fiscal 1999.
Revenues in the Galvanizing Segment were up $6.1 million or 29% for 1998 as
compared to 1997, due to a 3% increase in revenues at the Company's existing
eight facilities and two acquisitions during fiscal 1998. Hobson Galvanizing
acquired in March 1997 and International Galvanizers acquired in December 1997
contributed a combined total of $6.3 million in revenues or 21% of the segment's
revenues for fiscal 1998.
The Oil Field Products Segment generated 11% of the Company's consolidated
revenues for 1998. Revenues generated from this segment were up $4.8 million or
127% for 1998 from 1997. Total backlog increased to $5.9 million at the end of
fiscal 1998 compared to $630,000 in 1997. The increased revenues in 1998 were a
direct result of Aztec's strategy to become a direct supplier of oil field
tubular goods in fiscal 1997. The Company is continuing its search to find a
long term reliable source of plain end tubing which will improve future
inventory turnover.
Consolidated operating income (see note 10 of notes to consolidated financial
statements) increased $2.3 million or 20% for fiscal 1998, as compared to 1997.
Operating income in the Electrical Segment was up 16% in fiscal 1998 compared to
1997. Rig-A-Lite's operating income for 1998 was up 7% from 1997, which
corresponded with the increase in revenues for the year. Calvert's operating
income was up 52% for 1998 compared to 1997, due to increased volumes as well as
higher margin jobs. Atkinson's operating income was up 14% compared to 1997
from improved margins.
The Galvanizing Segment's total operating income increased 10% during 1998
compared to 1997. Income in this segment was negatively impacted by a write-
down of zinc inventory to market price in the amount of $482,000 at the end of
fiscal 1998. Operating income in the
<PAGE>
Page 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
segment's eight existing facilities was down 5% due to a 7% reduction in the
volume of steel processed in 1998. Hobson Galvanizing and International
Galvanizers, which were acquired in 1997, contributed 14% of the Galvanizing
Segment's operating income or $936,000 in combined income.
The Oil Field Products Segment showed a $724,000 operating income for 1998 as
compared to the $56,000 loss in 1997. The operating loss in 1997 included
carrying cost of $115,000 for the segment's idle facility in Houston, which was
sold in 1997. The improvement in operating income in this segment is
attributable to the increased volumes of tubular goods processed and sold during
1998.
General corporate expenses for 1998 increased by 13% over 1997 due to higher
employee benefits and profit sharing expenses, and increased selling expenses.
The increased expenses are attributed to higher consolidated sales volumes and
the galvanizing segment acquisitions.
Interest expense in 1998, as compared to 1997, was down due to a lower average
outstanding loan balance through the course of the year.
Other (income) expense was made up of scrap sales, (gains) and losses on sales
of property and equipment, and other (income) expense items not specifically
identifiable to a segment. This amount included the reduction in various
corporate reserves during 1998 that were no longer needed.
YEAR ENDED FEBRUARY 28, 1997 (1997) COMPARED WITH YEAR ENDED FEBRUARY 29, 1996
(1996)
Consolidated net sales for 1997 grew by $8.5 million or 17% over 1996.
Revenues from the Company's Electrical Products Segment, which is made up of
Rig-A-Lite Partnership, Ltd. ("Rig-A-Lite"), The Calvert Company ("Calvert") and
Atkinson Industries, Inc. ("Atkinson") remained constant for 1997 as compared to
1996. Rig-A-Lite's revenues were up 18% for 1997. The increased revenues were
generated primarily from the international and petroleum markets. Calvert's
revenues were down 20% for 1997 compared to 1996 due to the continued
sluggishness of the domestic power generation market. Overseas shipments of bus
duct products represented approximately 85% of Calvert's revenues for 1997.
Calvert's domestic customer installation service business, which represented 15%
of Calvert's 1997 revenues, was flat for 1997 as compared to 1996. Revenues at
Atkinson were up 2% for 1997 as compared to 1996. Sales of Atkinson's factory
fabricated power centers, which represented 87% of Atkinson's business, were up
3% over 1996.
Revenues in the Galvanizing Segment were up 40% for 1997 as compared to 1996 due
to a 13% increase in revenues at Aztec's existing seven facilities and the
acquisition of Arkansas Galvanizing on February 1, 1996. During the first full
year under Aztec's management, Arkansas Galvanizing represented 21% of total
revenues for this segment.
The Oil Field Products Segment generated 7% of the Company's consolidated
revenues for 1997. Revenues generated from this segment were up 81% for 1997 as
compared to 1996. The improvement in 1997 compared to 1996 was a direct result
of Aztec becoming a direct provider of finished oil field tubular goods versus
being a third party service company to steel mills in prior years.
Consolidated operating income (see note 10 of Notes to Consolidated Financial
Statements) increased $3.1 million or 38% for 1997, as compared to 1996.
The Electrical Products Segment improved for 1997, with operating income up 25%
over 1996. Rig-A-Lite's operating income for 1997 was up 45% from 1996 due to
improved margins achieved by cost efficiencies and lower material cost related
to increased volumes. Calvert's operating income was up 64% for 1997 compared
to 1996. Continued cost controls and increased efficiencies helped to
improve
<PAGE>
Page 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
margins. Atkinson's operating income was down 16% for 1997 compared to 1996 due
to less profitable jobs being accepted to improve backlog.
The Galvanizing Segment's operating income increased 39% during 1997 compared to
1996. Operating income was up 7% due to increased volumes of steel being
processed at Aztec's seven existing facilities and the acquisition of Arkansas
Galvanizing on February 1, 1996. Arkansas Galvanizing accounted for 24% of this
segment's operating income.
The Oil Field Products Segment showed a $56,000 operating loss for 1997 as
compared to a $428,000 operating loss in 1996. The operating loss included
carrying costs of the Segment's idle facility in Houston, Texas of $115,000 for
1997 and $139,000 for 1996. A portion of this facility was sold on October 31,
1996. The Crowley facility showed a $60,000 operating profit for 1997 as
compared to a $289,000 operating loss in 1996. The improvement in operating
income at the Crowley facility is attributable to the increased volumes of
tubular goods processed and sold during the last quarter of 1997.
General corporate expenses for 1997 increased by 16% over 1996. This increase
was attributed to higher employee benefits and profit sharing expenses, and
increased selling expenses.
Interest expense in 1997, as compared to 1996, was down due to lower interest
rates through the course of the year as well as a lower outstanding loan
balance.
Other (income) expense was made up of scrap sales, (gains) and losses on sales
of property and equipment, and other (income) expense items not specifically
identifiable to a segment. This expense included the establishment of a
corporate reserve for slow moving inventory in the amount of $240,000.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources for the Company's liquidity and capital resources are cash
flow from operating activities, bank debt, and proceeds from the exercise of
stock options. The Company's cash requirements are generally for operating
activities, acquisitions, debt repayment and dividend pay-outs. The Company
believes that working capital, borrowing capabilities, and the funds generated
from operations should be sufficient to finance anticipated operational
requirements, internal growth, and possible future acquisitions.
The Company's operating activities generated cash flow of approximately $2.7
million, $6.8 million, and $9.1 million during fiscal 1998, 1997, and 1996,
respectively. Before changes in operating assets and liabilities cash flow from
operations was $10.5 million, $6.7 million, and $6 million during fiscal 1998,
1997, and 1996, respectively. Operating cash flow was provided by net income,
depreciation and amortization, and other non-cash items. The decrease in cash
flow from operations in 1998 as compared to 1997 was attributed to a $5 million
increase in inventories to support the Company's Oil Field Segment and increased
accounts receivable to support higher consolidated sales.
The Company made various capital improvements, primarily in the galvanizing
segment, and three acquisitions in 1998 which were funded from cash flow and
bank debt. Hobson Galvanizing was purchased in March 1997 for approximately
$3.9 million in cash, International Galvanizers, Inc. was purchased in December
1997 for approximately $1.7 million in cash and Drilling Rig Electrical Systems
Partnership, Ltd. was purchased in February 1998 for approximately $1.2 million
in cash. Other major uses of cash during 1998 included repayment of debt,
payment of cash dividends and purchase of treasury stock.
<PAGE>
Page 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company maintains a $20 million credit facility, which consists of a $10
million term note and a $10 million revolving line of credit. Current
availability under the revolving line of credit is approximately $4.5 million.
ENVIRONMENTAL MATTERS
In the course of its galvanizing operations, the Company is subject to
occasional governmental proceedings and orders pertaining to noise, air
emissions and water discharges into the environment. As part of its continuing
environmental program, the Company has complied with such proceedings and orders
without any materially adverse effect on its business.
The Company provides for costs related to contingencies when a loss is probable
and the amount is reasonably determinable. It is the opinion of management,
based on past experience, that the ultimate resolution of these contingencies,
to the extent not previously provided for, will not have a materially adverse
effect on the Company.
YEAR 2000 COMPLIANCE
The Company is in the process of reviewing and making necessary modifications to
its computer systems for year 2000 compliance. Costs incurred to date to modify
the Company's computer systems have not been material, and future costs are not
expected to be material. Timely completion of such modifications is not
considered to be a material risk to the Company. The Company is also
communicating with vendors and others with which it does business to coordinate
Year 2000 compliance. There can be no assurance that the systems of other
companies and agencies on which the Company relies will be timely converted or
that such failure by other entities would not have an adverse impact on the
Company's operations.
FORWARD LOOKING STATEMENT
This Annual Report contains forward looking statements. Such statements are
typically punctuated by words or phrases such as "anticipates," "estimate,"
"should," "may," "management believes," and words or phrases of similar import.
Such statements are subject to certain risks, uncertainties or assumptions.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected. Factors that could cause or
contribute to such differences could include, but are not limited to, changes in
demand, prices, and raw materials cost, including zinc which is used in the
galvanizing segment; changes in the economic conditions of the various markets
the company serves, including the market price for oil and natural gas; as well
as the other risks detailed herein and in the Company's reports filed with the
Securities and Exchange Commission.
<PAGE>
Page 16
AZTEC MANUFACTURING CO. CONSOLIDATED BALANCE SHEETS
February 28, 1998 and 1997
<TABLE>
<CAPTION>
Assets 1998 1997
- ------ -------------------- --------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 765,912 $ 5,583,720
Accounts receivable, net of allowance for doubtful accounts of $422,700 in 1998
and $385,900 in 1997 13,068,684 9,530,112
Income taxes receivable 106,120 -
Inventories 14,228,741 6,314,692
Prepaid expenses and other 250,736 192,902
-------------------- --------------------
Total current assets 28,420,193 21,621,426
Long-term investments 300,000 300,000
Property, plant, and equipment, at cost:
Land 1,827,431 1,304,850
Buildings and structures 14,337,446 13,622,544
Machinery and equipment 14,225,780 12,556,079
Furniture and fixtures 1,450,062 1,345,227
Automotive equipment 889,868 650,953
Construction in progress 1,056,705 272,501
-------------------- --------------------
33,787,292 29,752,154
Less accumulated depreciation 14,519,423 12,819,279
-------------------- --------------------
Net property, plant, and equipment 19,267,869 16,932,875
Intangible assets, less accumulated amortization of $1,335,806 in 1998 and
$1,266,126 in 1997 230,334 300,014
Costs in excess of fair value of assets purchased, less accumulated amortization of
$1,481,990 in 1998 and $966,281 in 1997 9,369,602 6,560,304
Other assets 313,652 280,145
-------------------- --------------------
$57,901,650 $45,994,764
==================== ====================
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable $ 5,312,191 $ 2,840,108
Accrued salaries and wages 1,085,680 839,150
Other accrued liabilities 3,534,301 3,044,313
Income taxes - 921,286
Long-term debt due within one year 1,756,666 1,756,666
-------------------- --------------------
Total current liabilities 11,688,838 9,401,523
Long-term debt due after one year 11,320,553 7,527,221
Net deferred income tax liability 572,479 492,688
Shareholders' equity:
Common stock, $1 par value; 25,000,000 shares authorized; 6,304,580 and 6,145,009
shares issued and outstanding at February 28, 1998 and 1997, respectively 6,304,580 6,145,009
Capital in excess of par value 11,402,961 10,351,523
Retained earnings 19,429,451 12,802,931
Less common stock held in treasury, at cost (382,362 shares
in 1998 and 232,362 shares in 1997) (2,817,212) (726,131)
-------------------- --------------------
Total shareholders' equity 34,319,780 28,573,332
-------------------- --------------------
$57,901,650 $45,994,764
==================== ====================
</TABLE>
See accompanying notes.
<PAGE>
Page 17
AZTEC MANUFACTURING CO. CONSOLIDATED STATEMENTS OF INCOME
Years ended February 28, 1998, February 28, 1997 and February 29, 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- ------------------
<S> <C> <C> <C>
Net sales $75,479,456 $57,703,287 $49,184,383
Costs and expenses:
Cost of sales 55,993,665 41,305,269 36,352,710
Selling, general, and administrative 9,570,337 8,089,434 7,548,641
Net loss on sale of property, plant, and equipment 35,469 1,310 45,162
Interest expense 737,391 874,209 912,586
Other (income) expense, net (766,850) 280,065 57,923
-------------------- -------------------- ------------------
65,570,012 50,550,287 44,917,022
-------------------- -------------------- ------------------
Income before income taxes 9,909,444 7,153,000 4,267,361
Income taxes:
Current expense 2,609,861 3,391,740 1,514,762
Deferred expense (benefit) 79,791 (566,305) 170,986
-------------------- -------------------- ------------------
2,689,652 2,825,435 1,685,748
-------------------- -------------------- ------------------
Net income $ 7,219,792 $ 4,327,565 $ 2,581,613
==================== ==================== ==================
Earnings per common share:
Basic earnings per common share $1.21 $.75 $.46
===== ==== ====
Diluted earnings per common share $1.19 $.74 $.45
===== ==== ====
</TABLE>
AZTEC MANUFACTURING CO. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended February 28, 1998, February 28, 1997 and February 29, 1996
<TABLE>
<CAPTION>
Common stock
------------------------- Capital in
excess of Retained Treasury
Shares Amount par value earnings stock
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1995 5,741,260 $5,741,260 $ 9,219,998 $ 6,414,815 $ -
Exercise of stock options 31,635 31,635 63,270 - -
Purchase of treasury stock
(232,362 shares) - - - - (726,131)
Cash dividends declared - - - (166,215) -
Net income - - - 2,581,613 -
----------- ---------- ---------- ----------- -----------
Balance at February 29, 1996 5,772,895 5,772,895 9,283,268 8,830,213 (726,131)
Exercise of stock options 372,114 372,114 1,068,255 - -
Cash dividends declared - - - (354,847) -
Net income - - - 4,327,565 -
----------- ---------- ---------- ----------- -----------
Balance at February 28, 1997 6,145,009 6,145,009 10,351,523 12,802,931 (726,131)
Exercise of stock options 159,571 159,571 1,051,438 - -
Purchase of treasury stock
(150,000 shares) - - - - (2,091,081)
Cash dividends declared - - - (593,272) -
Net income - - - 7,219,792 -
----------- ---------- ---------- ----------- -----------
Balance at February 28, 1998 6,304,580 $6,304,580 $11,402,961 $19,429,451 $(2,817,212)
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
Page 18
AZTEC MANUFACTURING CO. CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended February 28, 1998, February 28, 1997 and February 29, 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,219,792 $ 4,327,565 $ 2,581,613
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 2,449,906 2,231,547 1,890,836
Amortization 585,389 432,655 336,431
Writedown of property held for sale - - 458,000
Provision for doubtful accounts 138,883 309,717 564,069
Deferred income tax expense (benefit) 79,791 (566,305) 170,986
Net loss on sale of property, plant, and equipment 35,469 1,310 45,162
--------------- --------------- ---------------
10,509,230 6,736,489 6,047,097
Effect of changes in operating assets and liabilities, net
of acquisition of subsidiaries in 1998 and 1996:
Accounts receivable (2,475,504) (356,358) 2,039,108
Inventories (7,186,887) 357,856 932,491
Prepaid expenses and other (37,037) (855) (83,769)
Other assets (33,507) (45,805) (17,131)
Accounts payable 2,472,083 (1,237,646) (208,588)
Accrued salaries and wages 225,059 145,812 135,590
Other accrued liabilities and income taxes (775,843) 1,221,385 257,775
--------------- --------------- ---------------
Net cash provided by operating activities 2,697,594 6,820,878 9,102,573
Cash flows from investing activities:
Proceeds from the sale of property, plant, and equipment and
property held for sale 104,979 1,200,853 59,140
Purchases of property, plant, and equipment (3,395,402) (2,036,877) (2,861,780)
Acquisition of subsidiaries, net of cash acquired (6,783,392) - (3,931,225)
Purchase of long-term investments - (300,000) -
--------------- --------------- ---------------
Net cash used in investing activities (10,073,815) (1,136,024) (6,733,865)
Cash flows from financing activities:
Proceeds from revolving loan 5,550,000 17,863,736 53,681,381
Proceeds from long-term debt - 10,000,000 -
Payments on long-term debt (1,756,668) (5,213,483) (1,490,597)
Payments on revolving loan - (24,441,764) (53,590,073)
Cash dividends paid (354,847) (166,215) (114,734)
Proceeds from exercise of stock options 1,211,009 1,440,369 94,905
Purchase of treasury stock (2,091,081) - (726,131)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 2,558,413 (517,357) (2,145,249)
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents (4,817,808) 5,167,497 223,459
Cash and cash equivalents at beginning of year 5,583,720 416,223 192,764
--------------- --------------- ---------------
Cash and cash equivalents at end of year $ 765,912 $ 5,583,720 $ 416,223
=============== =============== ===============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 733,796 $ 866,565 $ 967,000
Income taxes $ 3,766,345 $ 2,926,265 $ 1,210,000
</TABLE>
See accompanying notes.
