<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark one)
(X)Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended September 30, 1999
or
( )Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Libbey Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-12084 34-1559357
- -------- ------- ----------
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation or
organization)
300 Madison Avenue, Toledo, Ohio 43604
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
419-325-2100
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Common Stock, $.01 par value - 16,017,753 shares at October 31, 1999
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Condensed Consolidated Financial Statements presented herein are unaudited
but, in the opinion of management, reflect all adjustments necessary to present
fairly such information for the periods and at the dates indicated. Since the
following condensed unaudited financial statements have been prepared in
accordance with Article 10 of Regulation S-X, they do not contain all
information and footnotes normally contained in annual consolidated financial
statements; accordingly, they should be read in conjunction with the
Consolidated Financial Statements and notes thereto appearing in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1998.
The interim results of operations are not necessarily indicative of results for
the entire year.
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
Three months ended September 30,
1999 1998
Revenues: ---- ----
Net sales $ 112,017 $ 109,604
Royalties and net technical
assistance income 2,701 751
--------- ---------
Total revenues 114,718 110,355
Costs and expenses:
Cost of sales 74,808 76,801
Selling, general and administrative
expenses 15,410 12,986
--------- ---------
90,218 89,787
--------- ---------
Income from operations 24,500 20,568
Other income:
Equity earnings 656 4,733
Other - net (173) 946
--------- ---------
483 5,679
--------- ---------
Earnings before interest and income taxes 24,983 26,247
Interest expense - net (3,162) (3,070)
--------- ---------
Income before income taxes 21,821 23,177
Provision for income taxes 7,933 8,923
--------- ---------
Net income $ 13,888 $ 14,254
========= =========
Net income per share
Basic $ 0.85 $ 0.81
========= =========
Diluted $ 0.84 $ 0.79
========= =========
Dividends per share $ 0.075 $ 0.075
========= =========
See accompanying notes.
2
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per-share amounts)
(unaudited)
Nine months ended September 30,
Revenues: 1999 1998
---- ----
Net sales $ 320,220 $ 313,365
Royalties and net technical
assistance income 4,044 2,271
--------- ---------
Total revenues 324,264 315,636
Costs and expenses:
Cost of sales 218,846 223,730
Selling, general and administrative
expenses 45,793 38,490
Capacity realignment charge 2,227 --
--------- ---------
266,866 262,220
--------- ---------
Income from operations 57,398 53,416
Other income:
Equity earnings 1,808 10,768
Other - net 198 1,026
--------- ---------
2,006 11,794
--------- ---------
Earnings before interest and income taxes 59,404 65,210
Interest expense - net (9,387) (9,753)
--------- ---------
Income before income taxes 50,017 55,457
Provision for income taxes 18,507 21,351
--------- ---------
Net income $ 31,510 $ 34,106
========= =========
Net income per share
Basic $ 1.93 $ 1.94
========= =========
Diluted $ 1.89 $ 1.89
========= =========
Dividends per share $ 0.225 $ 0.225
========= =========
See accompanying notes.
3
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LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, December 31,
1999 1998
---- ----
(unaudited) (Note)
ASSETS
Current assets:
Cash $ 2,541 $ 3,312
Accounts receivable:
Trade, less allowances of $3,786
and $3,636 63,479 49,797
Inventories:
Finished goods 95,574 81,770
Work in process 5,786 5,763
Raw materials 3,380 3,134
Operating supplies 531 695
-------- --------
105,271 91,362
Prepaid expenses and deferred taxes 11,907 11,108
-------- --------
Total current assets 183,198 155,579
Other assets:
Repair parts inventories 6,666 8,633
Intangibles, net of accumulated
amortization of $2,521 and $2,343 9,634 9,862
Pension assets 12,817 10,701
Deferred software, net of accumulated
amortization of $5,487 and $3,974 5,214 6,299
Other assets 403 754
Equity investments 81,729 80,437
Goodwill, net of accumulated
amortization of $14,270 and $13,126 46,791 47,935
-------- --------
163,254 164,621
Property, plant and equipment, at cost 224,870 235,713
Less accumulated depreciation 117,664 116,242
-------- --------
Net property, plant and equipment 107,206 119,471
-------- --------
Total assets $453,658 $439,671
======== ========
Note: The condensed consolidated balance sheet at December 31, 1998 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
4
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LIBBEY INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30, December 31,
1999 1998
---- ----
(unaudited) (Note)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 6,550 $ 14,932
Accounts payable 20,132 22,605
Salaries and wages 12,813 14,413
Capacity realignment reserve 7,112 19,929
Accrued liabilities 23,541 22,702
Income taxes 11,749 --
Long-term debt due within one year 15,800 --
--------- ---------
Total current liabilities 97,697 94,581
Long-term debt 176,300 176,300
Deferred taxes 15,069 16,184
Other long-term liabilities 6,384 6,689
Nonpension retirement benefits 53,661 51,057
Shareholders' equity:
Common stock, par value $.01
per share, 50,000,000 shares
authorized, 17,747,753 shares
issued and outstanding, less
1,597,800 treasury shares
(17,707,570 shares issued and
outstanding, less 875,000 treasury
shares in 1998) 161 168
Capital in excess of par value 282,734 281,956
Treasury stock (46,413) (27,250)
Deficit (130,751) (158,602)
Accumulated other comprehensive
loss (1,184) (1,412)
Total shareholders' equity 104,547 94,860
--------- ---------
Total liabilities and shareholders'
equity $ 453,658 $ 439,671
========= =========
Note: The condensed consolidated balance sheet at December 31, 1998 has been
derived from the audited consolidated financial statements at that date but does
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See accompanying notes.
5
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LIBBEY INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Nine months ended September 30,
1999 1998
---- ----
Operating activities
Net income $ 31,510 $ 34,106
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation 11,516 12,794
Amortization 2,885 2,563
Other non-cash charges 967 (900)
Equity earnings (1,808) (10,768)
Capacity realignment charge 2,227 --
Net change in components of working
capital and other assets (27,207) (19,821)
-------- --------
Net cash provided by operating activities 20,090 17,974
Investing activities
Additions to property, plant and
equipment (6,848) (15,186)
Dividends received from equity
investment 517 14,232
-------- --------
Net cash used in investing activities (6,331) (954)
Financing activities
Net bank credit facility activity 15,860 (19,482)
Other net borrowings (repayments) (8,382) 4,715
Stock options exercised 779 1,872
Treasury shares purchased (19,171) --
Dividends (3,660) (3,965)
-------- --------
Net cash used in financing activities (14,574) (16,860)
-------- --------
Effect of exchange rate fluctuations
on cash 44 (20)
-------- --------
Increase(decrease) in cash (771) 140
Cash at beginning of year 3,312 2,634
-------- --------
Cash at end of period $ 2,541 $ 2,774
======== ========
See accompanying notes.