<PAGE>
Page 19
NOTES TO CONSOLIDATE FINANCIAL STATEMENTS
1. Summary of significant accounting policies
Organization--Aztec Manufacturing Co. (the "Company") operates primarily in
the United States. Information on the Company's operations by segment are
included in Note 10 to the consolidated financial statements.
Basis of consolidation--The consolidated financial statements include the
accounts of Aztec Manufacturing Co. and its wholly-owned subsidiaries and
partnerships. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Use of estimates--The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. The primary areas of estimation
affecting the consolidated financial statements include the determination
of the allowance for doubtful accounts receivable, inventory reserves and
warranty and environmental accruals. Actual results could differ from those
estimates and assumptions.
Concentrations of credit risk--Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist
principally of cash, investments and trade accounts receivable.
The Company maintains cash and cash equivalents with various financial
institutions. These financial institutions are located throughout the
country and Company policy is designed to limit exposure to any one
institution. The Company performs periodic evaluations of the relative
credit standing of those financial institutions that are considered in the
Company's banking relationships.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the diversity of operating segments. The Company's net
credit losses in 1998, 1997 and 1996 were approximately $102,000, $124,000
and $589,000, respectively. Collateral is usually not required from
customers as a condition of sale.
Revenue recognition--The Company recognizes revenue from product sales upon
shipment.
Inventories--Inventories are stated at the lower of cost (primarily first-
in, first-out) or market. Provisions for obsolete and slow-moving
inventories are recorded.
Property, plant, and equipment--For financial reporting purposes,
depreciation is computed by the straight-line method using rates based on
the estimated useful lives of the related assets as follows:
Buildings and structures 10-25 years
Machinery and equipment 3-15 years
Furniture and fixtures 5-15 years
Automotive equipment 3 years
Cash equivalents--For purposes of reporting cash flows, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
Intangible assets and costs in excess of fair value of assets purchased--
Intangible assets include purchased intangibles (customer lists,
engineering drawings, non-compete agreements, and sales backlog). Such
intangible assets and costs in excess of fair value of assets purchased are
being amortized over the estimated useful lives of the assets ranging from
5 to 40 years.
Asset impairment--The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," in March 1995. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles (such as those described above) be
reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recoverable.
<PAGE>
Page 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies (continued)
The Statement also requires assets to be disposed of be reported at the
lower of carrying amount or fair value less costs to sell. The new standard
is effective for the fiscal years beginning after December 15, 1995. No
assets were impaired and it is expected that the carrying amount of all
assets will be recoverable.
Income taxes--Deferred income taxes are recognized using the liability
method. Under this method of accounting, deferred income taxes are recorded
for the difference between the financial reporting and income tax bases of
assets and liabilities using enacted tax rates and laws.
Stock-based compensation--The Company grants stock options for a fixed
number of shares to employees and directors with an exercise price equal to
the fair value of the shares at the date of grant. The Company accounts for
stock option grants in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and accordingly,
recognizes no compensation expense for the stock option grants in which the
exercise price is equal to the fair value of the shares granted.
Earnings per share--Effective February 28, 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which established new standards for computing and disclosing
earnings per share. SFAS No. 128 requires dual presentation of "basic" and
"diluted" earnings per share, each as defined therein, which replaced
primary and fully diluted earnings per share, respectively, required under
previous guidance. The new standard had no effect on previously reported
earnings per share amounts.
Fair value of financial investments--The following methods and assumptions
were used by the Company in estimating its fair value disclosures for
financial instruments as of February 28, 1998:
Cash and cash equivalents: The carrying amount reported in the
consolidated balance sheet for cash and cash equivalents approximates
fair value.
Long-term investments: The carrying value of long-term investments in
the consolidated balance sheet approximates fair value.
Long-term debt: The reported amounts of the Company's long-term debt
approximate fair value since interest rates for substantially all of the
debt approximate current rates of interest.
Reclassification--Certain prior year amounts have been reclassified to
conform to the 1998 presentation.
2. Inventories
Inventories consist of the following:
1998 1997
---------- ---------
(Dollars in thousands)
Raw materials $10,297 $4,744
Work-in-process 1,510 1,101
Finished goods 2,568 888
---------- ---------
14,375 6,733
Less reserve for obsolete and slow-moving inventory 146 418
---------- ---------
$14,229 $6,315
========== =========
<PAGE>
Page 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Long-term investments
The Company's long-term investments represent investments in tax-free
municipal bonds maturing in 2001 and carrying interest at rates ranging
from 5.1% to 5.5%. The investments were purchased and are being held to
secure the Company's outstanding letters of credit with a bank.
4. Employee benefit plans
The Company has a trusteed profit sharing plan covering substantially all
of its employees. Under the provisions of the plan, the Company contributes
amounts as authorized by the Board of Directors. Contributions to the
profit sharing plan amounted to $992,000 for 1998, $715,000 for 1997 and
$426,000 for 1996.
5. Income taxes
Deferred federal and state income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Company's net deferred
income tax liabilities and assets as of February 28, 1998 and 1997 are as
follows:
1998 1997
-------- --------
(Dollars in thousands)
Deferred income tax liabilities:
Depreciation methods and property basis
differences $1,003 $ 975
Other assets 180 62
-------- --------
Total deferred income tax liabilities 1,183 1,037
Deferred income tax assets:
Employee related items 190 152
Reserve for environmental liabilities 77 108
Reserve for slow-moving inventory 14 82
Reserve for doubtful accounts 165 131
Other 165 71
-------- --------
Total deferred income tax assets 611 544
-------- --------
Net deferred income tax liability $ 572 $ 493
======== ========
Current income tax expense consists of:
1998 1997 1996
-------- -------- --------
(Dollars in thousands)
Federal $2,229 $3,065 $1,393
State 381 327 122
-------- -------- --------
$2,610 $3,392 $1,515
======== ======== ========
<PAGE>
Page 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Income taxes (continued)
A reconciliation from the federal statutory tax rate to the effective tax
rate for the years 1998, 1997 and 1996 is as follows:
1998 1997 1996
-------- -------- --------
Statutory tax rate 34.0 % 34.0 % 34.0 %
Expenses not deductible for tax purposes 1.1 1.5 2.2
State income taxes, net of federal income
tax benefit 2.5 3.0 1.9
Stock options deductible for tax purposes (7.5) - -
Other (3.0) 1.0 1.4
-------- -------- --------
Effective tax rate 27.1 % 39.5 % 39.5 %
======== ======== ========
6. Earnings per share
Earnings per share is based on the month-end average number of shares
outstanding during each year, adjusted for the dilutive effect of stock
options. Cash dividends paid (or declared) per share are $.10 in 1998, $.06
in 1997 and $.03 in 1996.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(Dollars in thousands except earnings per share)
<S> <C> <C> <C>
Numerator:
Net income for basic and diluted earnings per
common share $ 7,220 $ 4,328 $ 2,582
Denominator:
Denominator for basic earnings per common share -
weighted-average shares 5,967,610 5,761,080 5,634,341
Effect of dilutive securities:
Employee and Director stock options 124,634 120,441 56,550
----------- ---------- -----------
Denominator for diluted earnings per common share
- adjusted weighted-average shares and assumed
conversions 6,092,244 5,881,521 5,690,891
=========== ========== ===========
Basic earnings per common share $ 1.21 $ .75 $ .46
====== ====== ======
Diluted earnings per common share $ 1.19 $ .74 $ .45
====== ====== ======
</TABLE>
7. Stock options
The Company has two Incentive Stock Option Plans for its employees. The
maximum number of shares that may be issued under each of the plans is
322,977 and 525,000 shares. At February 28, 1998, options were outstanding
and exercisable on 243,037 shares at exercise prices (equal to the market
price at the date of grant) ranging from $4.09 to $17.88 per share. These
options expire November 1998 through October 2002. Included in these
options are 250,724 and 5,000 options granted in 1998 with an exercise
price of $11.13 and $17.88 and expiring in May and October, 2002,
respectively. Approximately 110,000 options were exercised in 1998 at
prices ranging from $4.09 to $11.13 per share.
<PAGE>
Page 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Stock options (continued)
The Company also has two Nonstatutory Stock Option Plans for the
independent directors of the Company. Under the plans, options are granted
at 100 percent of the fair value of the shares at the grant date. The
maximum number of shares that may be issued under each of the plans is
115,762 and 157,500 shares. At February 28, 1998, 64,036 shares are
outstanding under these plans of which 45,136 shares are exercisable at
prices ranging from $3.69 to $16.88 per share. Options under these plans
vest ratably over a five year period and expire at various dates through
November 2007. Included in these outstanding options are 10,500 options
granted in 1998 with an exercise price of $16.88 which expire in November
2007. Approximately 49,000 options were exercised in 1998 at prices ranging
from $3.74 to $5.67 per share.
A summary of the Company's stock option activity and related information is
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ----------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 200,420 $ 4.42 565,496 $4.04 714,600 $4.01
Granted 266,224 11.48 10,500 5.25 15,000 3.88
Exercised (159,571) 7.59 (372,094) 3.87 (31,635) 3.00
Forfeited - (3,482) 4.44 (132,469) 4.11
--------- -------- --------- -------- --------- --------
Outstanding at end of year 307,073 $ 8.90 200,420 $4.42 565,496 $4.04
========= ======== ========= ======== ========= ========
Exercisable at end of year 288,173 $ 8.72 187,820 $4.39 557,096 $4.04
========= ======== ========= ======== ========= ========
Weighted average fair value of
options granted during the year $ 3.21 $2.33 $1.71
======== ======== ========
Weighted average remaining
contractual life in years 3.94 3.36 3.42
======== ======== ========
</TABLE>
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation," requires the disclosure of pro forma net income
and income per share of common stock information computed as if the Company
had accounted for its stock options granted subsequent to February 28, 1995
under the fair value method set forth in SFAS 123. The fair value for these
options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted average assumptions: a risk-free
interest rate ranging from 5.8% to 6.5% for options granted in 1998 and
6.5% for options granted in 1997; a dividend yield of 1%; and a volatility
factor of .498. In addition, the fair value of these options was estimated
based on an expected life ranging from 1 1/2 years to 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including the
expected stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion the existing models do not
necessarily provide a reliable single measure of fair value for the
Company's stock options.
<PAGE>
Page 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Stock options (continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense on a straight-line basis over the option's
vesting period as adjusted for estimated forfeitures. The pro forma effect
of the 1997 and 1996 options granted is not material to the operations of
the Company for 1997 and 1996. The Company's pro forma information for 1998
is as follows:
1998
-------------------
(dollars in thousands except
per share amounts)
Pro forma net income $6,445
Pro forma earnings per common share:
Basic earnings per common share $ 1.08
Diluted earnings per common share $ 1.06
8. Long-term debt
The Company's credit facility with a bank provides for a $10 million
revolving line of credit and a $10 million term note.
Long-term debt consists of the following:
1998 1997
------- -------
(Dollars in thousands)
Term note payable to bank ($10 million),
due in monthly installments through
July 2002 (interest at 7.86 percent on
February 28, 1998) $ 7,223 $ 8,889
Revolving line of credit with bank
($10 million), due July 1999 (interest
rates ranging from 6.63 to 6.88 percent
on February 28, 1998) 5,550 -
Industrial revenue bonds, due in July 1998,
payable in monthly installments (interest
at 7.9 percent on February 28, 1998) 55 110
Industrial revenue bonds, due in December
2003, payable in monthly installments
(interest at 5.75 percent on February 28,
1998) 250 285
------- -------
13,078 9,284
Less amount due within one year 1,757 1,757
------- -------
$11,321 $ 7,527
======= =======
The revolving line of credit, term note and industrial revenue bonds are
subject to loan agreements which require the Company to comply with various
financial covenants including minimum requirements with regard to working
capital, debt-to-net worth ratio, dividend payments, capital expenditures
and cash flows. The Company is in compliance with these covenants as of
February 28, 1998. The Company's long-term debt is secured by inventory,
equipment, and fixtures. Pursuant to the loan agreement, the limit of
borrowings under the revolving line of credit is limited to certain
percentages of trade accounts receivable and inventory and is reduced by
the balance of outstanding letters of credit, which amounted to $195,000 at
February 28, 1998.
<PAGE>
Page 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Long-term debt (continued)
Maturities of long-term debt are as follows (dollars in thousands):
1999 $ 1,757
2000 1,706
2001 7,258
2002 1,706
2003 601
Thereafter 50
-------
$13,078
=======
9. Quarterly financial information, unaudited (dollars in thousands, except
per share amounts)
<TABLE>
<CAPTION>
Quarters Ended
May 31, August 31, November 30, February 28,
1997 1997 1997 1998
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
1998
----
Net sales $18,387 $18,776 $18,080 $20,236
Gross profit 5,221 4,946 4,560 4,759
Net income 1,647 1,652 1,282 2,639
Basic earnings per common share .28 .28 .21 .44 (a)
Diluted earnings per common share .27 .27 .21 .44 (a)
</TABLE>
(a) Includes tax benefit of approximately $1,076,000 (or 18 cents per
share), primarily related to the exercise of stock options in fiscal
1998.
<TABLE>
<CAPTION>
Quarters Ended
May 31, August 31, November 30, February 28,
1996 1996 1996 1997
------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
1997
----
Net sales $14,236 $13,889 $14,287 $15,291
Gross profit 4,019 3,912 3,916 4,551
Net income 943 925 1,134 1,325
Basic earnings per common share .17 .16 .20 .22
Diluted earnings per common share .16 .16 .20 .22
</TABLE>
10. Operating segments
The Company provides processing services and manufactures products for sale
primarily in the United States in the following segments: (1) Electrical
Products - manufactures petroleum and industrial lighting products,
electrical bus ducts and electrical power centers; (2) Galvanizing -
provides custom hot dip galvanizing service for industries handling
fabricated metal products; and (3) Oil Field Products - provides oil field
tubular products and manufactures oil field pup joints.
<PAGE>
Page 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Operating segments (continued)
Information regarding operations and assets by division is as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal year Fiscal year Fiscal year
ended February 28, ended February 28, ended February 28,
1998 1997 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales:
Electrical products $36,368 $30,276 $30,172
Galvanizing 30,539 23,646 16,920
Oil field products 8,572 3,781 2,092
----------------- ----------------- -----------------
$75,479 $57,703 $49,184
================= ================= =================
Operating income (loss) (a):
Electrical products $ 6,180 $ 5,317 $ 4,264
Galvanizing 6,543 5,930 4,270
Oil field products 724 (56) (428)
----------------- ----------------- -----------------
13,447 11,191 8,106
General corporate expenses 3,316 2,938 2,523
Interest expense 737 874 913
Other (income) expense, net (b) (515) 226 403
----------------- ----------------- -----------------
3,538 4,038 3,839
----------------- ----------------- -----------------
Income before income taxes $ 9,909 $ 7,153 $ 4,267
================= ================= =================
Depreciation and amortization:
Electrical products $ 732 $ 714 $ 656
Galvanizing 1,941 1,593 1,231
Oil field products 262 244 246
Corporate 100 113 94
----------------- ----------------- -----------------
$ 3,035 $ 2,664 $ 2,227
================= ================= =================
Additions to property, plant, and equipment (including assets
of purchased subsidiaries in 1998 and 1996):
Electrical products $ 920 $ 304 $ 1,002
Galvanizing 3,514 1,353 2,273
Oil field products 435 345 48
Corporate 56 35 111
----------------- ----------------- -----------------
$ 4,925 $ 2,037 $ 3,434
================= ================= =================
Total assets:
Electrical products $19,723 $15,395 $16,454
Galvanizing 25,916 19,128 19,499
Oil field products 10,154 4,389 3,531
Corporate 2,109 7,083 3,137
----------------- ----------------- -----------------
$57,902 $45,995 $42,621
================= ================= =================
</TABLE>
(a) Operating income (loss) consists of net sales less cost of sales,
specifically identifiable general and administrative expenses and
selling expenses.
<PAGE>
Page 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Operating segments (continued)
(b) Other (income) expense, net includes gains and losses on sale of
property, plant, and equipment and other (income) expense not
specifically identifiable to a segment.
11. Commitments and contingencies
The Company is subject to various environmental protection reviews by state
and federal government agencies and has been identified as a potential
responsible party in certain investigations conducted by these agencies.
The Company did not expense any significant amounts related to
environmental liabilities in 1998, 1997 or 1996. The ultimate liability, if
any, which might result from such reviews or additional clean-up and
remediation expenses cannot presently be determined; however, as a result
of an internal analysis and prior clean-up efforts, management believes the
results will not have a material impact on the Company and that the
recorded reserves for estimated losses are adequate.
In order to maintain permits to operate certain of the Company's
facilities, future capital expenditures for equipment may be required to
meet new or existing environmental regulations.
12. Acquisitions
In March 1997, the Company purchased substantially all of the assets of
Hobson Galvanizing for approximately $3.9 million in cash. The assets
purchased were recorded at estimated fair value; the costs in excess of
fair value for this acquisition were approximately $2.8 million. In
connection with this acquisition, the Company paid the selling shareholders
$250,000 pursuant to an agreement not to compete.
The Company purchased substantially all of the assets of International
Galvanizing in December 1997 for approximately $1.7 million in cash. Costs
in excess of estimated fair value of this acquisition were approximately
$350,000. Additionally, the Company paid the selling shareholder $50,000
pursuant to an agreement not to compete.
In February 1998 the Company purchased substantially all of the assets of
Drilling Rig Electrical Systems Co. (DRESCO), a company which is involved
in the selling and installation of oil field lighting, for approximately
$1.2 million in cash. Costs in excess of estimated fair value of this
acquisition were approximately $190,000.
All acquisitions were accounted for under the purchase method of
accounting. Operations applicable to acquired businesses, which are
immaterial to the consolidated operations of the Company, are included in
the accompanying Consolidated Statements of Income from their respective
dates of acquisition. The excess of costs over fair value for these
acquisitions is being amortized over a period of 15 years.
In February 1996, the Company purchased all of the stock of Arkansas
Galvanizing, Inc. for approximately $4.2 million in cash and the assumption
of approximately $.8 million in liabilities. Costs in excess of estimated
fair value of this acquisition were approximately $2.8 million. In
connection with this acquisition, the Company agreed to pay the selling
shareholders $450,000 pursuant to an agreement not to compete. The total
potential obligation will be paid and expensed in equal monthly
installments over a 60 month period which commenced on April 1, 1996. The
acquisition was accounted for under the purchase method of accounting. The
excess of costs over fair value is being amortized over the estimated
useful life of 25 years.
<PAGE>
Page 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Acquisitions (continued)
The pro forma consolidated results of operations for the year ended
February 29, 1996, assuming the Arkansas Galvanizing, Inc. acquisition had
been consummated as of March 1, 1995 is as follows:
(Unaudited)
1996
---------------------------------
(Dollars in thousands, except per
share amounts)
Net sales $52,598
Net income 2,797
Basic earnings per common share .50
Diluted earnings per common share .49
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Aztec Manufacturing Co.
We have audited the accompanying consolidated balance sheets of Aztec
Manufacturing Co. as of February 28, 1998 and 1997, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended February 28, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aztec
Manufacturing Co. at February 28, 1998 and 1997, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended February 28, 1998, in conformity with generally accepted accounting
principles.
Fort Worth, Texas
March 27, 1998
<PAGE>
AZTEC MANUFACTURING CO.
400 NORTH TARRANT . P.O. BOX 668
CROWLEY, TEXAS 76036
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Aztec Manufacturing Co.:
The Annual Meeting of the Shareholders of AZTEC MANUFACTURING CO. (the
"Company") will be held at the Petroleum Club in the Derrick I Room on the 39th
floor of the Continental Plaza, 777 Main Street, Fort Worth, Texas, on the 14th
day of July, 1998, at 10:00 a.m. for the purpose of considering and acting upon
the following matters:
1. ELECTION OF DIRECTORS. To elect three directors for a term of three years.
2. RATIFICATION OF APPOINTMENT OF AUDITORS. Ratification of the appointment
of Ernst & Young LLP as auditors for the Company for its fiscal year
ending February 28, 1999.
3. APPROVAL OF THE 1998 INCENTIVE STOCK OPTION PLAN. To approve the 1998
Incentive Stock Option Plan.
4. APPROVAL OF THE 1998 NONSTATUTORY STOCK OPTION PLAN. To approve the 1998
Nonstatutory Stock Option Plan.
5. APPROVAL OF THE 1997 NONSTATUTORY STOCK OPTION GRANTS. To approve the 1997
Nonstatutory Stock Option Grants.
6. OTHER BUSINESS. To transact such other business as may properly come
before the meeting or any adjournment or adjournments thereof.
Information regarding the matters to be acted upon at the meeting is contained
in the Proxy Statement attached to this Notice. As of the date of this Notice,
management does not know of any other business to be presented at the meeting.
Only shareholders of record at the close of business on the 25th day of May
1998, will be entitled to notice of or to vote at the meeting or any adjournment
or adjournments thereof. A copy of the Annual Report to Shareholders for the
fiscal year ended February 28, 1998, is enclosed herewith.
WE HOPE YOU WILL BE ABLE TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND, PLEASE DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY
IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
Sam Rosen, Secretary
Crowley, Texas
June 1, 1998
<PAGE>
AZTEC MANUFACTURING CO.
P. O. BOX 668
CROWLEY, TEXAS 76036
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 14, 1998
This Proxy Statement is furnished in connection with the solicitation of proxies
by the board of directors of Aztec Manufacturing Co. (the "Company") for use at
the regular Annual Meeting of the Shareholders of the Company to be held at the
Petroleum Club in the Derrick I Room on the 39th floor of the Continental Plaza,
777 Main Street, Fort Worth, Texas, on the 14th day of July, 1998, at 10:00
a.m., and at any adjournment or adjournments thereof. This Proxy Statement and
the accompanying proxy are being mailed on or about June 1, 1998, to the
Shareholders of the Company.
GENERAL INFORMATION
- -------------------
At the close of business on the 25th day of May, 1998, the record date for
determination of shareholders entitled to notice of and to vote at the meeting,
there were outstanding 5,927,413 shares of Common Stock, $1.00 par value, of the
Company (the "Common Stock"). The presence, in person or by proxy, of the
holders of a majority of the outstanding shares of Common Stock is necessary to
constitute a quorum at the meeting. All shares represented at the meeting in
person or by proxy shall be counted in determining the presence of a quorum.
Each holder of shares of Common Stock will be entitled to one vote, in person or
by proxy, for each share of Common Stock of the Company owned of record at the
close of business on May 25, 1998. Cumulative voting for directors is not
permitted. Directors are elected by plurality vote and, therefore, the three
nominees receiving the highest number of affirmative votes shall be elected as
directors provided a quorum is present. Abstentions and broker non-votes will
not be considered part of the voting power present with respect to any matter on
which such shares so acted which has the effect of reducing the number of shares
voting affirmatively that is required to approve a matter requiring a majority
vote. Therefore, assuming a quorum is present, if more shares vote "for"
approval of the appointment of the independent auditors than vote "against,"
this matter will pass. All shares of Common Stock represented by a valid proxy
will be voted. A proxy may be revoked at any time before it is voted by filing
with the Secretary of the Company a written revocation thereof or a duly
executed proxy bearing a later date.
The cost of preparing, assembling and mailing the Notice of Annual Meeting of
Shareholders, the Proxy Statement and the accompanying proxy will be borne by
the Company. In addition to solicitation of proxies by mail, certain officers
and employees of the Company, without additional compensation for such services,
may solicit proxies by telephone, fax or personal contact. The Company will
also supply brokerage firms and other custodians, nominees, and fiduciaries with
such number of proxy materials as they may require for mailing to beneficial
owners and will reimburse them for their reasonable expenses in connection
therewith.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
- ----------------------------------------------
Meetings of the Board of Directors are held regularly each month, including a
meeting following the conclusion of the Annual Meeting of Shareholders. During
the fiscal year ended February 28, 1998, there were twelve (12) regular meetings
and one (1) special meeting of the Board of Directors. For the fiscal year
ended February 28, 1998, each non-employee director was paid a monthly retainer
of $900 and a fee of $400 for each meeting of the Board of Directors attended.
Mr. Martin, as an employee director, was paid a monthly retainer of $500 and a
fee of $200 for each meeting of the Board of Directors attended. Each committee
member was paid a fee of $400 for each meeting of a committee attended.
Each of the current directors of the Company attended more than 75 percent of
the aggregate of (i) the total number of meetings of the Board of Directors and
(ii) the total number of meetings held by all committees of the board on which
he served, held during the fiscal year ended February 28, 1998, other than Mr.
Schumacher who due to a temporary illness attended 57 percent of all such
meetings.
The Company has an Audit Committee. The functions of the Audit Committee are to
(i) meet with the independent auditors to review the audit and its results, as
well as to review internal controls of the Company and (ii) make recommendations
to the Board of Directors as to the engagement or discharge of independent
auditors. The members of
-1-
<PAGE>
the Audit Committee are Robert H. Johnson, Chairman, W. C. Walker and R. J.
Schumacher. During the fiscal year ended February 28, 1998, that committee held
one (1) meeting. The Company has a Compensation Committee. The functions of the
Compensation Committee are to (i) make recommendations to the Board of Directors
of remuneration arrangements for directors and senior management and (ii)
administer the Company's incentive stock option plans, which includes selecting
the executives and other key personnel of the Company eligible to participate
thereunder. The members of the Compensation Committee are Martin C. Bowen and
Dr. H. Kirk Downey. During the fiscal year ended February 28, 1998, that
committee held two (2) meetings. The Company has a Nonstatutory Stock Option
Committee which administers the Company's nonstatutory stock option plans. The
members of this committee are L. C. Martin and Dana L. Perry. During the fiscal
year ended February 28, 1998, that committee held two (2) meetings. The Company
does not have a nominating committee.
SECURITY OWNERSHIP OF PRINCIPAL BENEFICIAL OWNERS
- -------------------------------------------------
To the best knowledge of the Company, the only beneficial owners of over 5
percent of the outstanding shares of Common Stock of the Company as of May 4,
1998 were as follows:
<TABLE>
<CAPTION>
TITLE OF CLASS NAME & ADDRESS OF BENEFICIAL OWNER NUMBER OF SHARES PERCENT OF CLASS
-------------- ---------------------------------- ---------------- ----------------
<S> <C> <C> <C>
Common Stock FMR Corp. 560,500 (1) 9.5%
$1.00 par value 82 Devonshire Street
Boston, MA 02109
</TABLE>
(1) Based on a Schedule 13G furnished by Fidelity Management & Research Company
("Fidelity"), a wholly-owned subsidiary of FMR Corp. and an investment
adviser, Fidelity is deemed to have beneficial ownership of 560,500 shares
of Aztec Manufacturing Co. Common Stock as a result of acting as investment
adviser to several investment companies. The ownership of one investment
company, Fidelity Low-Priced Stock Fund, amounted to 560,500 shares of the
Common Stock outstanding. Fidelity Low-Priced Stock Fund has its principal
business office at 82 Devonshire Street, Boston, Massachusetts, 02109.
PROPOSAL NO. 1: ELECTION OF DIRECTORS
- --------------------------------------
The Bylaws of the Company provide for nine directors and classify the Board of
Directors into three classes, each class consisting of three directors, the
members of which serve for three years. Of the directors listed under
"DIRECTORS OF THE COMPANY," the terms of office of L. C. Martin, R.J.
Schumacher, and Dr. H. Kirk Downey expire at the 1998 Annual Meeting of
Shareholders. The Board of Directors nominated and recommends the reelection of
Messrs. L. C. Martin, R.J. Schumacher, and Dr. H. Kirk Downey for a three-year
term expiring at the 2001 Annual Meeting of Shareholders.
Mr. John G. Richards retired as a director of the Company on Nov. 13, 1997. Mr.
Richards is now an advisory director of the Company. As an advisory director,
Mr. Richards does not have voting authority. The Bylaws of the Company provide
that any vacancy in the Board is to be filled by the remaining directors with
the newly elected director serving the unexpired term of his predecessor. Mr.
Richards term would have expired in 1999. The Board of Directors of the Company
elected at its Nov. 13, 1997, meeting Mr. Kevern R. Joyce to fill the unexpired
term of Mr. Richards.
All of the nominees are now directors of the Company. All of the nominees have
consented to serve if elected. If for any unforeseen reason a nominee would be
unable to serve if elected, the persons named in the accompanying proxy may
exercise their discretion to vote for a substitute nominee selected by the Board
of Directors. However, the Board of Directors has no reason to anticipate that
any of the nominees will not be able to serve, if elected.
The Board of Directors recommends that Shareholders vote "FOR" the election of
the nominees for directors.
PROPOSAL NO. 2: RATIFICATION OF APPOINTMENT OF AUDITORS
- --------------------------------------------------------
Subject to ratification by the Shareholders, the Board of Directors has selected
the firm of Ernst & Young LLP to audit the financial statements of the Company
for the fiscal year ending February 28, 1999. This firm of certified public
accountants or its predecessor has acted as independent auditors for the Company
and its subsidiaries since 1976.
-2-
<PAGE>
Representatives of Ernst & Young LLP will be present at the 1998 Annual Meeting
of Shareholders and will be available to respond to appropriate questions.
The Board of Directors recommends that Shareholders vote "FOR" the approval of
the appointment of Ernst & Young LLP.
DIRECTORS OF THE COMPANY
- ------------------------
The following table sets forth certain information as to the number of shares of
Common Stock of the Company beneficially owned as of May 4, 1998, by (i) each
current director and (ii) all of the current executive officers and directors of
the Company as a group. Except as otherwise indicated, each of the persons
named below has sole voting and investment power with respect to the shares of
Common Stock beneficially owned by that person.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR PAST COMMON STOCK OF THE % OF
FIVE YEARS; POSITIONS AND DIRECTOR COMPANY BENEFICIALLY CLASS
DIRECTORS AGE OFFICES WITH THE COMPANY SINCE OTHER DIRECTORSHIPS OWNED AT MAY 4, 1998 (1)
- --------- --- --------------------------------- ----- ------------------- -------------------- -----
<S> <C> <C> <C> <C> <C> <C>
L.C. Martin (2) 72 Chairman of the Board, President 1958 None. 188,765 (4) 3.2%
and Chief Executive Officer of the
Company
Martin C. Bowen (14) 54 Vice President & CFO of Fine Line 1993 Kevco, Inc. (3) 3,400 (6) *
Inc.
Kevern R. Joyce (15) 51 President, CEO and Chairman of TNP 1997 TNP Enterprises, Inc. -0- (7) *
Enterprises, Inc. (1994-Present) (3)
Senior Vice President and CEO of
Tuscon Electric Power Co.
(19921994)
Sam Rosen (8) 62 Partner in the law firm of 1996 Gainsco, Inc. (3) 8,445 (9) *
Shannon, Gracey, Ratliff & Miller,
L.L.P. , Secretary of the Company
Robert H. Johnson (5) 73 Financial Consultant; Certified 1965 None. 3,100 *
Public Accountant
Dana L. Perry (2) 49 Vice President of Finance; Chief 1992 None. 100,200 (10) 1.7%
Financial Officer of the Company;
and Assistant Secretary of the
Company
R.J. Schumacher (5) 69 CEO and Chairman of Pride Refining, 1986 None. 17,885 (11) *
Inc. (1989-1994); President and CEO
of Texland Petroleum, Inc.
(1973-Present)
W.C. Walker (5) 74 Management Consultant (1989-Present) 1986 None. 29,241 (12) *
Dr. H. Kirk Downey (14) 55 Dean of the M.J. Neeley School of 1992 Harris Methodist Health -0- *
Business and a Professor of Plan
Management at Texas Christian LKCM Fund
University
All Current Directors and Executive Officers as a Group (11 Persons) 371,318 (13) 6.2%
</TABLE>
*Less than one percent (1%)
-3-
<PAGE>
(1) The percentage is calculated for each individual by using as the
denominator the total shares of Common Stock outstanding at the close of
business on May 4, 1998 (5,923,828 shares), plus the shares of Common Stock
such individual has the right to acquire within sixty (60) days of May 4,
1998, pursuant to the exercise of stock options granted by the Company.
(2) Member of the Nonstatutory Stock Option Committee.
(3) A publicly owned corporation.
(4) Includes 35,273 shares of Common Stock which Mr. Martin has the right to
acquire within 60 days of May 4, 1998, pursuant to the exercise of stock
options granted under the 1986 and 1991 Incentive Stock Option Plans of the
Company.
(5) Member of the Audit Committee.
(6) Includes 3,400 shares of Common Stock which Mr. Bowen has the right to
acquire within 60 days of May 4, 1998, pursuant to the exercise of stock
options granted under the 1991 Nonstatutory Stock Option Plan of the
Company.
(7) Includes -0- shares Mr. Joyce has the right to acquire within sixty (60)
days of May 4, 1998, pursuant to the exercise of stock options granted
under the 1991 Nonstatutory Stock Option Plan.
(8) Mr. Rosen is a Partner in the law firm of Shannon, Gracey, Ratliff &
Miller, L.L.P., which has been general counsel to the Company since 1968.
The Company proposes to retain said law firm as its general counsel during
the current fiscal year.
(9) Includes 4,200 shares Mr. Rosen has the right to acquire within sixty (60)
days of May 4, 1998, pursuant to the exercise of stock options granted 1991
Nonstatutory Stock Option Plan.
(10) Includes 12,427 shares of Common Stock which Mr. Perry has the right to
acquire within 60 days of May 4, 1998, pursuant to the exercise of stock
options granted under the 1986 and 1991 Incentive Stock Option Plans.
(11) Includes 16,012 shares Mr. Schumacher has the right to acquire within sixty
(60) days of May 4, 1998, pursuant to the exercise of stock options granted
under the 1988 and 1991 Nonstatutory Stock Option Plans.
(12) Includes 21,524 shares Mr. Walker has the right to acquire within sixty
(60) days of May 4, 1998, pursuant to the exercise of stock options granted
under the 1988 and 1991 Nonstatutory Stock Option Plans. All 7,717 shares
of Common Stock currently owned are held jointly by Mr. Walker and his
wife.