6
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LIBBEY INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except per share data
(unaudited)
1. LONG-TERM DEBT
The Company and its Canadian subsidiary have an unsecured agreement ("Bank
Credit Agreement" or "Agreement") with a group of banks which provides for a
Revolving Credit and Swing Line Facility ("Facility") permitting borrowings up
to an aggregate total of $380 million, maturing May 1, 2002. Swing Line
borrowings are limited to $25 million with interest calculated at the prime rate
minus the Commitment Fee Percentage. Revolving Credit borrowings bear interest
at the Company's option at either the prime rate minus the Commitment Fee
Percentage, or a Eurodollar rate plus the Applicable Eurodollar Margin. The
Commitment Fee Percentage and Applicable Eurodollar Margin will vary depending
on the Company's performance against certain financial ratios. The Commitment
Fee Percentage and the Applicable Eurodollar Margin were 0.15% and 0.275%,
respectively, at September 30, 1999. The Company may also elect to borrow under
a Negotiated Rate Loan alternative of the Revolving Credit and Swing Line
Facility at floating rates of interest, up to a maximum of $190 million. The
Revolving Credit and Swing Line Facility also provides for the issuance of $35
million of letters of credit, with such usage applied against the $380 million
limit. At September 30, 1999 the Company had $5.2 million in letters of credit
outstanding under the Facility.
The Company has entered into interest rate protection agreements ("Rate
Agreements") with respect to $100 million of debt under its Bank Credit
Agreement as a means to manage its exposure to fluctuating interest rates. The
Rate Agreements effectively convert this portion of the Company's Bank Credit
Agreement borrowings from variable rate debt to a fixed rate basis, thus
reducing the impact of interest rate changes on future income. The average
interest rate for the Company's borrowings related to the Rate Agreements at
September 30, 1999 was 6.56% for an average remaining period of 1.9 years. The
remaining debt not covered by the Rate Agreements has fluctuating interest rates
with a weighted average rate of 5.6% at September 30, 1999.
The interest rate differential to be received or paid under the Rate Agreements
is being recognized over the life of the Rate Agreements as an adjustment to
interest expense. If the counterparts to these Rate Agreements fail to perform,
the Company would no longer be protected from interest rate fluctuations by
these Rate Agreements.
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However, the Company does not anticipate nonperformance by the counterparts.
The Company must pay a commitment fee ("Commitment Fee Percentage") on the total
credit provided under the Bank Credit Agreement. No compensating balances are
required by the Agreement. The Agreement requires the maintenance of certain
financial ratios, restricts the incurrence of indebtedness and other contingent
financial obligations, and restricts certain types of business activities and
investments.
2. SIGNIFICANT SUBSIDIARY
Summarized combined financial information for equity investments, which includes
the 49% ownership in Vitrocrisa, which manufactures, markets and sells glass
tableware (e.g. beverageware, plates, bowls, serveware and accessories) and
industrial glassware (e.g. coffee pots, blender jars, meter covers, glass covers
for cooking ware and lighting fixtures sold to original equipment manufacturers)
and the 49% ownership in Crisa Industrial, L.L.C., which distributes industrial
glassware in the U.S. and Canada for Vitrocrisa, for 1999 and 1998 is as
follows:
September 30, December 31,
1999 1998
---- ----
Current assets $ 71,638 $ 61,457
Non-current assets 132,089 134,208
- ---------------------------------------------------------------------------
Total assets 203,727 195,665
Current liabilities 112,010 90,037
Other liabilities and deferred items 77,217 96,068
- ---------------------------------------------------------------------------
Total liabilities and deferred items 189,227 186,105
- ---------------------------------------------------------------------------
Net assets $ 14,500 $ 9,560
===========================================================================
For three months ending
September 30,
----------------------------
1999 1998
---- ----
Net sales $ 48,497 $ 40,542
Cost of sales 32,963 26,599
----------------------------
Gross profit 15,534 13,943
General expenses 5,404 4,319
----------------------------
Earnings before finance costs 10,130 9,624
Integral financing costs 2,406 3,859
Other income (loss) (948) 2,451
Income taxes and profit sharing 4,570 (2,545)
- --------------------------------------------------------------------------
Net income $ 2,206 $ 10,761
==========================================================================
8
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For nine months ending
September 30,
-------------------------------
1999 1998
---- ----
Net sales $ 132,998 $ 128,477
Cost of sales 91,274 83,117
-------------------------------
Gross profit 41,724 45,360
General expenses 15,330 15,524
-------------------------------
Earnings before finance costs 26,394 29,836
Integral financing costs 8,281 10,606
Other income (loss) (2,423) 6,354
Income taxes and profit sharing 9,402 2,883
- ----------------------------------------------------------------------------
Net income $ 6,288 $ 22,701
============================================================================
3. CASH FLOW INFORMATION
Interest paid in cash aggregated $8,788 and $9,248 for the first nine months of
1999 and 1998, respectively. Income taxes paid in cash aggregated $7,540 and
$10,307 for the first nine months of 1999 and 1998, respectively.
4. NET INCOME PER SHARE OF COMMON STOCK
Basic net income per share of common stock is computed using the weighted
average number of shares of common stock outstanding. Diluted net income per
share of common stock is computed using the weighted average number of shares of
common stock outstanding and includes common share equivalents.
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The following table sets forth the computation of basic and diluted earnings per
share (dollars in thousands, except per-share amounts):
Quarter ended September 30, 1999 1998
- --------------------------- ---- ----
Numerator for basic and diluted
earnings per share--net income
which is available to common
shareholders $ 13,888 $ 14,254
Denominator for basic earnings per
share--weighted-average shares
outstanding 16,261,960 17,649,966
Effect of dilutive securities--
employee stock options 340,715 390,851
----------- -----------
Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions 16,602,675 18,040,817
Basic earnings per share $ 0.85 $ 0.81
Diluted earnings per share $ 0.84 $ 0.79
Nine Months ended September 30, 1999 1998
- ------------------------------- ---- ----
Numerator for basic and diluted
earnings per share--net income
which is available to common
shareholders $ 31,510 $ 34,106
Denominator for basic earnings per
share--weighted-average shares
outstanding 16,304,059 17,614,598
Effect of dilutive securities--
employee stock options 331,932 419,757
----------- -----------
Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions 16,635,992 18,034,355
Basic earnings per share $ 1.93 $ 1.94
Diluted earnings per share $ 1.89 $ 1.89
10
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5. COMPREHENSIVE INCOME
The Company's components of comprehensive income are net income and foreign
currency translation adjustments. During the third quarter of 1999 and 1998,
total comprehensive income amounted to $13,904 and $13,628 respectively. For the
first nine months of 1999 and 1998 comprehensive income amounted to $31,738 and
$33,112 respectively.
6. NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement 133)
which establishes new procedures for accounting for derivatives and hedging
activities and supersedes and amends a number of existing standards. Statement
133 is effective for fiscal years beginning after June 15, 2000, and the Company
has not determined its impact.
7. CAPACITY REALIGNMENT CHARGE
On December 31, 1998 the Board of Directors of the Company approved a capacity
realignment plan, which includes reallocating a portion of the current
production of the Company's Wallaceburg, Ontario facility to its glassware
facilities in the United States to improve its cost structure and more fully
utilize available capacity. A portion of Wallaceburg's production is being
absorbed by the Company's joint venture in Mexico, Vitrocrisa. The Company is
servicing its Canadian glass tableware customers from its remaining
manufacturing and distribution network, which includes locations in Toledo,
Ohio; Shreveport, Louisiana and City of Industry, California. The Company also
announced that it will exit the production of bottleware, a niche, low-margin
business for the Company. In connection with this plan, the Company recorded a
capacity realignment charge in the fourth quarter of 1998 of $20.0 million which
includes $10.0 million for severance and related employee costs, $7.6 million
for write off of fixed assets (primarily equipment) and $2.4 million for supply
inventories, repair parts and other costs. An additional charge was recorded in
the first quarter 1999 of $2.2 million, which includes $1.5 million for enhanced
severance and related employee costs, $.3 million for write-off of fixed assets
(primarily equipment) and $.4 million for write-off of inventories and other
costs.
The Wallaceburg facility ceased production in May, 1999, and the warehouse
operations will terminate later in 1999. The fixed assets, supply inventories
and repair parts not being transferred have been written down to a nominal
amount. The Wallaceburg facility is presently held for sale; however, if a buyer
is not located it will
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be abandoned. The Company terminated the employment of virtually all of its 560
salary and hourly employees at Wallaceburg and included severance and related
employee costs in its capacity realignment charge at the time when such
severance amounts were disclosed to the employees. These severance and related
employee costs primarily were paid when production ceased.
The following table sets forth the details and activity of the various
components of the capacity realignment reserve for the first nine months of
1999.
<TABLE>
<CAPTION>
Write-
Balance Provision off of Balance
as of charged Assets Effect of as of
December to to Cash Translation September
Activity 31, 1998 Expense Reserve Payments Adjustments 30, 1999
- -------- -------- ------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Severance
and related
employee
cost $ 9,946 $ 1,502 -- $ (8,831) $ 327 $ 2,944
Asset write-
downs:
Fixed
assets 7,619 323 $ (5,602) (50) 162 2,452
Inventories
and other 2,364 402 210 (1,428) 168 1,716
- ------------------------------------------------------------------------------------------------
Total $ 19,929 $ 2,227 $ (5,392) $(10,309) $ 657 $ 7,112
================================================================================================
</TABLE>
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - THIRD QUARTER 1999 COMPARED WITH THIRD QUARTER 1998
Three months ended
September 30,
---------------------------
(dollars in thousands)
1999 1998
-------- --------
Net sales $112,017 $109,604
Gross profit 37,209 32,803
As a percentage of sales 33.2% 29.9%
Income from operations $ 24,500 $ 20,568
As a percentage of sales 21.9% 18.8%
Earnings before interest and
income taxes $ 24,983 $ 26,247
As a percentage of sales 22.3% 23.9%
Net income $ 13,888 $ 14,254
As a percentage of sales 12.4% 13.0%
Net sales for the third quarter of 1999 of $112.0 million increased 2.2% from
net sales of $109.6 million reported in the comparable period in 1998. Increased
sales of glassware, dinnerware, and flat-ware to foodservice customers was the
major reason for the sales increase that more than offset the loss of bottleware
sales. As part of its capacity realignment program announced earlier this year,
the Company decided to close its Wallaceburg, Ontario, Canada plant and cease
manufacturing low-margin glass bottleware for industrial applications by
mid-1999. Sales of these products totaled approximately $8 million in 1998. The
Wallaceburg plant was closed as scheduled at the end of May. Export sales, which
include sales to Libbey's customers in Canada, were down 8.1%, decreasing to
$14.2 million from $15.4 million in the year-ago period reflecting the lower
bottleware sales to Canadian customers.
Gross profit increased 13.4% to $37.2 million in the third quarter of 1999
compared to $32.8 million in the third quarter of 1998, and increased as a
percentage of sales to 33.2% from 29.9% due to higher sales of more profitable
products and lower costs due to improved utilization of the Company's glassware
plants.
Income from operations increased 19.1% to $24.5 million from $20.6 million in
the third quarter last year. Higher sales of more profitable products and
improved utilization of the Company's glassware plants were contributing
factors, more than offsetting higher sales
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commission expenses. In addition, during the quarter the Company recorded income
from the proceeds of a settlement of litigation involving Oneida Ltd. in excess
of expenses incurred related to the litigation. The Company also recorded a
charge associated with post-retirement welfare benefits. The net favorable
impact of these two non-recurring items on income from operations during the
third quarter was $1.3 million.
Earnings before interest and income taxes (EBIT) were $25.0 million compared
with $26.2 million in the third quarter last year. Higher income from operations
only partially offset a combination of lower equity earnings and a one-time gain
on the sale of assets in the third quarter of 1998. Equity earnings, primarily
attributable to the Company's joint venture in Mexico, Vitrocrisa, declined to
$0.7 million from $4.7 million in the year-ago period due to Vitrocrisa's lower
operating earnings and the impact of a stronger Mexican peso.
Net income was $13.9 million or 84 cents per share on a diluted basis, compared
with $14.3 million or 79 cents per share on a diluted basis in the year-ago
period. A reduction in the Company's effective tax rate to 36.4 percent (37.0
percent on a year-to-date basis) from 38.5 percent in the year-ago quarter
partially offset lower EBIT. In addition, diluted shares outstanding declined to
16.6 million from 18.0 million in the year-ago period primarily due to the
Company's share repurchase programs. As of September 30, 1999, the Company has
repurchased 1.6 million shares.