(13) The percentage is calculated by using total shares of Common Stock
outstanding at the close of business on May 4, 1998 (5,923,828) plus 53,835
shares of Common Stock that executive officers of the Company have the
right to acquire within 60 days of May 4, 1998, pursuant to the exercise of
stock options granted under the 1986 and 1991 Incentive Stock Option Plans
of the Company plus 45,136 shares of Common Stock that directors have the
right to acquire within sixty (60) days of May 4, 1998, pursuant to the
exercise of stock options granted under the 1988 and 1991 Nonstatutory
Stock Option Plans.
(14) Member of Compensation Committee.
(15) Mr. Joyce was elected to the Board of Directors on November 13, 1997, to
replace Mr. John G. Richards who retired from the board on November 13,
1997.
No family relationship exists between any director or executive officer of the
Company and any other director or executive officer of the Company.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934. Section
16(a) of the Securities Exchange Act of 1934 requires executive officers,
directors and persons who beneficially own more than ten percent of the
Company's stock to file initial reports of ownership and reports of changes of
ownership with the Securities and Exchange Commission. Copies of such reports
are required to be furnished to the Company.
Based solely on a review of such forms furnished to the Company and certain
written representations from the executive officers and directors, the Company
believes that all Section 16(a) filing requirements applicable to its executive
officers, directors and greater than 10% beneficial owners were complied with on
a timely basis, except that Mr. Martin Bowen, Director reported a sale of Aztec
stock on Form 5 instead of on a current report on Form 4.
-4-
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
- ----------------------------------------
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION. Through fiscal
periods ended February 28, 1998, compensation for the chief executive officer
and senior executives has been approved by the full Board of Directors upon the
recommendations of the Compensation Committee. This Committee is composed of
two outside directors, none of whom perform any services to or receive any fees
from the Company in any capacity other than as director.
It has been the philosophy and the practice of the Committee to relate executive
compensation to the profitability of the Company. The compensation program
provides for market-driven salary ranges based on job responsibilities and
influences on Company performance with a balanced incentive compensation element
based on profit performance of the Company. This is accomplished through a two-
tiered structure of measuring the compensation rewards as follows:
1. Base Salary - The Committee reviews and approves salaries for the chief
executive cfficer and the other executive officers on an annual basis.
Recommended base salaries are reviewed and set based on information derived
from comparative group reviews and national surveys of compensation data,
as well as evaluations of the individual executives' positions and expected
future performance and contribution. In making salary decisions, the
Committee exercises its discretion and judgment with no specific formula
being applied to determine salary levels.
2. Bonus - The purpose of the bonus program is to promote the Company's goal
of increasing shareholder value through sustainable internal growth, high
operating efficiencies, strategic acquisitions, and attracting highly
motivated, results-oriented executive officers. A portion of executive
compensation was calculated using a formula reflecting growth in pretax
income of the Company in the case of the chief executive officer and
certain executive officers or a particular segment of the Company in the
case of an executive officer who is responsible for such segment. Mr.
Martin's and Mr. Perry's bonus base is fixed at 2.5% and 1% of the yearly
pretax profits of the Company, respectively. Mr. Wright's and Mr. Skowron's
bonus base is fixed at 1.25% of the yearly pretax profits of the
Galvanizing Segment and Electrical Segment, respectively. The maximum and
minimum bonus is set at 150% and 50% of the bonus base, respectively. When
the Company or a segment exceeds prior year performance, the executives are
rewarded through increased bonuses up to a maximum of 150% of his bonus
base. Conversely, if the Company or segment falls short of the prior year's
performance, the executive officers receive a reduced bonus. If the current
years performance falls below 50% of the prior year, the executive officers
receive no bonus.
Additionally, the executive officers participate, along with other employees, in
the Company Profit Sharing Plan, the annual contributions to which are
dramatically affected by profitability of the Company, and the Company Stock
Option Plans.
Section 162(m) of the Internal Revenue Code of 1986, as amended, which was
enacted in 1993, imposes a $1 million limit on the amount of compensation that
will be deductible by the Company with respect to the chief executive officer
and the four other most highly compensated executive officers. Performance
based compensation that meets certain requirements will not be subject to the
deduction limit. The Committee has reviewed the impact of Section 162(m) on the
Company and believes it is unlikely that the compensation paid to any executive
officer during the fiscal year ending February 28, 1999, will exceed the limit.
The Committee will continue to monitor the impact of the Section 162(m) limit
and to assess alternatives for avoiding any loss of tax deductions in future
years.
The role of the Compensation Committee also includes a full review of the
compensation package of the five highest paid executive officers, whether or not
their salary and bonuses exceed $100,000. This review is then presented and
recommended to the full board of nine directors, seven of whom are independent
directors.
MEMBERS OF THE COMPENSATION COMMITTEE
Martin C. Bowen
Dr. H. Kirk Downey
-5-
<PAGE>
SUMMARY COMPENSATION TABLE. The following information summarizes annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended February 28, 1998, February 28, 1997, and February 29, 1996,
of the chief executive officer and the other most highly compensated executive
officers of the Company whose total annual salary and bonus exceeds $100,000
(the "Named Executives").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
==========================
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
| | |
OTHER ANNUAL | RESTRICTED | LONG-TERM | ALL OTHER
NAME AND YEAR COMPENSATION | STOCK AWARD(S) OPTIONS/ | INCENTIVE | COMPENSATION
PRINCIPAL POSITION ENDING SALARY ($) BONUS($) ($) | ($) SARS (#) | PAYOUTS ($) | ($)
- ------------------ ------ ---------- -------- ------------- | -------------- --------- | ----------- | ------------
<S> <C> <C> <C> <C> | <C> <C> | <C> | <C>
L.C. Martin, Chairman, 1998 250,000 317,468 0 | 0 16,299 | 0 | 25,494 (2)
President, and Chief 1997 250,000 214,919 0 | 0 0 | 0 | 23,060 (3)
Executive Officer 1996 250,000 106,443 0 | 0 0 | 0 | 17,937 (4)
| | |
D.L. Perry, Vice 1998 75,000 126,987 0 | 0 5,840 | 0 | 16,894 (5)
President of Finance, 1997 75,000 85,968 0 | 0 0 | 0 | 12,979 (5)
Chief Financial Officer, 1996 75,000 36,543 0 | 0 0 | 0 | 6,007 (5)
and Assistant Secretary | | |
| | |
F. L. Wright, Jr. 1998 85,200 78,818 0 | 0 5,685 | 0 | 16,894 (6)
Senior Vice President 1997 77,550 84,522 0 | 0 0 | 0 | 14,460 (6)
Galvanizing Segment 1996 75,000 65,053 0 | 0 0 | 0 | 8,301 (6)
| | |
R.T. Skowron, Vice 1998 82,000 56,594 0 | 0 0 | 0 | 0
President Electrical 1997 0 0 0 | 0 0 | 0 | 0
Products Segment (1) 1996 0 0 0 | 0 0 | 0 | 0
</TABLE>
(1) Mr. Skowron joined the Company on May 1, 1997.
(2) The amount of $25,494 includes 1998 Director Fees of $8,600 and 1998
contribution made to Mr. Martin's account in Aztec's Profit Sharing Plan of
$16,894.
(3) The amount of $23,060 includes 1997 Director fees of $8,600 and 1997
contribution made to Mr. Martin's account in Aztec's Profit Sharing Plan of
$14,460.
(4) The amount of $17,937 includes 1996 Director Fees of $8,600 and 1996
contribution made to Mr. Martin's account in Aztec's Profit Sharing Plan of
$9,337.
(5) This amount represents the contribution made to Mr. Perry's account in
Aztec's Profit Sharing Plan.
(6) This amount represents the contribution made to Mr. Wright's account in
Aztec's Profit Sharing Plan.
OPTION/SAR GRANTS IN LAST FISCAL YEAR. The following table sets forth the
number of shares of Common Stock subject to options with respect to Common Stock
granted to the Company's Chief Executive Officer and the Named Executives during
the fiscal year ending February 28, 1998. The Company has no SARs.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
=====================================
% OF TOTAL POTENTIAL REALIZED VALUE AT
NUMBER OF OPTIONS/ EXERCISE OR ASSUMED ANNUAL RATES OF RATES OF STOCK
OPTIONS/ SARS GRANTED BASE PRICE PRICE APPRECIATION FOR OPTION
SARS GRANTED TO EMPLOYEES ($ PER SHARE) EXPIRATION TERM ($)
NAME (a) IN FISCAL YEAR (b) DATE 5% (c) 10% (c)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
L.C. Martin 16,299 7% 11.125 5/20/02 50,120 110,752
D.L. Perry 5,840 2% 11.125 5/20/02 17,958 39,683
F.L. Wright 5,685 2% 11.125 5/20/02 17,481 38,629
</TABLE>
(a) Options granted are immediately exercisable and are for a term of 5 years,
subject to earlier termination related to termination of employment.
(b) The option above was granted at market value at date of grant.
(c) These columns reflect the potential realizable value of each grant assuming
the market value of the Company's stock appreciates at 5 percent and 10
percent, compounded annually, from the date of grant over the term of the
option. There is no assurance that the actual stock price appreciation over
the 5 year option term will be at the assumed 5 percent or 10 percent
levels or at any other level. Unless the market price of the stock does in
fact
-6-
<PAGE>
appreciate over the option term, no value will be realized from the option
grants. These calculations are based on requirements promulgated by the
Securities Exchange Commission and do not reflect the Company's estimate of
future price growth.
OPTIONS EXERCISED AND YEAR END VALUE TABLE. The following table sets forth
certain information regarding the options exercised and the year end value of
options held by the Named Executives during the fiscal year ending February 28,
1998.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
=================================
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES ACQUIRED OPTIONS AT FY-END (#) MONEY OPTIONS AT FY-END ($)
NAME ON EXERCISE (#) VALUE REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
-------- --------------- ------------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
L. C. Martin 0 0 35,723 -0- 228,137 -0-
D. L. Perry 0 0 12,427 -0- 78,225 -0-
F. L. Wright, Jr. 5,987 99,160 5,685 -0- 15,633 -0-
R. T. Skowron 0 0 -0- -0- -0- -0-
</TABLE>
CHANGE IN CONTROL AGREEMENT. The Company has entered into a change in control
agreement with Mr. L. C. Martin, the president and chief executive officer of
the Company. The change in control agreement provides for the payment of
certain benefits upon the occurrence of a change in control of the Company. A
"change in control of the Company" includes the acquisition by any person of 50
percent or more of the shares of Common Stock, a merger or consolidation of the
Company in which the Company does not survive as an independent public company,
a sale of all or substantially all of the assets of the Company, or a
liquidation or dissolution of the Company.
Under the change in control agreement, if Mr. Martin remains in the employ of
the Company for a period of at least three months immediately following the date
of occurrence of a change in control of the Company, he will be entitled to
receive a lump sum payment from the Company within five days after the
expiration of the three-month period, regardless of whether he continues in the
employ of the Company after the expiration of the three-month period (the
"Change in Control Payment"). The change in control agreement provides for the
payment of the Change in Control Payment of $750,000 in the event of any change
in control of the Company, whether or not such change in control is approved by
the Board of Directors and/or Shareholders of the Company. Additionally, if
during the three-month period Mr. Martin is terminated as a result of death or
total disability or for any other reason whatsoever by the Company, he will be
entitled to receive, in addition to the Change in Control Payment provided
above, his full base salary through the date of termination of his employment,
plus any other amounts to which he would be entitled under any compensation plan
of the Company. However, if the employment of Mr. Martin during the three-
month period is terminated by him for any reason other than as a result of his
death or total disability or voluntary termination for good reason as defined in
the agreement, he would be entitled to his full base salary through the date of
termination of his employment, plus any other amounts to which he would be
entitled under any compensation plan of the Company, but would not be entitled
to the Change in Control Payment provided above.
BUY-SELL AND TERMINATION AGREEMENT. During fiscal 1994 the Company entered into
a "Buy-Sell and Termination Agreement" (the "Agreement") with Mr. L. C. Martin,
the president and chief executive officer of the Company. The Agreement
provides that the proceeds from a $1 million dollar life insurance policy on Mr.
Martin be used to acquire (from the executive's wife or estate) the number of
shares of Company Common Stock which could be purchased in the event the
executive dies while employed by the Company. The purchase price per share is
to be the market value of the stock on the day before the date of death. Upon
termination (other than for "just cause") of employment from the Company prior
to death, the Company will convey all rights in the insurance policy to the
executive, including cash surrender value. The Company recorded a deferred
liability and corresponding charge to expense in the amount of $246,000 during
fiscal 1994. The deferred compensation amount is equivalent to the cash
surrender value of the insurance policy and amounted to $276,730 at February 28,
1998.
Under the "Buy-Sell and Termination Agreement", the Company agrees to maintain a
whole life insurance policy in the face amount of $1 million on the life of Mr.
Martin previously acquired by the Company (the "Policy"). The Company shall be
the owner and direct beneficiary of the Policy and shall be solely responsible
for the payment of any and all premiums required to be paid to keep the Policy
in effect. Within 180 days of the death of Mr. Martin, if Mr. Martin was at
-7-
<PAGE>
the time of his death employed by the Company, Mrs. Martin or the estate, heirs,
legal representatives, successors or beneficiaries of Mr. Martin shall tender to
the Company for sale, transfer or conveyance to the Company a number of shares
equal in value to the proceeds received by the Company from the Policy. Upon the
tender of the shares of the Company, the Company shall purchase the shares with
the proceeds received by the Company under the policy. For purposes of this
Agreement, the value of the shares to be sold, assigned and conveyed to the
Company as provided for herein shall be determined based on the closing price
per share of the Common Stock of the Company as traded on the New York Stock
Exchange on the day before the date of death of Mr. Martin. Upon the termination
of employment of Mr. Martin from the Company for any reason other than "Just
Causes", the Company hereby agrees to assign and convey all rights and title of
the Company in the Policy, including any cash surrender value in the Policy, to
Mr. Martin. No shares shall be transferred to the Company in consideration of
the assignment and conveyance of the Policy to Mr. Martin. For purposes of this
Agreement, "Just Cause" shall mean Mr. Martin willfully and intentionally fails
to substantially perform his duties as an officer of the Company, or Mr. Martin
has committed an illegal act (other than minor traffic violations or similar
acts) in connection with his employment that could reasonably be expected to
materially adversely affect the Company. If Mr. Martin is terminated for "Just
Cause," the Company shall be under no obligation to assign and convey the Policy
to Mr. Martin.
STOCK PRICE PERFORMANCE GRAPH. The following graph illustrates the five-year
cumulative total returns on investments in Aztec Manufacturing Co., the CRSP
Index for NYSE Stock Market (U.S. Companies) and the CRSP Index for NYSE Stocks
(SIC 5000-5099 US Companies). Aztec is listed on the New York Stock Exchange
and is engaged in multiple industries. The shareholder return shown below is
not necessarily indicative of future performance. Total return, as shown,
assumes $100 invested on February 28, 1993, in shares of Aztec Manufacturing Co.
and each index, all with cash dividends reinvested. The calculations exclude
trading commissions and taxes.
FIVE YEAR-CUMULATIVE TOTAL RETURN
VALUE OF $100 INVESTED ON FEBRUARY 28, 1993
For Fiscal Year Ended on the Last Day of February
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
2/93 2/94 2/95 2/96 2/97 2/98
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Aztec Manufacturing Co. 100.0 233.8 156.4 173.4 346.9 520.0
CRSP Index for NYSE Stock Market (US Companies) 100.0 108.7 115.0 153.2 188.7 252.4
CRSP Index for NYSE Stocks (SIC 5000-5099 US Companies) 100.0 125.4 119.4 138.7 156.2 204.1
Wholesale trade - durable goods
</TABLE>
-8-
<PAGE>
PROPOSAL NO. 3: 1998 INCENTIVE STOCK OPTION PLAN
- ------------------------------------------------
On April 21, 1998, the board of directors of the Company adopted, subject to the
approval of the shareholders of the Company, the 1998 Incentive Stock Option
Plan of Aztec Manufacturing Co. (the "1998 ISO Plan"). Options granted under
the 1998 ISO Plan are intended to qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended, (the "Code").
A summary of the material provisions of the 1998 ISO Plan is set out below. The
following summary is qualified in its entirety by reference to the full text of
the 1998 ISO Plan, a copy of which is attached as Exhibit A to this Proxy
Statement.
The purpose of the 1998 ISO Plan is to attract capable employees and provide an
incentive for employees to remain in the employ of the Company and its
subsidiaries. All executives and other key personnel of the Company who are
active full time salaried employees of the Company and its subsidiaries are
eligible to participate in the 1998 ISO Plan. Members of the board of directors
who are not employed by the Company or its subsidiaries on a full time basis are
not eligible to participate in the 1998 ISO Plan. Approximately 150 persons
will be eligible to participate in the 1998 ISO Plan.
The 1998 ISO Plan is administered by the Compensation Committee, a committee
composed of at least two (2) non-employee directors of the board of directors of
the Company (the "Committee"). The Committee has discretion to select the
eligible employees to whom options shall be granted under the 1998 ISO Plan and
to determine the number of shares of Common Stock subject to options granted
under the 1998 ISO plan, as well as the term during which such options may be
exercised and the manner of exercise thereof.
Subject to provisions for proportionate adjustment occasioned by changes in the
Company's capital structure, a total of 750,000 shares of Common Stock of the
Company has been set aside under the 1998 ISO Plan for use upon exercise of
options granted thereunder. As of the date hereof, no options to purchase
Common Stock have been granted by the Committee under the 1998 ISO Plan. All
options under the 1998 ISO Plan must be granted on or before ten years from the
effective date of the 1998 ISO Plan. The 1998 ISO Plan will be effective upon
shareholder approval.
No options may be exercised under the 1998 ISO Plan without compliance with
applicable securities laws. It is contemplated by management of the Company
that the options and the shares of Common Stock called for by options granted
under the 1998 ISO Plan will be registered by the Company under the federal
securities laws during the latter half of 1998.
The maximum term of an option that may be granted under the 1998 ISO Plan is ten
(10) years, except that with respect to participants, if any, under the 1998 ISO
Plan who own more than ten percent (10%) of the Common Stock of the Company on
the date the option is granted, the maximum term is five (5) years.
The price at which shares of Common Stock of the Company may be purchased
pursuant to the exercise of options granted under the 1998 ISO Plan shall not be
less than one hundred percent (100%) of the fair market value of the shares of
Common Stock underlying the options on the date such options are granted. With
respect to participants, if any, under the 1998 ISO Plan who own more than ten
percent (10%) of the shares of Common Stock of the Company on the date the
option is granted, the price at which shares of Common Stock of the Company may
be purchased pursuant to the exercise of options granted under the 1998 ISO Plan
shall not be less that one hundred ten percent (110%) of the fair market value
of the shares of Common Stock underlying the options on the date such options
are granted.
The aggregate fair market value (determined at the time of grant) of shares of
Common Stock underlying incentive stock options exercisable for the first time
by an employee during any calendar year cannot exceed $100,000.
Options granted under the 1998 ISO Plan are subject to earlier termination upon
the death, disability, retirement or termination of employment of the
participant. Options granted under the 1998 ISO Plan are exercisable over such
period of time as may be determined by the Committee. Such options are not
transferable, except by will or by the laws of descent and distribution and may
only be exercised for a period of one year following the date of death or
disability, to the extent the options were exercisable at the date of death or
disability, as the case may be. A participant must remain an employee of the
Company as a condition to his right to exercise options granted under the 1998
ISO Plan. However, upon a participant's termination of employment for any
reason, other than gross or willful misconduct or death or disability, such
participant has a right to exercise an option granted to such participant under
the 1998 ISO Plan during the three month period immediately following the date
of termination of employment.
-9-
<PAGE>
The following is a summary of the principal U.S. federal income tax consequences
under current federal income tax laws relating to awards under to the 1998 ISO
Plan. This summary is not intended to be exhaustive and, among other things,
does not describe state, local or foreign tax consequences. Participants are
urged to consult their own tax advisors as to the precise tax consequences of
participation in such plan. Under applicable provisions of the Code as now in
effect: (a) an "incentive stock option" results in no taxable income to
participant or deduction to the Company at the time it is granted; (b) upon
exercise of the option, no taxable income results to the participant from the
receipt of the shares of Common Stock thereby acquired and no deduction is
allowed to the Company; the exercise of an incentive stock option will result in
an adjustment in determining a participant's alternative minimum tax; (c) if,
after exercise of such an option, the participant does not dispose of the shares
of Common Stock thereby acquired within two (2) years of the date of grant of
the option or within one (1) year of the date of exercise of the option, he will
be entitled to treat any gain realized upon disposition of the shares of Common
Stock as long-term capital gain in the year of sale; and (d) if so held by the
participant, as described in clause (c) above, the Company will not be entitled
to any deduction on account of the grant or exercise of the option. However, if
the participant disposes of the shares of Common Stock within two (2) years of
the date of grant of the option or within one (1) year of the date of exercise
of the option, he will be required to treat any gain realized upon disposition
of the shares of Common Stock as ordinary income in the year of sale equal to
the difference between the option price and the fair market value of the stock
on the date of exercise. The balance of the participant's gain on the
disposition of the shares will be treated as a long-term capital gain, provided
the holding period applicable to long-term capital assets is satisfied. The
Company will be entitled to a deduction to the extent the participant recognizes
ordinary income.
The affirmative vote of the holders of a majority of the total number of shares
represented and voting at the Shareholder's Meeting, assuming a quorum is
present, is required to approve the adoption of the 1998 Incentive Stock Option
Plan of the Company.
The Board of Directors recommends that Shareholders vote "FOR" the approval of
the 1998 Incentive Stock Option Plan of the Company.
PROPOSAL NO. 4: 1998 NONSTATUTORY STOCK OPTION PLAN
- ----------------------------------------------------
On April 21, 1998, the Board of Directors unanimously adopted, subject to
approval by Shareholders, the 1998 Nonstatutory Stock Option Plan of Aztec
Manufacturing Co. (the "1998 NSO Plan").
A summary of the material provisions of the 1998 NSO Plan is set out below. The
following summary is qualified in its entirety by reference to the full text of
the 1998 NSO Plan, a copy of which is attached as Exhibit B to this Proxy
Statement.
The purpose of the 1998 NSO Plan is to encourage stock ownership by executive
officers and non-employee directors of the Company, to provide an incentive for
executive officers and non-employee directors to expand and improve the profits
and prosperity of the Company, and to assist the Company in attracting and
retaining executive officers and non-employee directors through the grant of
options to purchase shares of the Company's Common Stock. Only executive
officers and non-employee directors of the Company are eligible to participate
in the 1998 NSO Plan.
The executive officers of the Company at present are: L.C. Martin, Dana L.
Perry, F.L. Wright, Jr., Richard Skowron and Sam Rosen. The outside, non-
employee directors at the present are: Robert H. Johnson, R. J. Schumacher, W.C.
Walker, H. Kirk Downey, Kevern Joyce, and Martin C. Bowen.
The 1998 NSO Plan is administered by the Compensation Committee ("Committee"), a
committee composed of at least two (2) non-employee directors of the board of
directors of the Company.
Subject to provisions for proportionate adjustment occasioned by changes in the
Company's capital structure, a total of 250,000 shares of Common Stock of the
Company has been set aside under the 1998 NSO Plan for use upon exercise of
options granted thereunder. No options to purchase Common Stock have been
granted under the 1998 NSO Plan.
The purchase price for the stock under each option is one-hundred (100%) of the
fair market value of the Common Stock evidenced by the price at which the Common
Stock closed on the date the option is granted, but in no event less than the
par value of the Common Stock. The 1998 NSO Plan terminates ten years after its
effective date and no options can be granted under it after that date. The 1998
NSO Plan will be effective upon Shareholder approval and no options can be
granted under it prior to that approval.
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The following is a summary of the principal U.S. federal income tax consequences
under current federal income tax laws relating to awards under the 1998 NSO
Plan. This summary is not intended to be exhaustive and, among other things,
does not describe state, local or foreign tax consequences. Participants are
urged to consult their own tax advisors as to the precise tax consequences of
participation in such plan. The granting of options will have no immediate tax
consequences on the Company or the recipient of the options, since the options
are being granted to purchase the stock at the fair market value of the stock on
the date of the grant, and since the options have no readily ascertainable fair
market value. Upon exercise of the options, the optionee will realize and
recognize income on the excess of the fair market value of the stock on the date
of exercise over the exercise price. The excess will be taxed at rates
applicable to ordinary income. The Company will realize a deduction on the date
of exercise in an amount equal to the optionee's gain.
The gain, if any, received upon a subsequent disposition of the Common Stock
will constitute short-term or long-term gain to the optionee, depending on the
optionee's holding period. In addition, the Taxpayer Relief Act of 1997 (the
"Act") made significant changes to the taxation of long-term capital gains. In
general, the Act reduces the maximum rate of tax on the individual's net capital
gain (i.e., the excess of the net long-term capital gain for the taxable year
over the net short-term capital loss for the year) from 28% to 20%. The rate is
reduced to 10% for net capital gains that would otherwise be taxed at 15% rate.
These rates apply for both the regular tax and the minimum tax.
For taxable years beginning after December 31, 2000, the maximum capital gains
rates for assets which are held more than five years are 8% and 18% (rather than
10% and 20%). The 18% rate only applies to assets with holding periods that
begin after December 31, 2000. Finally, the Act provides that the lower capital
gains rate does not apply to the sales or exchange of assets held for 18 months
or less if the sales or exchange is after July 28, 1997. The 28% maximum rate
will continue to apply to the sales or exchange of capital assets held more than
one year but not more than 18 months. However, the 20% maximum rate applies to
otherwise qualifying sales or exchanges occurring after May 6, 1997, and before
July 29, 1997, if the assets were held for more than one year.
The Federal income tax consequences described in this section are based on laws
and regulations in effect on April 21, 1998, and there are no assurances that
the laws and regulations will not change in the future and affect the tax
consequences of the matters discussed in this section.
No options may be exercised under the 1998 NSO Plan without compliance with
applicable securities laws. It is contemplated by management of the Company
that the options and the shares of Common Stock called for by options granted
under the 1998 NSO Plan will be registered by the Company under the federal
securities laws during the remainder of calendar year 1998.
Options granted under the 1998 NSO Plan are nontransferable except by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code, and may be exercised during the lifetime
of the participant only by that participant or his legally authorized
representative, provided, however, the Committee, in its discretion, may allow
for transferability of such options by the participant to "Immediate Family
Members" as that term is defined under the 1998 NSO Plan.
The 1998 NSO Plan would be effective only upon shareholder approval at the 1998
Annual Meeting of Shareholders. The affirmative vote of the holders of a
majority of the total number of shares represented and voting at the
Shareholder's Meeting, assuming a quorum is present, is required in order for
the plan to become effective.
The Board of Directors recommends that Shareholders vote "FOR" ratification of
the 1998 Nonstatutory Stock Option Plan of the Company.
PROPOSAL NO. 5: RATIFICATION OF 1997 NONSTATUTORY STOCK OPTION GRANTS TO THE
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COMPANY'S NON-EMPLOYEE DIRECTORS
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The Board of Directors of the Company on an individual basis in May 1997 granted
options to purchase 10,000 shares of the Company's Common Stock to each of the
seven (7) non-employee directors (the "1997 Individual NSO Grants").
A summary of the material provisions relating to the 1997 Individual NSO Grants
is set out below. The following summary is qualified in its entirety by
reference to the full text of the Company's Non-Qualified Stock Option Agreement
(the "Agreement") with each of the seven (7) non-employee directors, a copy of
which is attached as Exhibit C to this Proxy Statement.
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The purpose of the 1997 Individual NSO Grants is to encourage stock ownership by
non-employee directors of the Company, to provide an incentive for non-employee
directors to expand and improve the profits and prosperity of the Company, and
to assist the Company in retaining non-employee directors.
The non-employee directors of the Company receiving the 1997 Individual NSO
Grants were: Martin C. Bowen, Dr. H. Kirk Downey, Robert H. Johnson, John G.
Richards, Sam Rosen, R.J. Schumacher and W.C Walker.
Each non-employee director (the "Optionee") was granted nonqualified stock
options to purchase 10,000 shares of the Company's common shares at a purchase
price of $11.125 per share. The options cannot be exercised until (i) the
passage of six months from the date of the grant, and (ii) the listing of the
underlying shares on the New York Stock Exchange. Options to purchase 2,000
shares of the Company's Common Stock become exercisable on the day following
each annual shareholders' meeting, provided the Optionee is a non-employee
director on such date. Unless terminated earlier pursuant to the terms of the
Agreement, the options remain exercisable for a period of ten (10) years from
the date of the grant.
Since the 1997 Individual NSO Grants are of nonstatutory stock options, the U.S.
federal income tax consequences under current federal income tax law to such
grants is the same as federal income tax consequences relating to options
granted under the 1998 Nonstatutory Stock Option Plan. Reference is made to
information set forth under the heading Proposal No. 4: 1998 Nonstatutory
Stock Option Plan for a description of such federal income tax consequences.
No options may be exercised under the 1997 Individual NSO Grants without
compliance with applicable securities laws. It is contemplated by management of
the Company that the options and the shares of the Company's Common Stock
underlying the options granted under the 1997 Individual NSO Grants will be
registered by the Company under the federal securities laws during the remainder
of calendar year 1998.
Options granted under the 1997 Individual NSO Grants may only by transferred
during the Optionee's lifetime (i) pursuant to a qualified domestic relations
order as defined in the Internal Revenue Code of 1986, as amended, or (ii) to an
"immediate family member" of the optionee.
The affirmative vote of the holders of a majority of the total number of shares
represented and voting at the Shareholders' Meeting, assuming a quorum is
present, is required for ratification of the 1997 Individual NSO Grants.
The Board of Directors recommends that Shareholders vote "FOR" ratification of
the 1997 Individual Nonstatutory Stock Option Grants to the Company's non-
employee directors.
ACTION TO BE TAKEN UNDER THE PROXY
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Unless otherwise specified in the accompanying proxy, the proxy holders will
vote the shares presented thereby "FOR" the election of L.C. Martin, R.J.
Schumacher, and Dr. H. Kirk Downey as directors for a three year term expiring
at the 2001 Annual Meeting of Shareholders, "FOR" the ratification of the
appointment of Ernst & Young LLP as the independent auditors of the Company for
its fiscal year ending February 28, 1999, "FOR" the approval of the 1998
Incentive Stock Option Plan, "FOR" the approval of the 1998 Nonstatutory Stock
Option Plan, and "FOR" the approval of the 1997 Nonstatutory Stock Option
Grants.
The accompanying proxy will also be voted in connection with the transaction of
such other business as may properly come before the meeting or any adjournment
or adjournments thereof. Management knows of no other matters, other than as
set forth above, to be considered at the meeting. If, however, any other
matters properly come before the meeting, or any adjournment or adjournments
thereof, the persons named in the accompanying proxy will vote such proxy in
accordance with their best judgment on any such matter.
SHAREHOLDER PROPOSALS
- ---------------------
Shareholder proposals for inclusion in the Proxy Statement for the 1999 Annual
Meeting of Shareholders must be received at the executive office of the Company
on or before January 31, 1999.
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ANNUAL REPORTS
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The Company's 1998 Annual Report to Shareholders, covering the fiscal year ended
February 28, 1998, including audited financial statements, is enclosed with this
Proxy Statement. Neither the Annual Report nor the financial statements are
incorporated into this Proxy Statement or are deemed to be a part of the
material for the solicitation of proxies.
A COPY OF THE COMPANY'S 1998 ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, MAY BE OBTAINED WITHOUT CHARGE (EXCEPT FOR EXHIBITS TO SUCH
ANNUAL REPORT WHICH WILL BE FURNISHED UPON PAYMENT OF THE COMPANY'S REASONABLE
EXPENSE IN FURNISHING SUCH EXHIBITS) BY ANY SHAREHOLDER WHOSE PROXY IS SOLICITED
UPON WRITTEN REQUEST TO: AZTEC MANUFACTURING CO., 400 NORTH TARRANT STREET,
CROWLEY, TEXAS 76036, ATTENTION: DANA PERRY.
BY ORDER OF THE BOARD OF DIRECTORS
Sam Rosen, Secretary
Crowley, Texas
June 1, 1998
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EXHIBIT "A"
AZTEC MANUFACTURING CO.
1998 INCENTIVE STOCK OPTION PLAN
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1998 INCENTIVE STOCK OPTION PLAN OF
AZTEC MANUFACTURING CO.
The 1998 Incentive Stock Option Plan (the "Plan") of Aztec Manufacturing
Co. (the "Company") is intended to advance the best interests of the Company by
providing all full-time salaried employees of the Company, and of any
subsidiary of the Company, with additional incentive by increasing their
proprietary interest in the success of the Company, thereby encouraging them to
remain in the employ of the Company. Options granted pursuant to this Plan are
intended to be "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code").
ARTICLE I
Committee
Section 1.1. ADMINSTRATION. The Plan shall be administered by the
Compensation Committee of the Company (the "Committee"). The Committee shall
consist of at least two (2) Non-Employee Directors of the Company.
Section 1.2 POWERS. (a) Subject to the provisions of the Plan, the
Committee shall have plenary authority to determine, in its discretion, the
employees of the Company to whom Options (as hereinafter defined) shall be
granted, the number of shares to be covered by each of the Options, and the time
or times at which and the terms (not inconsistent with this Plan) under which
Options shall be granted, become exercisable and expire. The Committee shall
also have the authority to interpret the Plan and to prescribe, amend or rescind
rules and regulations relating to it.
(b) The Committee shall hold meetings at such times and places as it
may determine. Acts approved at a meeting by a majority of the members of the
Committee or acts approved in writing by the unanimous consent of the members of
the Committee shall be the valid acts of the Committee.
(c) No member of the Committee shall be liable for any action taken
or determination made in good faith with respect to the Plan or any Options
granted under it. No member of the Committee shall be liable for any act or
omission of any other member of the Committee or for any act or omission on his
own part, including, but not limited to, the exercise of any power and
discretion given to him under the Plan, except those resulting from his own
gross negligence or willful misconduct.
(d) In addition to such other rights of indemnification as he may
have as a member of the Board of Directors or the Committee, and with respect to
administration of the Plan and the granting of Options under it, each member of
the Committee shall be entitled without further act on his part to indemnity
from the Company for all expenses (including the amount of any judgments and the
amount of approved settlements made with a view to the curtailment of costs of
litigation, other than amounts paid to the Company itself) reasonably incurred
by him in connection with or arising out of any action, suit or proceeding with
respect to the administration of the Plan or the granting of Options under it in
which he may be involved by reason of his being or having been a member of the
Committee, whether or not he continues to be a member of the Committee at the
time of the incurring of such expenses; provided, however, that such indemnity
shall not include any expenses incurred by a member of the Committee (i) in
respect to matters as to which he shall be finally adjudged in such action, suit
or proceeding to have been guilty of gross negligence or willful misconduct in
the performance of his duties as a member of the Committee; or (ii) in respect
of any matter in which any settlement is effected for an amount in excess of the
amount approved by the Company on the advice of its legal counsel; and provided
further that no right of indemnification under the provisions set forth herein
shall be available to or accessible by any such member of the Committee unless
within five (5) days after institution of any such action, suit or proceeding he
shall have offered the Company in writing the opportunity to handle and defend
such action, suit or proceeding at its own expense. The foregoing right of
indemnification shall inure to the benefit of the heirs, executors or
administrators of each such member of the Committee and shall be in addition to
all other rights to which such member of the Committee would be entitled as a
matter of law, contract or otherwise.