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RESULTS OF OPERATIONS - NINE MONTHS 1999 COMPARED WITH NINE MONTHS 1998
Nine months ended
September 30,
----------------------
(dollars in thousands)
1999 1998
-------- --------
Net sales $320,220 $313,365
Gross profit 101,374 89,635
As a percentage of sales 31.7% 28.6%
Income from operations - excluding
capacity realignment charge 59,625 53,416
As a percentage of sales 18.6% 17.0%
Income from operations $ 57,398 $ 53,416
As a percentage of sales 17.9% 17.0%
Earnings before interest and
income taxes $ 59,404 $ 65,210
As a percentage of sales 18.6% 20.8%
Net income $ 31,510 $ 34,106
As a percentage of sales 9.8% 10.9%
Net sales for the first nine months of 1999 of $320.2 million increased 2.2%
from net sales of $313.4 million reported in the comparable period in 1998.
Export sales, which include sales to Libbey's customers in Canada, were down
3.2%, decreasing to $41.5 million from $42.9 million in the year-ago period
reflecting lower bottleware sales to Canadian customers.
Gross profit increased 13.1% to $101.4 million in the first nine months of 1999
compared to $89.6 million in the first nine months of 1998, and increased as a
percentage of sales to 31.7% from 28.6% due to higher sales of more profitable
products and lower costs due to improved utilization of the Company's glassware
plants.
Income from operations increased to $57.4 million from $53.4 million in the
year-ago period. The reason for the increase was higher gross margin offset by
higher selling expenses reflecting higher planned commission expense, general
and administrative expenses as a percent of sales and a $2.2 million capacity
realignment charge made in the first quarter related to the Company's plan to
realign its glass tableware production. The Company recorded income from the
proceeds of a settlement of litigation involving Oneida Ltd. in excess of
expenses incurred related to the litigation. This partially offset
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<PAGE> 17
the increase in selling, general and administrative expenses due to a charge
associated with post-retirement welfare benefits, bad debt provisions and higher
sales commission. Excluding the capacity realignment charge, income from
operations increased 11.6% to $59.6 million.
The capacity realignment charge primarily related to costs associated with the
May, 1999, closure of the Company's Wallaceburg, Ontario, glassware plant,
including employee severance payments and the disposition of assets. On December
31, 1998 the Board of Directors of the Company approved the capacity realignment
plan, and established a reserve in the fourth quarter of 1998 of $20.0 for
expenses related to the plan. The Company also announced its expectation to add
approximately $2.0 million to the reserve in the quarter ending March 31, 1999,
primarily related to enhanced severance benefits. The additional charge actually
recorded in the first quarter 1999 was $2.2 million, which includes $1.5 million
for enhanced severance and related employee costs, $.3 million for the write-off
of fixed assets (primarily equipment) and $.4 million for the write-off of
inventories and other costs. The Company expects that the capacity realignment
will provide savings of approximately $4.5 million in 1999, primarily as a
result of lower costs and improved capacity utilization.
Earnings before interest and income taxes (EBIT) declined to $59.4 million from
$65.2 million due to lower equity earnings, resulting from the impact of a
stronger Mexican peso and lower operating profits at the Company's joint venture
in Mexico.
Net income was $31.5 million compared to $34.1 million in the year-ago period
due to items discussed above partially offset by a decrease in the Company's
effective tax rate from 38.5% in 1998 to 37.0% reflect-ing lower state income
taxes, and lower interest expense from lower debt levels.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
The Company had total debt of $198.7 million at September 30, 1999, compared to
$191.2 million at December 31, 1998. Seasonal increases in accounts receivable
and inventory in 1999 account for the increase in the borrowings necessary.
During the third quarter, the Company purchased 125,000 shares pursuant to its
share repurchase plan for $3.7 million. In the first nine months of 1999, the
Company repurchased 722,800 shares for $19.2 million. Since mid 1998, the
Company has repurchased 1,597,800 shares for $46.4 million. Board authorization
remains for the purchase of an additional 152,200 shares. During October, the
Company repurchased 131,600 shares. A new authorization was granted by the Board
for an additional 875,000
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shares. As of October 31, 1999, Board authorization remains for the purchase of
an additional 895,600 shares. In addition, Libbey received a dividend from its
investment in Crisa Industrial of $.5 million in first quarter 1999 compared to
a dividend from Vitrocrisa of $14.2 million late in first quarter 1998. The
Company had additional debt capacity at September 30, 1999 under the Bank Credit
Agreement of $182.7 million. Of Libbey's outstanding indebtedness, $98.7 million
is subject to fluctuating interest rates at September 30, 1999. A change of one
percentage point in such rates would result in a change in interest expense of
approximately $1.0 million on an annual basis as of September 30, 1999.
The Company is not aware of any trends, demands, commitments, or uncertainties
which will result or which are reasonably likely to result in a material change
in Libbey's liquidity. The Company believes that its cash from operations and
available borrowings under the Bank Credit Agreement will be sufficient to fund
its operating requirements, capital expenditures and all other obligations
(including debt service and dividends) throughout the remaining term of the Bank
Credit Agreement.
In addition, the Company anticipates refinancing the Bank Credit Agreement at or
prior to the maturity date of May 1, 2002 to meet the Company's longer term
funding requirements.
YEAR 2000
- ---------
Libbey has developed and initiated its plans to address the possible exposures
related to the impact of the Year 2000 on its computer systems, equipment,
business and operations. The Company has recognized that the Year 2000 problem
may cause many of its systems to fail or perform incorrectly because they will
not properly recognize a year beginning with "20" instead of the familiar "19".
If a computer system, software application or other operational or manufacturing
system used by the Company or by a third party dealing with the Company fails
because of the inability of the system to properly read the year "2000", this
failure could have a material adverse effect on the Company.
Organizational Effort
Since August 1997, a corporate committee comprised of key information systems,
financial and operations managers meet bimonthly to review the state of
readiness of the Company's systems for the year 2000. The Company has appointed
the Chief Information Officer (CIO), reporting to and with the full support of
the Chairman and Chief Executive Officer, to provide oversight to the
implementation of the
17
<PAGE> 19
Year 2000 compliance program. The CIO has appointed a Year 2000 project manager,
who has been engaged in determining compliance and remediation requirements
Company-wide since 1997. Key financial and operational systems have been
assessed and detailed plans have been implemented to address modifications
required prior to December 31, 1999. The Company's Year 2000 compliance and
remediation efforts have not resulted in the deferral of any projects material
to the operation of the business.