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<PAGE>
ARTICLE II
Participants
Section 2.1. ELIGIBILITY. The persons who shall be eligible to receive
Options shall be all full-time salaried employees of the Company. For the
purposes of this Plan, the term "Employee(s)" shall mean employee(s) of the
Company, or any of its subsidiaries or affiliates, that adopt the Plan and shall
not include members of the Board who are not employed by the Company. The
Committee shall select the eligible individuals to whom Options shall be granted
("Participants"), and shall determine the number of Options to be granted. In
making this determination, the Committee shall weigh the positions and
responsibilities of the individuals being considered, the nature of their
services, their present and potential contributions to the success of the
Company and such other factors as the Committee shall deem relevant to
accomplish the purposes of the Plan.
Section 2.2. NUMBER OF OPTIONS. An eligible employee may be a Participant
under more than one Option Agreement. As used herein, the term "Option" shall
mean the option to purchase one share of Common Stock (as hereinafter defined)
in accordance with the Plan. The term "Option Agreement" shall mean the
agreement under which Options are granted.
Section 2.3. NO RIGHTS AS SHAREHOLDER. No Participant shall have any
rights as a shareholder with respect to shares covered by Options granted to him
pursuant to the Plan (including the right to vote the shares or to receive any
dividends declared thereon) until the date of issuance of a stock certificate
for such shares, notwithstanding the exercise of the Options covering such
shares.
Section 2.4. ELIGIBILITY FOR OTHER PLANS. Participation in the Plan shall
not affect eligibility for any profit-sharing, bonus, insurance, pension, stock
option, or other compensation plan which the Company currently has in effect or
may at any time in the future adopt for employees.
Section 2.5. EMPLOYMENT OBLIGATION. The granting of an Option shall not
impose any obligation upon the Company to employ or continue to employ any
Participant, and the right of the Company to terminate the employment of any
Participant shall not be diminished or affected by reason of the fact that
Options have been granted to him.
Section 2.6. CONTINUOUS EMPLOYMENT. An Option granted under this Plan
will terminate in accordance with Section 4.8 below upon the termination of
employment of a Participant. However, the requisite employment relationship
with respect to Options granted hereunder will be treated as continuing intact
while the Participant (with the prior approval of the Committee) is on military
leave, sick leave, or other bona fide leave of absence (such as temporary
employment by the Government) if the period of such leave does not exceed ninety
(90) days, or, if longer, so long as the Participant's right to reemployment is
guaranteed by statute or by contract.
Section 2.7. SHAREHOLDER APPROVAL. No Option may be exercised under the
Plan until the Plan has been approved by the affirmative vote of a majority of
the total number of shares represented and entitled to vote thereon at a meeting
of the shareholders, assuming a quorum is present. Such approval must be
obtained from the shareholders of the Company within twelve (12) months from the
prior approval, if any, of the Plan by the Board of Directors.
Section 2.8. NO OBLIGATION TO EXERCISE OPTION. The granting of an Option
under the Plan shall not impose any obligation upon the Participant to exercise
the Option. A Participant may, at any time, elect in writing to abandon Options
granted under the Plan.
ARTICLE III
SHARES SUBJECT TO OPTIONS
Section 3.1. SHARES AVAILABLE. The shares of stock subject to Options
shall be the Company's One Dollar ($1.00) par value common stock (the "Common
Stock"). The aggregate number of shares of Common Stock for which Options may
be granted under the Plan shall not exceed 750,000 shares of Common Stock. Such
shares may be treasury or authorized but unissued shares of Common Stock of the
Company.
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Section 3.2. ALLOTMENT OF OPTIONS FOR THE PURCHASE OF SHARES. (a) Subject
to the allotment requirements of Section 3.2(b), the Committee shall determine
the number of Options for the purchase of shares of Common Stock to be granted
from time to time to any employee eligible to become a Participant.
(b) The aggregate fair market value (determined at the time the
Option is granted) of shares of Common Stock underlying Options exercisable by a
Participant under the Plan for the first time during any calendar year under the
Plan (or any other incentive stock option plan of the Company or a parent or
subsidiary corporation of the Company, as those terms are defined in Section
424(e) and (f), respectively, of the Code) shall not exceed $100,000.
Section 3.3. SHARES FROM UNEXERCISED OPTIONS. In the event that any
outstanding Options under the Plan for any reason expire or are terminated, the
shares of Common Stock allocable to the unexercised Options may again be
subjected to other Option Agreements under the Plan.
ARTICLE IV
TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be evidenced by Option
Agreements in such form as the Committee shall, from time to time, recommend,
which (although they need not be identical in form) shall be subject to the
following terms and conditions:
Section 4.1. OPTION PRICE. The price at which shares of Common Stock may
be purchased pursuant to Options granted under the Plan (the "Option Price")
shall be no less than one hundred percent (100%) of the fair market value of the
shares of Common Stock on the date the Option is granted.
Section 4.2. TIME OF GRANTING OPTIONS. Neither anything contained in the
Plan or in any resolution adopted or to be adopted by the Board of Directors of
the Company or the shareholders of the Company nor any action taken by the
Committee shall constitute the granting of Options. The granting of Options
shall take place only when the written Option Agreement has been duly executed
by or on behalf of the Company and the Participant to whom such Options shall be
granted. Notwithstanding anything herein to the contrary, no Options shall be
granted under the Plan more than ten years after the effective date of the Plan.
Section 4.3 DURATION OF OPTIONS. No Options shall be exercisable after
the expiration of ten (10) years from the date such Options are granted and the
Committee in its discretion, subject to the provisions of Section 4.4 with
regard to holders of 10% or more of the Common Stock, may provide that Options
shall be exercisable during such ten (10) year period or any lesser period of
time.
Section 4.4. TEN PERCENT (10%) SHAREHOLDERS. Anything herein to the
contrary notwithstanding, Options granted by the Committee to any eligible
employee who at the time of the grant of the Options owns, directly or
indirectly, more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company, or of any parent or subsidiary corporation
of the Company, shall be exercisable at an Option Price which is at least one
hundred ten percent (110%) of the fair market value of the shares of Common
Stock determined at the time such Options are granted and such Options shall not
be exercisable after the expiration of five (5) years from the date they are
granted. The attribution rules of Section 424(d) of the Code shall apply in the
determination of indirect ownership of stock of the Company, and of any parent
or subsidiary corporation of the Company.
Section 4.5. AMOUNT EXERCISABLE. Options may be exercised in blocks of no
less than one hundred (100) at any one time, unless the number exercised is the
total number exercisable by a Participant in which case all, but not less than
all, Options may be exercised.
Section 4.6. METHOD OF EXERCISE. (a) No Option shall be deemed to have
been exercised prior to the receipt by the Company of written notice of such
exercise and of payment in full of the Option Price for the shares to be
purchased. Each such notice shall specify the number of shares to be purchased
and shall (unless the shares are covered by a then current registration
statement under the Securities Act of 1933 (the "Act")), contain the
Participant's acknowledgment in form and substance satisfactory to the Company
that (i) such shares are being purchased for investment and not for distribution
or resale (other than a distribution or resale which, in the opinion of counsel
satisfactory to the Company, may be made without violating the registration
provisions of the Act), (ii) the Participant
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has been advised and understands (A) the shares have not been registered under
the Act and are "restricted securities" within the meaning of Rule 144 under the
Act and are subject to restrictions on transfer, and (B) the Company is under no
obligation to register the shares under the Act or to take any action which
would make available to the Participant any exemption from such registration,
and (iii) such shares may not be transferred without compliance with all
applicable federal and state securities laws. Notwithstanding the above, should
the Company be advised by counsel that issuance of shares should be delayed
pending (i) registration under federal or state securities laws, or (ii) the
receipt or an opinion that an appropriate exemption therefrom is available, the
Company may defer issuance of shares underlying any Options granted hereunder
until either such event has occurred. No Participant who is subject to Section
16 of the Securities Exchange Act of 1934 may sell an Option or any share
acquired by exercise of an Option for at least six (6) months after the date the
Option was granted. No Participant shall have any rights as a shareholder with
respect to shares underlying Options until the date of issuance of a stock
certificate for such shares.
(b) A Participant shall pay for shares acquired upon the exercise of
Options (i) in cash, (ii) by check payable to the order of the Company, or (iii)
by a combination of the foregoing. Alternatively, payment may be made all or in
part in shares of the Common Stock held by the Participant for more than one
year. If payment is made in whole or in part in shares of the Common Stock,
then the Participant shall deliver to the Company certificates registered in the
name of such Participant representing shares of Common Stock legally and
beneficially owned by such Participant, free of all liens, claims and
encumbrances of every kind, accompanied by stock powers duly endorsed in blank
by the record holder of the shares represented by such certificates.
(c) The certificate or certificates for shares of Common Stock as to
which Options are exercised shall be registered in the name of the person or
persons exercising the Options. In the event the Options shall be exercised
pursuant to Section 4.8(b) by any person or persons other than the Participant,
the notice shall be accompanied by appropriate proof of the right of such person
or persons to exercise the Options.
(d) The Company shall deliver to the Participant the certificate or
certificates for the number of shares of Common Stock with respect to which the
Options have been exercised to the address which shall be specified in the
notice of exercise required by Section 4.6(a), and delivery shall be deemed
effected for all purposes when the Company or its transfer agent shall have
deposited such certificate or certificates in the United States mail addressed
to the Participant at such address.
Section 4.7. NON-TRANSFERABILITY OF OPTIONS. Options shall not be
transferable by the Participant other than by will or under the laws of dscent
and distribution and shall be exercisable, during his lifetime, only by him.
Section 4.8. SEVERANCE OF EMPLOYMENT. (a) Except as otherwise provided in
Section 4.8(b), in the event of the termination of employment of the Participant
by the Company for any reason whatsoever other than the gross and willful
misconduct of the Participant or death or disability, whether by his own
volition or otherwise, any Options granted to the Participant under the Plan
shall terminate on the earlier of the date of their expiration or the day which
is three (3) months after the date of termination of employment of the
Participant. After the date of termination of employment of the Participant,
but prior to the date of termination of such Options, as provided in the
immediately preceding sentence, the Participant shall have the right to exercise
the Options which were exercisable on the date of the termination of the
Participant's employment with the Company. In the event of termination of
Participant's employment with the Company because of gross and willful
misconduct, including but not limited to wrongful appropriation of funds of the
Company or the commission of a felony, Options granted to Participant, to the
extent not previously exercised, shall terminate.
(b) In the event of the death or total disability of the Participant
while in the employ of the Company, any Options granted to a Participant under
the Plan shall terminate on the earlier of (i) the date of their expiration or
(ii) in the event of the death of the Participant, the day which is twelve (12)
months after the date of death of the Participant or in the event of the total
disability of the Participant, the day which is twelve (12) months after the
date of termination of employment of the Participant, as the case may be. After
the date of death or total disability of the Participant, as the case may be,
but prior to the date of termination of Options provided in the immediately
preceding sentence, the Participant's executors, administrators or any person or
persons to whom the Options may be transferred by will or by the laws of descent
and distribution (in the event of the Participant's death) or the Participant
(in the event of the Participant's total disability) shall have the right at any
time during the period of time specified in this Section 4.8(b) to exercise the
Options, in whole or in part regardless of whether or not such Options were
exercisable on the date of death or total disability. For purposes of this
Section 4.8(b), the term "total disability" shall mean the inability of the
Participant to return to the handling of substantially all of his duties as a
full-time salaried
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<PAGE>
employee of the Company within ninety (90) days after injury or illness. The
Committee shall determine whether or not a Participant is totally diabled and
such determination by the Committee shall be binding on the Participant.
Section 4.9. REQUIREMENTS OF REGULATORY AGENCIES. The Company shall not
be required to sell or issue any shares of Common Stock under any Options if the
issuance of such shares of Common Stock shall constitute a violation by the
Participant or the Company of any provisions of any law or regulation of any
governmental authority.
ARTICLE V
MODIFICATION
Section 5.1. AMENDMENT OR TERMINATION OF THE PLAN. The Board of Directors
of the Company may modify, revise or terminate the Plan at any time and from
time to time; provided, however, that without the further approval of the
shareholders of the Company, the Board of Directors may not (i) materially
increase the benefits accruing to Participants under the Plan; (ii) materially
increase the number of securities which may be issued under the Plan; (iii)
materially modify the requirements as to eligibility for participation in the
Plan; or (iv) change any provisions of the Plan which would affect the income
tax status of the Options granted hereunder. No modification of this Plan
shall, without the consent of the Participant, alter or impair any rights or
obligations of such Participant under any Options theretofore granted under the
Plan except for such modifications as, in the opinion of counsel for the
Company, may be necessary or appropriate from time to time to enable the Options
granted pursuant to the Plan to comply with the requirements of any governmental
or regulatory agency.
Section 5.2. ADJUSTMENTS. Adjustments shall be made to the number of
Options and the per share exercise price therefor as provided in this section:
(a) In the event that the outstanding shares of Stock of the Company
are hereafter increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of the Company or of
another corporation, by reason of a recapitalization, reclassification, stock
split-up, combination of shares, dividend or other distribution payable in
capital stock, appropriate adjustment shall be made by the Committee in the
number and kind of shares for the purchase of which Options may be granted under
the Plan. In addition, the Committee shall make appropriate adjustment in the
number and kind of shares as to which outstanding Options, or portions thereof
then unexercised, shall be exercisable, to the end that the proportionate
interest of the holder of the Option shall, to the extent practicable, be
maintained as before the occurrence of such event. Such adjustment in
outstanding Options shall be made without change in the total price applicable
to the unexercised Options but with a corresponding adjustment in the Option
Price per share.
(b) In the event of the dissolution of the Company, any Options
granted and outstanding under the Plan shall terminate as of the effective date
of dissolution.
(c) In the event of a Reorganization (as hereinafter defined) in
which the Company is not the surviving or acquiring company, or in which the
Company is or becomes a wholly-owned subsidiary of another company after the
effective date of the Reorganization, then
(1) If there is no plan or agreement respecting the
Reorganization ("Reorganization Agreement") or if the Reorganization
Agreement does not specifically provide for the change, conversion or
exchange of the shares under outstanding and unexercised Options for
securities of another corporation, any such Options shall be deemed
exercisable for stock of the surviving corporation or parent corporation of
which the Company becomes a subsidiary at a rate of exchange to be
determined by the Committee, but in no event shall the fair market value of
the stock substituted by the Common Stock of the Company at any time of the
Reorganization be less than the fair market value of the Common Stock of
the Company at the time of the Reorganization; or
(2) If there is a Reorganization Agreement and if the
Reorganization Agreement specifically provides for the change, conversion
or exchange of the shares under outstanding and unexercised Options for
securities of another corporation, then the Committee shall adjust the
shares under such outstanding and unexercised Options (and shall adjust the
shares remaining under the Plan which are then available to be optioned
under the Plan, if the Reorganization Agreement makes specific provision
therefor) in
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a manner not inconsistent with the provisions of the Reorganization
Agreement for the adjustment, change, conversion or exchange of such stock
and such Options.
(d) The term "Reorganization" as used in paragraph (c) of this
Section 5.2 shall mean any statutory merger, statutory consolidation, sale of
all or substantially all of the assets of the Company, or sale, pursuant to an
agreement with the Company, of securities of the Company pursuant to which the
Company is or becomes a subsidiary of another company after the effective date
of the Reorganization.
(e) Adjustments and determinations under this Section 5.2 shall be
made by the Committee, whose decisions as to what adjustments or determinations
shall be made, and the extent thereof, shall be final, binding and conclusive.
No fractional shares of Common Stock shall be issued in connection with the
exercise of any Options and any fractional shares of Common Stock resulting from
the computations pursuant to this Section 5.2 shall be eliminated from the
respective Option.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. WRITTEN AGREEMENT. Options granted hereunder shall be
embodied in a written Incentive Stock Option Agreement, which shall be subject
to the terms and conditions of the Plan and shall be signed by the Participant
and by the President or any Vice President of the Company for and on behalf of
the Company.
Section 6.2. SIX MONTH HOLDING PERIOD. No Option or share of Common Stock
acquired upon the exercise of an Option granted under the Plan to an employee
who is subject to Section 16 of the Securities Exchange Act of 1934 shall be
sold or otherwise disposed of for at least six (6) months from the date the
Option was granted.
Section 6.3. PLAN EXPENSES. The expenses of administering the Plan shall
be borne by the Company.
Section 6.4. WITHHOLDING OF TAXES. Whenever the Company proposes or is
required to issue or transfer Common Stock under the Plan, the Company shall
have the right to (a) require the recipient or transferee to remit to the
Company an amount sufficient to satisfy any federal, state and/or local
withholding tax requirements prior to the delivery or transfer of any
certificate or certificates for such shares, or (b) take whatever action it
deems necessary to protect its interests.