Independent Review
The Company engaged an independent consultant to assist in assessing Year 2000
readiness and remediation plans of its manufacturing facilities. The independent
consultant validated the Company's Year 2000 compliance process and findings
to-date, utilizing its Year 2000 review process and systems. The review has been
completed. Two of the Company's manufacturing facilities, believed to be
representative of all facilities, were reviewed and no material compliance
issues were reported.
Contingency Plans
Each of the Company's manufacturing facilities and other operations material to
the functioning of the business has established Year 2000 compliance steering
committees to address the issue. Each committee has established contingency
plans should the Company experience business interruption due to the Year 2000
issue.
State of Readiness
The Company is monitoring the Year 2000 issue in four phases, including
assessment, remediation, testing and implementation. The state of readiness in
each of these areas as well as the definition of each phase are presented below:
Project
Segment Assessment Remediation Testing Implementation
------- ---------- ----------- ------- --------------
IT areas:
100% complete 100% complete 100% 99% complete
Mainframe complete
Other 100% complete 99% complete 99% 99% complete
complete
Non-IT 100% complete 100% complete 100% 100% complete
areas complete
Suppliers 100% complete 86% complete - -
18
<PAGE> 20
Assessment = an inventory of Information Technology (IT), non-IT and third-party
reliance affected by the Year 2000 issue.
Remediation = the changes to the code, obtaining compliant vendor software or
obtaining reliance from third parties that the Year 2000 issue has been
addressed.
Testing = the test of the changes to internally developed and vendor-upgraded
software.
Implementation = the rollout of tested or vendor-certified Year 2000 compliant
software into production. Selected testing with respect to implemented software
that has been certified by the vendor to be Year 2000 compliant has been
independently performed in an attempt to verify the vendor's certification.
The estimated percentage of completion is based upon the level of effort spent
to date on the task compared with the anticipated level of effort to complete
the task except with respect to suppliers. The anticipated level of effort to
complete the task may change as the Year 2000 compliance program proceeds. The
level of effort with respect to suppliers is based upon their replies to the
Company's inquiries.
Major portions of the Company's information technology are currently on Year
2000 compliant software. In 1998, the Company upgraded its enterprise resource
planning system to a version certified by the vendor as Year 2000 compliant. In
addition, the main computer systems supporting the Company's Syracuse China and
World Tableware operations, which were acquired in 1995 and 1997, respectively,
have been also converted to the upgraded software. The remaining portions of the
Company's other systems are planned to be migrated or converted by year-end
1999.
Financial Impact
The financial impact of making the required changes, excluding the cost of
internal Company employee time and the costs required to upgrade and replace
systems and equipment in the normal course of business, is expected to be less
than $500,000, representing a small portion of the budget for information
technology expenses, and has been and will be charged to expense as incurred and
funded from internally generated cash flow. To date, approximately $235,000 has
been expensed. With respect to capital expenditures, approximately an additional
$2.0 million has been spent and another $.1 million has been contractually
committed on upgrades to the Company's enterprise resource planning system,
other systems and desktop and laptop computers that also address Year 2000
compliance.
19
<PAGE> 21
Suppliers
The Company has communicated with its significant suppliers and 86% responded
they are currently or plan to be Year 2000 compliant by September 30, 1999, 99%
expected compliance by December 31, 1999, and 1% have not yet replied.
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. As noted, contingency plans have
been developed to cover any major failures of suppliers, customers and/or
systems. However, certain risk factors may affect the Company's ability to be
fully Year 2000 compliant by December 31, 1999, and its information systems to
operate properly into the next century. These risk factors include, but are not
limited to, the availability of necessary resources, both internal and external,
to install new purchased software or reprogram existing systems and complete the
necessary testing.
In addition, the Company cannot predict the ability of its suppliers and
customers to achieve Year 2000 compliance by the end of 1999, nor the impact of
either on the future operating results of the Company. The Company is dependent
upon the availability of electricity, natural gas, water, certain raw materials,
including sand and soda ash for glassware and clay for ceramic dinnerware
manufacturing, to operate its factories. In addition, to operate its business,
the Company is dependent upon the availability of transportation services,
telecommunications services and packaging. Any interruptions in the availability
of these or other key materials or services could have a material impact on the
Company.
The Company cannot predict the ability of its equity investments, Vitrocrisa
and/or Crisa Industrial L.L.C., to achieve Year 2000 compliance by the end of
1999, nor the impact on the future operating results of the Company. Vitrocrisa
and Crisa Industrial L.L.C. currently have plans and programs in place to review
and address Year 2000 compliance as part of the Vitro S.A., our partner in the
equity investments, program. This program is being conducted independently from
Libbey.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks due to changes in currency values,
although the majority of the Company's revenues and expenses are denominated in
the U.S. dollar. The currency market risks include devaluations and other major
currency fluctuations relative to the U.S. dollar that could reduce the cost
competitiveness of the
20
<PAGE> 22
Company's products compared to foreign competition and the effect of exchange
rate changes to the value of the Mexican peso relative to the U.S. dollar and
the impact of those changes on the earnings and cash flow of the Company's joint
venture in Mexico, Vitrocrisa, expressed under U.S. GAAP.
The Company is exposed to market risk associated with changes in interest rates
in the U.S. However, the Company has entered into Interest Rate Protection
Agreements ("Rate Agreements") with respect to $100.0 million of debt as a means
to manage its exposure to fluctuating interest rates. The Rate Agreements
effectively convert this portion of the Company's borrowings from variable rate
debt to a fixed-rate basis, thus reducing the impact of interest rate changes on
future income. The average interest rate for the Company's borrowings related to
the Rate Agreements at September 30, 1999, was 6.56% for an average remaining
period of 1.9 years. Total remaining debt not covered by the Rate Agreements has
fluctuating interest rates with a weighted average rate of 5.61% at September
30, 1999. The Company had $98.7 million of debt subject to fluctuating interest
rates at Septem-ber 30, 1999. A change of one percentage point in such rates
would result in a change in interest expense of approximately $1.0 million on an
annual basis.
The interest rate differential to be received or paid under the Rate Agreements
is being recognized over the life of the Rate Agreements as an adjustment to
interest expense. If the counterparts to these Rate Agreements fail to perform,
the Company would no longer be protected from interest rate fluctuations by
these Rate Agreements. However, the Company does not anticipate nonperformance
by the counterparts. At December 31, 1998, the carrying value of the long-term
debt approximates its fair value based on the Company's current incremental
borrowing rates. There was a negative fair market value for the Company's
Interest Rate Protection Agreements at December 31, 1998 of $2.6 million. The
fair value of long-term debt is estimated based on borrowing rates currently
available to the Company for loans with similar terms and maturities. The fair
value of the Company's Rate Agreements is based on quotes from brokers for
comparable contracts. The Company does not expect to cancel these agreements and
expects them to expire as originally contracted.
OTHER INFORMATION
This document and supporting schedules contain "forward-looking" statements as
defined in the Private Securities Litigation Reform Act of 1995. Such statements
only reflect the Company's best assessment at this time, and are indicated by
words or phrases such as "expects," "believes," "will," "estimates,"
"anticipates," or similar phrases.
21
<PAGE> 23
Investors are cautioned that forward-looking statements involve risks and
uncertainty, that actual results may differ materially from such statements, and
that investors should not place undue reliance on such statements.
Important factors potentially affecting performance include devaluations and
other major currency fluctuations relative to the U.S. dollar that could reduce
the cost-competitiveness of the Company's products compared to foreign
competition; the effect of high inflation in Mexico and exchange rate changes to
the value of the Mexican peso and the earnings and cash flow of the Company's
joint venture in Mexico, Vitrocrisa, expressed under U.S. GAAP; the inability to
achieve savings and profit improvements at targeted levels in the Company's
glassware sales from its capacity realignment efforts and re-engineering
programs, or within the intended time periods; inability to achieve targeted
manufacturing efficiencies at Syracuse China and cost synergies between World
Tableware and the Company's other operations; significant increases in interest
rates that increase the Company's borrowing costs and per unit increases in the
costs for natural gas, corrugated packaging, and other purchased materials;
protracted work stoppages related to collective bargaining agreements; increased
competition from foreign suppliers endeavoring to sell glass tableware in the
United States; major slowdowns in the retail, travel or entertainment industries
in the United States or Canada; and whether the Company completes any
significant acquisition, and whether such acquisitions can operate profitably.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various routine legal proceedings arising in
the ordinary course of its business, but there are no legal proceedings
pending against the Company would be deemed to be material to the
Company. The litigation filed against the Company and its subsidiary
Libbey Glass Inc. on April 27, 1999 by Oneida Ltd. in the United States
District Court for the Northern District of New York has been dismissed
with prejudice.
22
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) Exhibits
10.67 Employment Agreement dated as of August 1, 1999 between Libbey
Inc. and Kenneth A. Boerger
10.68 Change of Control Agreement dated as of August 1, 1999 between
Libbey Inc. and Kenneth A. Boerger
10.69 Form of Non-Qualified Stock Option Agreement between Libby Inc.
and certain key employees participating in The 1999 Equity
Participation Plan of Libbey Inc.
27 Other Financial Information
(b.) No form 8-K's were filed during the quarter.
23
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIBBEY INC.
Date November 15, 1999 By /s/ Kenneth G. Wilkes
---------------------- -----------------------------
Kenneth G. Wilkes,
Vice President, Chief Financial
Officer
(Principal Accounting Officer)
24
<PAGE> 26
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
10.67 Employment Agreement dated as of August 1, 1999 between Libbey
Inc. and Kenneth A. Boerger
10.68 Change of Control Agreement dated as of August 1, 1999 between
Libbey Inc. and Kenneth A. Boerger
10.69 Form of Non-Qualified Stock Option Agreement between
Libby Inc. and certain key employees participating in
The 1999 Equity Participation Plan of Libbey Inc.
27 Other Financial Information
1
<PAGE> 1
EXHIBIT 10.67
EMPLOYMENT AGREEMENT
--------------------
This EMPLOYMENT AGREEMENT ("Agreement") is effective as of August 1,
1999, between LIBBEY INC., a Delaware corporation (the "Company"), and KENNETH
A. BOERGER ("Employee").
RECITALS
--------
A. The Company has agreed to employ Employee in the position and at the
base rate of pay set forth on Schedule 1.
B. The Company has further agreed to provide severance benefits to Employee
upon a termination of Employee's employment resulting from certain specified
events.
EVENTS
------
In consideration of the foregoing, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged,
Employee and the Company hereby agree as follows:
1. SALARY AND POSITION. The base rate of pay and job title shown on
Schedule I are correct and in accordance with Employee's understanding.
2. AT-WILL EMPLOYMENT. Employee's employment with the Company is not for
any specified term and may be terminated by Employee or by the Company at the
time for any reason, with or without cause.
3. NO OTHER AGREEMENTS. Employee represents and warrant that there are no
written or oral agreements, understandings or assignments, compensation
(including compensation upon termination), benefits, or any other term or
condition of employment, except as specifically set forth herein and in Schedule
II attached hereto.
4. ENTIRE AGREEMENT. This Agreement and the agreements listed in Schedule
II attached hereto constitute the complete agreement between Employee and the
Company regarding any and all aspects of their employment relationship and
supersede any and all prior written or oral agreements, understandings or
commitments. Employee understands that no representative of the Company has been
authorized to enter into any agreement, understanding or commitment with
Employee which is inconsistent in any way with the terms of this Agreement.
5. PROHIBITION AGAINST AMENDMENT. Employee's base salary may be modified by
the Company at any time in its sole discretion. The retirement and benefit plans
set forth in
<PAGE> 2
Schedule II attached hereto with respect to which Employee is entitled to
participate in may be improved, reduced or terminated by the Company at any time
in its sole discretion; provided, however, that no vested or accrued benefit
shall be adversely affected. All terms set forth in this Agreement, including
without limitation the terms set forth in paragraph 2 hereof, may not be
modified in any way except by a written agreement signed by Employee and by an
authorized representative of the Company which expressly states that intention
of the parties to modify the terms of this Agreement.
6. SEVERANCE PAYMENT.
(a) Upon the termination of Employee's employment as a result of
Employee's electing to resign his employment without the consent of the Company
or electing to retire other than at the request of the Company, no payments
shall be required or made pursuant to this paragraph 6.
(b) Upon the termination of Employee's employment by the Company
for "Cause", no payments shall be required or made pursuant to this paragraph 6.
"Cause" shall mean Employee's financial dishonesty, fraud in the performance of
his duties, willful failure to perform assigned duties hereunder or the
commission of a felony.
(c) Upon the termination of Employee's employment by the Company
for any reason other than for Cause or disability, the Company shall continue
payment of Employee's annual base salary, at the rate then in effect on the date
of such termination, for a period of one year after such date of termination.
The Company shall give 30 days written notice of any such termination which
notice shall specify the date of termination.