Section 6.5. TERMINOLOGY. The headings in this Plan are solely for the
convenience of reference and shall be given no effect in the construction or
interpretation of this Plan. Wherever required by context, any gender shall
include any other gender, the singular shall include the plural and the plural
shall include the singular.
Section 6.6. EFFECTIVE DATE OF THE PLAN. The Plan shall become effective
and shall be deemed to have been adopted on the date of approval by the
Company's shareholders.
Adopted by the Board of Directors, subject to shareholder approval, on the
21st day of April, 1998.
By:
-----------------------------------
L. C. Martin
Chairman of the Board
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EXHIBIT "B"
AZTEC MANUFACTURING CO.
1998 NONSTATUTORY STOCK OPTION PLAN
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<PAGE>
1998 NONSTATUTORY STOCK OPTION PLAN
OF
AZTEC MANUFACTURING CO.
A. Purpose and Scope.
-----------------
The purposes of this Plan are to encourage stock ownership by executive
officers and outside, nonemployee directors of Aztec Manufacturing Co. (herein
called the "Company"), to provide an incentive for executive officers and
outside, nonemployee directors to expand and improve the profits and prosperity
of the Company, and to assist the Company in attracting and retaining executive
officers and outside, nonemployee directors through the grant of options to
purchase shares of the Company's Common Stock (as hereinafter defined).
B. Definitions.
-----------
Unless otherwise required by the context:
1. "Board" shall mean the Board of Directors of the Company.
2. "Committee" shall mean the Compensation Committee of the Company,
which is appointed by the Board from its members, and which shall be
composed of at least two (2) members of the Board.
3. "Common Stock" shall mean the common stock of the Company, par
value $1.00.
4. "Company" shall mean Aztec Manufacturing Co., a Texas corporation.
5. "Code" shall mean the Internal Revenue Code of 1986, as amended.
6. "Executive Officer" shall be defined as set forth in Rule 3b-7 of
the Securities Exchange Act of 1934 or as otherwise determined by the Board
of the Company.
7. "Immediate Family Members" means children, grandchildren, spouse,
siblings or parents of the Participant, or bona fide trusts, partnerships
or other entities controlled by, and of which the beneficiaries are,
Immediate Family Members of the Participant. Any Option grants that are
transferable are conditioned on the Participant and Immediate Family
Members agreeing to abide by the Company's then current stock option
transfer guidelines.
8. "Option" shall mean a right to purchase one share of Common Stock.
9. "Option Agreement" shall mean the agreement under which Options
are granted.
10. "Option Price" shall mean the purchase price for Common Stock
under an Option, as determined in Section F below.
11. "Participant" shall mean an executive officer or a nonemployee
director of the Company to whom an Option is granted under the Plan.
12 "Plan" shall mean this Aztec Manufacturing Co. 1998 Nonstatutory
Stock Option Plan.
C. Common Stock to be Optioned.
---------------------------
Subject to the provisions of Section I of the Plan, the maximum number of
shares of Common Stock that may be optioned or sold under the Plan is 250,000
shares. Such shares may be treasury or authorized but unissued shares of Common
Stock of the Company.
D. Administration.
--------------
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<PAGE>
1. The Plan shall be administered by the Committee. The Committee
shall hold meetings at such times and places as it may determine. Acts
approved at a meeting by a majority of the members of the Committee or acts
approved in writing by the unanimous consent of the members of the
Committee shall be the valid acts of the Committee.
2. The Committee shall from time to time direct the Company to grant
Options pursuant to the terms of the Plan. The Committee shall have
authority to interpret the Plan and any Option Agreement entered into
pursuant to Committee action shall be final, binding and conclusive so long
as the provisions of such Option Agreement are consistent with the terms of
the Plan.
3. No member of the Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Options
granted under it. No member of the Committee shall be liable for any act
or omission of any other member of the Committee or for any act or omission
on his own part, including, but not limited to, the exercise of any power
or discretion given to him under the Plan, except those resulting from his
own gross negligence or willful misconduct.
4. In addition to such other rights of indemnification as he may have
as a member of the Board of Directors or the Committee, and with respect to
administration of the Plan and the granting of Options under it, each
member of the Committee shall be entitled without further act on his part
to indemnity from the Company for all expenses (including the amount of
judgment and the amount of approved settlements made with a view to the
curtailment of costs of litigation, other than amounts paid to the Company
itself) reasonably incurred by him in connection with or arising out of any
action, suit or proceeding with respect to the administration of the Plan
or the granting of Options under it in which he may be involved by reason
of his being or having been a member of the Committee, whether or not he
continues to be such member of the Committee at the time of the incurring
of such expenses; provided, however, that such indemnity shall not include
any expenses incurred by such member of the Committee (i) in respect of
matters as to which he shall be finally adjudged in such action, suit or
proceeding to have been guilty of gross negligence or willful misconduct in
the performance of his duties as a member of the Committee; or (ii) in
respect of any matter in which any settlement is effected for an amount in
excess of the amount approved by the Company on the advice of its legal
counsel; and provided further that no right of indemnification under the
provisions set forth herein shall be available to or accessible by any such
member of the Committee unless within five (5) days after institution of
any action, suit or proceeding asserting a claim for which indemnification
would be available under this paragraph, he shall have offered the Company
in writing the opportunity to handle and defend such action, suit or
proceeding at its own expense. The foregoing right of indemnification
shall inure to the benefit of the heirs, executors or administrators of
each such member of the Committee and shall be in addition to all other
rights to which such member of the Committee would be entitled to as a
matter of law, contract or otherwise.
E. Eligibility.
-----------
This Plan shall be exclusively for the benefit of executive officers and
nonemployee directors of the Company and only such persons shall be eligible to
receive Options under this Plan.
F. Option Price.
------------
The purchase price for Common Stock under each Option shall be one hundred
percent (100%) of the fair market value of the Common Stock at the time the
Option is granted, but in no event less than the par value of the Common Stock.
G. Terms and Conditions of Options.
-------------------------------
Options granted pursuant to the Plan shall be evidenced by written Option
Agreements in such form as the Committee shall from time to time approve, which
Option Agreements shall comply with and be subject to the following terms and
conditions:
1. Grant of Options. Neither anything contained in the Plan nor any
resolution adopted or to be adopted by the Board of Directors of the
Company or the shareholders of the Company nor any action taken by the
Committee shall constitute the granting of Options. The granting of
Options shall take place only when
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the written Option Agreement has been duly executed by or on behalf of the
Company and the Participant to whom such Options shall be granted. The Plan
is subject to the approval of the Company's shareholders and no Options
shall be granted under it until and unless such approval is received.
2. Duration of Options. Subject to the provisions of Section H
below, Options shall become exercisable and shall be exercisable for such
period as is determined by the Committee.
3. Exercise and Payment. No Option shall be deemed to have been
exercised prior to the receipt by the Company of written notice of such
exercise and of payment in full of the Option Price for the Options to be
exercised. Each such notice shall specify the number of Options to be
exercised and shall (unless the shares underlying the Options are covered
by a then current registration statement under the Securities Act of 1933
(the "Act")), contain the Participant's acknowledgment in form and
substance satisfactory to the Company that (i) such shares are being
purchased for investment and not for distribution or resale (other than a
distribution or resale which, in the opinion of counsel satisfactory to the
Company, may be made without violating the registration provisions of the
Act), (ii) the Participant has been advised and understands that (A) the
shares have not been registered under the Act and are "restricted
securities" within the meaning of Rule 144 under the Act and are subject to
restrictions on transfer, and (B) the Company is under no obligation to
register the shares under the Act or to take any action which would make
available to the Participant any exemption from such registration, and
(iii) such shares may not be transferred without compliance with all
applicable federal and state securities laws. Notwithstanding the above,
should the Company be advised by counsel that issuance of shares should be
delayed pending (i) registration under federal or state securities laws, or
(ii) the receipt of an opinion that an appropriate exemption therefrom is
available, the Company may defer issuance of any shares hereunder until
either such event has occurred. No Participant who is subject to Section
16 of the Securities Exchange Act of 1934 may sell an Option or any share
acquired upon the exercise of an Option for at least six (6) months after
the date of grant of the Option. No Participant shall have any rights as a
shareholder with respect to any share acquired upon the exercise of an
Option until the date of issuance of a stock certificate for such shares.
The Option Price shall be paid in full at the time an Option is exercised
under the Plan. Otherwise, an exercise of any Option granted under the
Plan shall be invalid and of no effect. Promptly after the exercise of an
Option and the payment of the full Option Price, the Participant shall be
entitled to the issuance of a stock certificate evidencing his ownership of
such Common Stock.
4. Medium of Payment. A Participant shall pay for shares acquired
upon the exercise of Options (i) in cash, (ii) by check payable to the
order of the Company, or (iii) by a combination of the foregoing.
Alternatively, payment may be made all or in part in shares of the Common
Stock held by the Participant for more than one year. If payment is made
in whole or in part in shares of Common Stock, then the Participant shall
deliver to the Company certificates registered in the name of such
Participant representing shares of Common Stock legally and beneficially
owned by such Participant free of all liens, claims and encumbrances of
every kind, accompanied by stock powers duly endorsed in blank by the
record holder of the shares represented by such certificates.
H. Termination of Options.
----------------------
No Options shall be exercisable after the first to occur of the following:
1. Expiration of the Option term specified in the Option Agreement,
which shall not exceed ten (10) years from the date the Options first
become exercisable;
2. Expiration of three (3) months from the date the Participant's
service as an executive officer or nonemployee director with the Company
terminates for any reason other than the circumstances described in 3, 4 or
5 below;
3. Expiration of one (1) year from the date the Participant's service
as an executive officer or nonemployee director with the Company
terminates by reason of the Participant's disability (within the meaning of
section 22(e)(3) of the Code) or death;
4. Expiration of ten (10) days (which period may be extended on a
case by case basis in the sole discretion of the Committee) from the date
the Participant voluntarily resigns as an executive officer or
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<PAGE>
nonemployee director of the Company (not including any termination due to
the death or disability of the Participant); or
5. A finding by the Committee, after full consideration of the facts
presented on behalf of both the Company and the Participant, that a
Participant has been removed as an executive officer or nonemployee
director of the Company for Cause. For purposes of this paragraph "Cause"
shall mean: (A) a pattern of gross negligence or an act of willful
misconduct by Participant in the performance of his duties to the Company
which has a material adverse effect on the Company's reputation, business,
properties or business relationships, or (B) Participant's conviction of a
felony or misdemeanor (other than a traffic violation) or of
misappropriation of funds of the Company, or (C) Participant's
appropriation to himself of a corporate opportunity of the Company which
Participant fails to make available to the Company. In the event of a
finding that participant has been removed for Cause, in addition to
immediate termination of the Option, the Participant shall automatically
forfeit all shares to be acquired upon the exercise of Options for which
the Company has not yet delivered the share certificates upon refund by the
Company of the Option Price.
Notwithstanding the foregoing, any Participant who is elected as a
director or advisory director before or contemporaneously with his
voluntary termination as an employee or director of the Company (regardless
of the position for which the Options were awarded) shall not be deemed to
have a break in service that would trigger the termination provisions of
paragraph 4 of this Section H. In this circumstance, the provisions of
paragraphs 1, 2, 3 and 5 of this Section H remain applicable.
I. Adjustments in Common Stock.
---------------------------
Adjustments shall be made with reference to the number of shares of Common
Stock underlying Options and the per share exercise price therefor as provided
in this section:
1. In the event that the outstanding shares of Common Stock of the
Company are hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company
or of another corporation, by reason of a recapitalization,
reclassification, stock split-up, combination of shares, dividend or other
distribution payable in capital stock, appropriate adjustment shall be made
by the Committee in the number and kind of shares for the purchase of which
Options may be granted under the Plan. In addition, the Committee shall
make appropriate adjustment in the number and kind of shares as to which
outstanding Options shall be exercisable, to the end that the proportionate
interest of the holder of the Options shall, to the extent practicable, be
maintained as before the occurrence of such event. Such adjustment in
outstanding Options shall be made without change in the total price
applicable to the unexercised Options but with a corresponding adjustment
in the Option Price per share.
2. In the event of a Reorganization (as hereinafter defined) in which
the Company is not the surviving or acquiring company, or in which the
Company is or becomes a wholly-owned subsidiary of another company after
the effective date of the Reorganization, then
a. If there is no plan or agreement respecting the Reorganization
("Reorganization Agreement") or if the Reorganization Agreement does
not specifically provide for the change, conversion or exchange of the
shares under outstanding and unexercised stock options for securities
of another corporation, any such stock options shall be deemed
exercisable for stock of the surviving corporation or parent
corporation of which the Company becomes a subsidiary at a rate of
exchange to be determined by the Committee, but in no event shall the
fair market value of the stock substituted for the stock of the
Company at the time of the Reorganization be less than the fair market
value of the stock of the Company at the time of the Reorganization.
b. If there is a Reorganization Agreement and if the
Reorganization Agreement specifically provides for the change,
conversion or exchange of the shares under outstanding and unexercised
stock options for securities of another corporation, then the
Committee shall adjust the shares under such outstanding and
unexercised stock options (and shall adjust the shares remaining under
the Plan which are then available to be optioned under the Plan, if
the Reorganization Agreement makes specific provision therefor) in a
manner not inconsistent with the provisions of the Reorganization
Agreement for the adjustment, change, conversion or exchange of such
stock and such Options.
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<PAGE>
c. The term "Reorganization" as used in paragraph 2 of this
Section I shall mean any statutory merger, statutory consolidation,
sale of all or substantially all of the assets of the Company, or
sale, pursuant to an agreement with the Company, of securities of the
Company pursuant to which the Company is or becomes a subsidiary of
another company after the effective date of the Reorganization.
d. Adjustments and determinations under this Section I shall be
made by the Committee, whose decisions as to what adjustments or
determinations shall be made, and the extent thereof, shall be final,
binding and conclusive.
J. Amendment of the Plan.
---------------------
Except as hereinafter limited, the Board of Directors of the Company may
modify, revise or terminate the Plan at any time and from time to time;
provided, however, that without the further approval of the shareholders of the
Company, the Board of Directors may not (i) materially increase the benefits
accruing to Participants under the Plan; (ii) materially increase the number of
securities which may be issued under the Plan; (iii) materially modify the
requirements as to eligibility for participation in the Plan; or (iv) change any
provisions of the Plan which would affect the income tax status of the Options
granted hereunder. No modification of this Plan shall, without the consent of
the Participant, alter or impair any rights or obligations of such Participant
under any Options theretofore granted under the Plan except for such
modifications as, in the opinion of counsel for the Company, may be necessary or
appropriate from time to time to enable the Options granted pursuant to the Plan
to comply with the requirements of any governmental or regulatory agency.
K. Miscellaneous.
-------------
1. No fractional shares shall be issued under this Plan.
2. Options may be exercised only in blocks of 100 unless the number
exercised is the total number exercisable by a Participant in which case
all, but not less than all, exercisable Options may be exercised.
3. The granting of Options shall impose no obligation upon the
Participant to exercise such Options.
4. Options shall not be transferable other than by will or by the
laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code, and may be exercised during the
lifetime of a Participant only by that Participant or by his legally
authorized representative; provided, however, that the Committee, in its
discretion, may allow for transferability of such Options by the
Participant to "Immediate Family Members".
5. The Company, during the term of this Plan, will at all times
reserve and keep available the number of shares of Common Stock sufficient
to satisfy the requirements of this Plan.
L. Effective Date of Plan.
----------------------
The Plan shall be effective upon approval by the shareholders of the
Company at its shareholders meeting to be held on July 14, 1998. If the Plan
is not approved by the shareholders, then the Plan will be of no further force
and effect.
Adopted by the Board of Directors, subject to shareholders approval, on the
21st day of April, 1998.
By:
-------------------------------
L. C. Martin
Chairman of the Board
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EXHIBIT "C"
AZTEC MANUFACTURING CO.
1997 NONSTATUTORY STOCK OPTION AGREEMENT
-27-
<PAGE>
AZTEC MANUFACTURING CO.
1997 NONSTATUTORY STOCK OPTION AGREEMENT
This agreement granting an option to purchase shares of the One Dollar
($1.00) par value common stock of AZTEC MANUFACTURING CO. (the "Stock") is made
as of May 20, 1997, between AZTEC MANUFACTURING CO. (the "Company") and
________________________ (the "Optionee"), a Director (as hereinafter defined)
of the Company, pursuant resolutions (the "Resolutions"), adopted by the
Directors of the Company on May 20, 1997 (the "Date of Grant").
Now, therefore, in consideration of the Company's desire to further its
interests and Optionee's desire to increase his proprietary interest in the
Company, it is agreed by and between the parties as follows:
1. Grant of Options. Optionee is hereby granted options (the "Option" or
"Options") to purchase Ten Thousand (10,000) shares (the "Option Shares") of
Stock at the purchase price of Eleven and One-eight Dollars ($11.125) per Option
Share (the "Option Price"). Options granted herein to purchase Two Thousand
(2000) shares of Stock shall become exercisable on the day following each annual
shareholders meeting commencing with the Company's 1997 annual shareholders
meeting provided Optionee is a Director of the Company on such date and,
provided further, that no option shall be exercised until (i) the passage of six
months from the Date of Grant, and (ii) the listing of the underlying shares on
the New York Stock Exchange.
2. Period During Which Options Are Exercisable. The Option shall become
exercisable as provided in Paragraph 1. above and, unless terminated earlier as
provided below shall remain exercisable for a period of ten (10) years from the
Date of Grant.