(d) Upon the termination of Employee's employment as a result of
the death of Employee, the Company shall continue payment of Employee's annual
base salary, at the rate then in effect on the date of such termination, for a
period of one year after such date of termination; PROVIDED however that such
payments shall be offset by any survivor benefits, excluding life insurance
proceeds, received by Employee's spouse or other designed beneficiary under the
Company's plans, programs and policies paid in such one year period.
(e) Upon the termination of Employee's employment as a result of
his becoming unable to perform his duties due to a disability as established by
the award of long-term disability benefits under the Company's long-term
disability plan, the Company may terminate Employee's employment by giving
Employee 30 days written notice of its intention to terminate. In such event,
Company shall continue payment of the Employee's annual base salary, at the rate
then in effect on the date of such termination, for a period of one year after
such date of termination; PROVIDED, however, that such payments shall be offset
by any disability benefits, excluding disability insurance proceeds, received by
Employee, or his legal guardian, under the Company's plans, programs and
policies paid in such one year period.
2
<PAGE> 3
(f) Notwithstanding anything to the contrary contained herein,
upon the termination of Employee's employment for any reason, voluntarily or
involuntarily, with or without Cause, Employee shall be entitled to the payments
provided for hereunder and such rights as he otherwise has under the Company's
restricted Stock Plan and the Company's Stock Option Plan in the circumstances
of his particular termination.
7. Titles. Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of the Plan.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
The Company: LIBBEY INC.
By:_____________________________
Its:____________________________
Employee: ________________________________
Kenneth A. Boerger
3
<PAGE> 1
EXHIBIT 10.68
August 1, 1999
Mr. Kenneth A. Boerger
26693 Greenville Drive
Perrysburg, OH 43551
Dear Ken,
Libbey Inc. (the "Corporation") considers it essential to the best interests of
its shareholders to foster the continuous employment of key management
personnel. In connection with this, the Corporation's Board of Directors (the
"Board") recognizes that, as is the case with many publicly held corporations,
the possibility of a change in control of the Corporation may exist and that the
uncertainty and questions that it may raise among management could result in the
departure or distraction of management personnel to the detriment of the
Corporation and its shareholders.
The Board has decided to reinforce and encourage the continued attention and
dedication of members of the Corporation's management, including yourself, to
their assigned duties without the distraction arising from the possibility of a
change in control of the Corporation.
In order to induce you to remain in its employ, the Corporation hereby agrees
that after this letter agreement (this "Agreement") has been fully executed, you
shall receive the severance benefits set forth in this Agreement in the event
your employment with the Corporation is terminated under the circumstances
described below subsequent to a Change in Control (as defined in Section 2).
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall
continue in effect through December 31, 2001; provided, however, that commencing
on January 1, 2002 and on each January 1 thereafter, the term of this Agreement
shall automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Corporation shall have given notice that
it does not wish to extend this Agreement; provided, further, that if a Change
in Control (as defined in Section 2), occurs during the original or any extended
term of this Agreement, the term of this Agreement shall continue in effect for
a period of not less than thirty-six (36) months beyond the month in which such
Change in Control occurred.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless there has
been a Change in Control. For purposes of this Agreement, a Change in Control
shall be deemed to occur if:
<PAGE> 2
Page Two
(a) any Person (as defined below) is or becomes the
Beneficial Owner (as defined below), directly or indirectly, of securities of
the Corporation representing twenty percent (20%) or more of the combined voting
power of the Corporation's then outstanding securities. For purposes of this
Agreement, the term "Person" is used as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act");
provided, however, that the term shall not include the Corporation, any trustee
or other fiduciary holding securities under an employee benefit plan of the
Corporation, and any corporation owned, directly or indirectly, by the
shareholders of the Corporation, in substantially the same proportions as their
ownership of stock of the Corporation, and provided further that for purposes of
this subsection (a) the term person shall not apply to Baron Capital Group,
Inc., BAMCO, Inc., Baron Capital Management, Inc., Baron Asset Fund or Ronald
Baron (collectively the "Baron Group"), by virtue of their individual or
collective beneficial ownership of securities of the Corporation's outstanding
securities as of the date of this letter so long as the Baron Group does not
individually or collectively, beneficially own, or increase such beneficial
ownership to, twenty-five percent (25%) or more of the combined voting power of
the corporation's then outstanding securities. For purposes of this Agreement,
the term "Beneficial Owner" shall have the meaning given to such term in Rule
13d-3 under the Exchange Act;
(b) during any period of two (2) consecutive years
(not including any period prior to the execution of this Agreement), individuals
who at the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an agreement
with the Corporation to effect a transaction described in Sections 2(a), (c) or
(d)) whose election by the Board or nomination for election by the Corporation's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved
(hereinafter referred to as "Continuing Directors"), cease for any reason to
constitute at least a majority thereof;
(c) the shareholders of the Corporation approve a
merger or consolidation of the Corporation with any other corporation (or other
entity), other than a merger or consolidation which would result in the voting
securities of the Corporation outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 662/3% of the combined voting
power of the voting securities of the Corporation or such surviving entity
outstanding immediately after such merger or consolidation;
(d) the shareholders of the Corporation approve a
plan of complete liquidation of the Corporation or an agreement for the sale or
disposition by the Corporation of all or substantially all of the Corporation's
assets; or
<PAGE> 3
Page Three
(e) any Person is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Corporation representing ten percent (10%) or more of the
combined voting power of the Corporation's then outstanding securities (a "10%
Owner") and (A) the identity of the Chief Executive Officer of the Corporation
is changed during the period beginning sixty (60) days before the attainment of
the ten percent (10%) beneficial ownership and ending two (2) years thereafter,
or (B) individuals constituting at least one-third (1/3) of the members of the
Board at the beginning of such period shall cease for any reason to serve on the
Board during the period beginning sixty (60) days before the attainment of the
ten percent (10%) beneficial ownership and ending two (2) years thereafter;
provided, however, (i) that this subsection (e) shall not apply to (i) any
Person who is a 10% Owner as of the date hereof so long as such Person does not
increase such beneficial ownership by five percent (5%) or more over the
percentage so owned by such Person as of the date hereof; (ii) that this
subsection (e) shall not apply to the Baron Group by virtue of their individual
or collective beneficial ownership of securities of the Corporation's
outstanding securities as of the date of this letter so long as the Baron Group
does not individually or collectively, beneficially own, or increase such
beneficial ownership to, twenty-five percent (25%) or more of the combined
voting power of the corporation's then outstanding securities, and (iii) that
this subsection (e) shall not apply to Ariel Capital Management ("Ariel") by
virtue of its beneficial ownership of the Corporation's outstanding securities
as of the date of this Agreement so long as Ariel does not beneficially own, or
increase such beneficial ownership to, twenty percent (20%) or more of the
combined voting power of the Corporation's then outstanding securities.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(i) GENERAL. During the term of this Agreement, if any of the
events described in Section 2 constituting a Change in Control shall have
occurred, you shall be entitled to the benefits provided in Section 4(ii) upon
the subsequent termination of your employment, provided that such termination
occurs during the term of this Agreement and within the two (2) year period
immediately following the date of such Change in Control, unless such
termination is (a) because of your death or Disability (as defined in Section
3(ii)), (b) by the Corporation for Cause (as defined in Section 3(iii)), or (c)
by you other than (1) for Good Reason (as defined in Section 3(iv)), or (2) in a
Covered Resignation (as defined in Section 3(v)). In the event that you are
entitled to such benefits, such benefits shall be paid notwithstanding the
subsequent expiration of the term of this Agreement. In the event your
employment with the Corporation is terminated for any reason and subsequently a
Change in Control occurs, you shall not be entitled to any benefits hereunder.