3. Method of Exercise and Payment. Options granted hereby may be exercised and
shall be paid for as provided below:
(a) Method of Exercise. An Option may be exercised to the extent it is
exercisable under Section 1 above by written notice addressed to the Company's
President at the Company's principal executive office specifying the number of
Option Shares to be purchased and, unless the Option Shares are covered by a
then-current registration statement under the Securities Act of 1933 (the
"Act"), containing the Optionee's acknowledgment, in form and substance
satisfactory to the Company, that the Optionee:
(i) is purchasing such Option Shares for investment and not for
distribution or resale (other than a distribution or resale which, in the
opinion of counsel satisfactory to the Company, may be made without violating
the registration provisions of the Act);
(ii) has been advised and understands that:
(A) the Option Shares have not been registered under the Act
and are "restricted securities" within the meaning of Rule 144 under the act and
are subject to restrictions on transfer; and
(B) the Company is under no obligation to register the Option
Shares under the Act or to take any action which would make available to the
Optionee any exemption from such registration; and
(iii) has been advised and understands that such Option Shares may
not be transferred without compliance with all applicable federal and state
securities laws.
The notice shall be accompanied by payment of the aggregate price of the Option
Shares being purchased. Such exercise shall be effective upon the actual
receipt by the Company's President of such written notice and payment. Such
notice must be given by Optionee, or his or her guardian or other legal
representative, unless the Option is
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<PAGE>
exercised after Optionee's death, in which case it may be given by Optionee's
executor, administrator or other legal representative.
(b) Medium of Payment. An Optionee shall pay for Option Shares (i) in
cash, (ii) by check payable to the order of the Company, or (iii) by a
combination of the foregoing. Alternatively, payment may be made all or in part
in shares of the Common Stock held by the Optionee for more than one year. If
payment is made in whole or in part in shares of the Common Stock, then the
Optionee shall deliver to the Company certificates registered in the name of
such Optionee representing shares of Common Stock legally and beneficially owned
by such Optionee, free of all liens, claims and encumbrances of every kind,
accompanied by stock powers duly endorsed in blank by the record holder of the
shares represented by such certificates.
4. Termination of the Option. No Options shall be exercisable after the first
to occur of the following:
(i) The expiration of the Option term specified herein;
(ii) The date, if any, set by the Board of Directors of the Company
(the "Board of Directors") to be an accelerated expiration date in the event of
dissolution or liquidation of the Company or consummation of any corporate
combination transaction in which the Company is not the surviving or acquiring
company or in which the Company becomes a wholly-owned subsidiary of another
company, provided an Optionee who holds an Option is given written notice at
least thirty (30) days before the date so fixed;
(iii) Expiration of three (3) months from the date the Optionee's
service as a Director of the Company terminates for any reason other than the
circumstances described by subparagraphs (iv), (v) or (vi) below;
(iv) Expiration of one (1) year from the date the Optionee's service
as Director of the Company terminates by reason of the Optionee's disability
(within the meaning of section 22(e)(3) of the Internal Revenue Code of 1986, as
amended) or death;
(v) Expiration of ten (10) days (which period may be extended on a
case by case basis in the sole discretion of the Board of Directors) from the
date the Optionee voluntarily resigns as a Director of the Company (not
including any termination due to the death or disability of the Optionee); or
(vi) A finding by the Board of Directors (without participation by
the Director in question) after full consideration of the facts presented on
behalf of both the Company and the Optionee, that an Optionee has been removed
as a Director of the Company for Cause. For purposes of this paragraph "Cause"
shall mean: (A) a pattern of gross negligence or an act of willful misconduct by
Optionee in the performance of his duties to the Company which has a material
adverse effect on the Company's reputation, business, properties or business
relationships, or (B) Optionee's conviction of a felony or misdemeanor (other
than a traffic violation) or of misappropriation of funds of the Company, or (C)
Optionee's appropriation to himself of a corporate opportunity of the Company
which Optionee fails to make available to the Company. In the event of a finding
that Optionee has been discharged for Cause, in addition to immediate
termination of the Option, the Optionee shall automatically forfeit all Option
Shares for which the Company has not yet delivered the share certificates upon
refund by the Company of the Option Price.
5. Adjustments in Stock. Adjustments shall be made with reference to the
number of Option Shares and the per share exercise price therefor as provided in
this section:
(a) In the event that the outstanding shares of Stock are hereafter
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of a
recapitalization, reclassification, stock split-up, combination of shares,
dividend or other distribution payable in capital stock, appropriate adjustment
shall be made by the Board of Directors in the number and kind of shares as to
which this Option shall be exercisable, to the end that the proportionate
interest of the holder of this Option shall, to the extent practicable, be
maintained as before the occurrence of such event. Such adjustment in this
Option shall
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<PAGE>
be made without change in the total price applicable to the unexercised Option
but with a corresponding adjustment in the option price per share.
(b) In the event of a Reorganization (as hereinafter defined) in which the
Company is not the surviving or acquiring company, or in which the Company is or
becomes a wholly-owned subsidiary of another company after the effective date of
the Reorganization, then
(i) If there is no plan or agreement respecting the Reorganization
("Reorganization Agreement") or if the Reorganization Agreement does not
specifically provide for the change, conversion or exchange of the shares under
outstanding and unexercised stock options for securities of another corporation,
the unexercised portion of this Option shall be deemed exercisable for stock of
the surviving corporation or parent corporation of which the Company becomes a
subsidiary at a rate of exchange to be determined by the Board of Directors, but
in no event shall the fair market value of the stock substituted for the stock
of the Company at the time of the Reorganization be less than the fair market
value of the stock of the Company at the time of the Reorganization.
(ii) If there is a Reorganization Agreement and if the Reorganization
Agreement specifically provides for the change, conversion or exchange of the
shares under outstanding and unexercised stock options for securities of another
corporation, then the Board of Directors shall adjust the shares under the
unexercised portion of this Option in a manner not inconsistent with the
provisions of the Reorganization Agreement for the adjustment, change,
conversion or exchange of such stock and this Option.
(iii) The term "Reorganization" as used in paragraph (b) of this
Section 5 shall mean any statutory merger, statutory consolidation, sale of all
or substantially all of the assets of the Company, or sale, pursuant to an
agreement with the Company, of securities of the Company pursuant to which the
Company is or becomes a subsidiary of another company after the effective date
of the Reorganization.
(iv) Adjustments and determinations under this Section 5 shall be
made by the Board of Directors, whose decisions as to what adjustments or
determinations shall be made, and the extent thereof, shall be final, binding
and conclusive.
6. Transferability; Rights Prior to Exercise of Option. In the event of
death, this Option may be exercised by Optionee's executor, administrator or
other legal representative. During Optionee's lifetime, this Option may not be
sold, pledged, assigned or transferred in any manner other than (i) pursuant to
a qualified domestic relations order as defined in the Internal Revenue Code of
1986, as amended, or (ii) to an Immediate Family Member of the Optionee. The
term "Immediate Family Member", as used in this Agreement, shall mean the
children, grandchildren, siblings or parents of the Optionee, or bona fide
trusts, partnerships or other entities controlled by, and of which the
beneficiaries are, Immediate Family Members of the Optionee. Any Option grants
that are transferable are further conditioned on the Optionee and the Immediate
Family Members agreeing to abide by the Company's then current stock option
transfer guidelines. No holder of this Option shall have any rights as a
shareholder with respect to the Option Shares until payment of the Option Price
and delivery to Optionee or a permitted transferee of the certificates for such
shares as herein provided.
7. Definition of the Term "Director". The term "Director" as used in this
Agreement shall mean a non-employee member of the Board of Directors. A former
member of the Board of Directors who is named an advisory or emeritus member of
the Board of Directors shall be deemed to retain his status as a Director for
purposes of this Agreement so long as he continues to serve in the capacity of
an Advisory or Emeritus Director. The word "Director" shall have the meaning
set forth in this definition regardless of whether or not the first letter of
the word is capitalized.
-30-
<PAGE>
8. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs, executors,
administrators, other legal representative, successors and permitted assigns.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
AZTEC MANUFACTURING CO.
By:
------------------------------------
L. C. Martin
OPTIONEE:
---------------------------------------
---------------------------------------
Printed Name
-31-
<PAGE>
1998 ANNUAL MEETING OF SHAREHOLDERS
10:00 a.m., July 14, 1998
Petroleum Club
Derrick I Room
39th Floor of the Continental Plaza
777 Main Street
Fort Worth, Texas
<PAGE>
AZTEC MANUFACTURING CO.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY
[ ]
For Withheld For All
1. Election of Directors - All All Except
Nominees: L.C. Martin, R.J. Schumacher, H.K. Downey 0 0 0
--------------------------------------------
(Except nominee(s) written above.) For Against Abstain
2. Ratification of the appointment of the Auditors 0 0 0
3. Approval of 1998 Incentive Stock Option Plan. For Against Abstain
0 0 0
4. Approval of 1998 Nonstatutory Stock Option Plan. For Against Abstain
0 0 0
5. Approval of 1997 Nonstatutory Stock Option Grants. For Against Abstain
0 0 0
The undersigned acknowledges receipt of the Notice of
Annual Meeting of Shareholders and of the Proxy Statement.
Dated: , 1998
---------------------------------------------
Signature(s)
---------------------------------------------
----------------------------------------------------------
Please sign exactly as your name appears. Joint owners
should each sign personally. When applicable, indicate
your official position of representation capacity.
PROXY CARD PROXY CARD
AZTEC MANUFACTURING CO.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 14, 1998
The undersigned, having received the notice and accompanying Proxy Statement
and revoking all prior proxies, hereby appoints L.C. MARTIN, SAM ROSEN and
D.L. PERRY and each of them with power of substitution in each, proxies to
vote at the annual meeting to be held on July 14, 1998 at 10:00 a.m. in Fort
Worth, Texas, or at any adjournment thereof, all shares of Aztec Manufacturing
Co. which the undersigned may be entitled to vote. Said proxies are authorized
to vote as directed on the reverse side of this card. If no direction is made,
this Proxy will be voted FOR the election of Directors and FOR proposals 2, 3,
4 and 5.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR
PROPOSALS 2, 3, 4 AND 5.
YOUR VOTE IS IMPORTANT! PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE
SIDE AND RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
<PAGE>
EXHIBIT 21
AZTEC MANUFACTURING CO.
Aztec Industries, Inc. Arbor-Crowley, Inc. Atkinson Industries, Inc.
Aztec Industries Arizona
Moss Point, Inc. Galvanizing, Inc.
Hobson Galvanizing, Inc.
Automatic Aztec Group Aztec Holdings, Inc.
Processing, Inc. Company
The Calvert Co., Inc. 1% 99%
Aztec Manufacturing
Gulf Coast Partnership, Ltd.
Galvanizing, Inc.
Aztec Manufacturing
Arkansas Waskom Partnership, Ltd.
Galvanizing, Inc.
Rig-A-Lite Partnership, Ltd.
International Galvanizers
Partnership, Ltd.
Drilling Rig Electrical
Systems Partnership, Ltd.
(Page 1 of 1)
<PAGE>
EXHIBIT 23
----------
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Aztec Manufacturing Co. of our report dated March 27, 1998, included in the
1998 Annual Report to Shareholders of Aztec Manufacturing Co.
We also consent to the incorporation by reference in the Registration Statements
on Form S-8, No. 33-15481 pertaining to the 1986 Incentive Stock Plan of Aztec
Manufacturing Co., No. 33-30993 pertaining to the Aztec Manufacturing Co.
Nonstatutory Stock Option Plan, No. 33-49158 pertaining to the Aztec
Manufacturing Co. Nonstatutory Stock Option Plan, and No. 33-49164 pertaining to
the 1991 Incentive Stock Option Plan of Aztec Manufacturing Co. of our report
dated March 27, 1998, with respect to the consolidated financial statements of
Aztec Manufacturing Co., incorporated by reference in the Annual Report
(Form 10-K) for the year ended February 28, 1998.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
---------------------
Fort Worth, Texas
May 27, 1998
Exhibit 23
----------
(Page 1 of 1)
<PAGE>
EXHIBIT 24
SPECIAL POWER OF ATTORNEY
THE STATE OF TEXAS (S)
(S) KNOW ALL MEN BY THESE PRESENTS
COUNTY OF TARRANT (S)
THAT WE, the undersigned, of Tarrant County, Texas, have made, constituted,
and appointed, and by these presents do make, constitute, and appoint L. C.
MARTIN, DANA L. PERRY and SAM ROSEN, and each of them severally, our true and
lawful attorneys and agents to execute in our name, place and stead (in such
capacity) the Annual Report on Form 10-K of AZTEC MANUFACTURING CO. ("Form
10-K") for the fiscal year ended February 28, 1998, each of said attorneys and
agents to have power to act with or without the other and to have full power and
authority to do and perform in the name of and on behalf of each of the
undersigned, as the case may be, every act whatsoever necessary or advisable to
be done in the premises as fully and to all intents and purposes as any of the
undersigned might or could do in person, such power to extend to the execution
of any amendment to the Form 10-K.
WITNESS OUR HANDS this 20th day of May, 1998.
/s/ L.C. Martin
-----------------------------------------
L. C. MARTIN
/s/ Robert H. Johnson
-----------------------------------------
ROBERT H. JOHNSON
/s/ Martin C. Bowen
-----------------------------------------
MARTIN C. BOWEN
/s/ Dr. H. Kirk Downey
-----------------------------------------
DR. H. KIRK DOWNEY
/s/ Sam Rosen
-----------------------------------------
SAM ROSEN
/s/ Kevern R. Joyce
-----------------------------------------
KEVERN R. JOYCE
/s/ Dana L. Perry
-----------------------------------------
DANA L. PERRY
/s/ R.J. Schumacher
-----------------------------------------
R. J. SCHUMACHER
/s/ W.C. Walker
-----------------------------------------
W. C. WALKER
Exhibit 24
----------
(Page 1 of 3)
<PAGE>
CERTIFIED COPY OF RESOLUTIONS
The undersigned, being the Assistant Secretary of AZTEC MANUFACTURING CO. (the
"Company"), a Texas corporation, does hereby certify that the following
resolutions are true and correct copies of the resolutions duly adopted by the
Board of Directors of said Company on April 21, 1998, and that such resolutions
have not been revoked or amended in any manner:
WHEREAS, the officers of the Company are obligated to prepare, execute
and file with the Securities and Exchange Commission on behalf of the
Company an Annual Report on Form 10-K of the Company for the fiscal year
ended February 28, 1998;
NOW, THEREFORE, BE IT RESOLVED, that L. C. Martin be, and he is
hereby, authorized and directed to prepare, execute, and file with the
Securities and Exchange Commission on behalf of the Company the Annual
Report on Form 10-K ("Form 10-K") of the Company for the fiscal year ended
February 28, 1998; and
RESOLVED FURTHER, that each officer and director who may be required
in any capacity to execute the Form 10-K on behalf of the Company, be, and
each such officer and director is hereby, authorized to execute a power of
attorney appointing L. C. Martin, Dana L. Perry, and Sam Rosen, and each of
them severally, his true and lawful attorneys and agents to execute in his
name, place and stead (in any such capacity) said Form 10-K, and all
instruments necessary or proper in connection therewith and to file the
same with the Securities and Exchange Commission, each of said attorneys
and agents to have power to act with or without the other and to have full
power and authority to do and perform in the name of and on behalf of each
of said officers and directors, every act whatsoever necessary or advisable
to be done in the premises as fully and to all intents and purposes as any
such officer and director might or could do in person, such power to extend
to the execution of any amendment to the Form 10-K.
SIGNED on the 4th day of May, 1998.
/s/ Dana L. Perry
-----------------------------------------
DANA L. PERRY, Assistant Secretary
Exhibit 24
----------
(Page 2 of 3)
<PAGE>
THE STATE OF TEXAS (S)
(S)
COUNTY OF TARRANT (S)
BEFORE ME, the undersigned authority, on this day personally appeared
DANA L. PERRY, Assistant Secretary of the above named corporation, known to me
to be the person and officer whose name is subscribed to the foregoing
instrument and acknowledged to me that he executed the same for the purposes and
considerations therein expressed and in the capacity therein stated and that the
statements therein contained are true.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 4th day of May 1998.
/s/ Mary Rickard
-----------------------------------------
Notary Public in and for
the State of Texas
Mary Rickard
-----------------------------------------
(Type or print name)
My commission expires: May 30, 1999
-----------------
Exhibit 24
----------
(Page 3 of 3)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 765,912
<SECURITIES> 0
<RECEIVABLES> 13,491,384
<ALLOWANCES> 422,700
<INVENTORY> 14,228,741
<CURRENT-ASSETS> 28,420,193
<PP&E> 33,787,292
<DEPRECIATION> 14,519,423
<TOTAL-ASSETS> 57,901,650
<CURRENT-LIABILITIES> 11,688,838
<BONDS> 11,320,553
0
0
<COMMON> 6,304,580
<OTHER-SE> 28,015,200
<TOTAL-LIABILITY-AND-EQUITY> 57,901,650
<SALES> 75,479,456
<TOTAL-REVENUES> 75,479,456
<CGS> 55,993,665
<TOTAL-COSTS> 64,832,621
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 737,391
<INCOME-PRETAX> 9,909,444
<INCOME-TAX> 2,689,652
<INCOME-CONTINUING> 7,219,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,219,792
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.19
</TABLE>