(ii) DISABILITY. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Corporation for six (6) consecutive months,
and within thirty (30) days after written notice of termination is given you
shall not have returned to the full-time performance of your duties, your
employment may be terminated for "Disability."
<PAGE> 4
Page Four
(iii) CAUSE. Termination by the Corporation of your employment
for "Cause" shall mean termination (a) upon your willful and continued failure
to substantially perform your duties with the Corporation (other than any such
failure resulting from your incapacity due to physical or mental illness or any
such actual or anticipated failure after your issuance of a Notice of
Termination (as defined in Section 3(vi)) either (x) for Good Reason, or (y) in
connection with a Covered Resignation, after a written demand for substantial
performance is delivered to you by the Board, which demand specifically
identifies the manner in which the Board believes that you have not
substantially performed your duties, (b) upon your willful and continued failure
to substantially follow and comply with the specific and lawful directives of
the Board, as reasonably determined by the Board (other than any such failure
resulting from your incapacity due to physical or mental illness or any such
actual or anticipated failure after your issuance of a Notice of Termination for
Good Reason or in connection with a Covered Resignation), after a written demand
for substantial performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties, (c) upon your willful commission of an act
of fraud or dishonesty resulting in material economic or financial injury to the
Corporation, or (d) upon your willful engagement in illegal conduct or gross
misconduct, in each case which is materially and demonstrably injurious to the
Corporation. For purposes of this Section 3(iii), no act, or failure to act, on
your part shall be deemed "willful" unless done, or omitted to be done, by you
not in good faith. Notwithstanding the foregoing, you shall not be deemed
terminated for Cause pursuant to Sections 3(iii)(a), (b) or (d) hereof unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters (3/4) of the
entire membership of the Board at a meeting of the Board (after reasonable
notice to you, an opportunity for you, together with your counsel, to be heard
before the Board and a reasonable opportunity to cure), finding that in the
Board's good faith opinion you were guilty of conduct set forth above in this
Section 3(iii) and specifying the particulars thereof in reasonable detail.
(iv) GOOD REASON. You shall be entitled to terminate your
employment for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of any of the following circumstances unless, in the case of Sections
3(iv)(a), (e), (f), (g), (h) or (i), such circumstances
<PAGE> 5
Page Five
are fully corrected (provided such circumstances are capable of correction)
prior to the Date of Termination (as defined in Section 3(vii)) specified in the
Notice of Termination given in respect thereof:
(a) the assignment to you of any duties inconsistent
with the position in the Corporation that you held immediately prior to the
Change in Control, a significant adverse alteration in the nature or status of
your responsibilities or the conditions of your employment from those in effect
immediately prior to such Change in Control, including by virtue of the
Corporation ceasing to be a publicly-held corporation, or any other action by
the Corporation that results in a material diminution in your position,
authority, duties or responsibilities;
(b) the Corporation's reduction of your annual base
salary as in effect on the date hereof or as the same may be increased from time
to time;
(c) the relocation of the Corporation's offices at
which you are principally employed immediately prior to the date of the Change
in Control (your "Principal Location") to a location more than thirty (30) miles
from such location, or the Corporation's requiring you, without your written
consent, to be based anywhere other than your Principal Location, except for
required travel on the Corporation's business to an extent substantially
consistent with your present business travel obligations;
(d) the Corporation's failure to pay to you any
portion of your current compensation or to pay to you any portion of an
installment of deferred compensation under any deferred compensation program of
the Corporation within seven (7) days of the date such compensation is due;
(e) the Corporation's failure to continue in effect
any material compensation or benefit plan or practice in which you participate
immediately prior to the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the Corporation's failure to continue your
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits provided and
the level of your participation relative to other participants, as existed at
the time of the Change in Control;
<PAGE> 6
Page Six
(f) the Corporation's failure to continue to provide
you with benefits substantially similar in the aggregate to those enjoyed by you
under any of the Corporation's life insurance, medical, health and accident,
disability, pension, retirement, or other benefit plans or practices in which
you and your eligible family members were participating at the time of the
Change in Control, the taking of any action by the Corporation which would
directly or indirectly materially reduce any of such benefits, or the failure by
the Corporation to provide you with the number of paid vacation days to which
you are entitled on the basis of years of service with the Corporation in
accordance with the Corporation's normal vacation policy in effect at the time
of the Change in Control;
(g) the Corporation's failure to obtain a
satisfactory agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 6 hereof;
(h) any purported termination of your employment that
is not effected pursuant to a Notice of Termination satisfying the requirements
of Section 3(vi) hereof (and, if applicable, the requirements of Section 3(iii)
hereof), which purported termination shall not be effective for purposes of this
Agreement; or
(i) the continuation or repetition, after written
notice of objection from you, of harassing or denigrating treatment of you
inconsistent with your position with the Corporation.
Your right to terminate your employment pursuant to this Section 3(iv) shall not
be affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.
(v) VOLUNTARY TERMINATION AND COVERED RESIGNATION. You shall
be entitled to voluntarily terminate your employment for any reason or no reason
at any time after a Change in Control. Any such termination which occurs within
the thirty (30) day period following the first anniversary of the occurrence of
a Change in Control shall constitute a resignation which entitles you to receive
benefits under this Agreement (a "Covered Resignation").
<PAGE> 7
Page Seven
(vi) NOTICE OF TERMINATION. Any purported termination of your
employment by the Corporation or by you (other than termination due to death
which shall terminate your employment automatically) shall be communicated by
written Notice of Termination to the other party hereto in accordance with
Section 7. "Notice of Termination" shall mean a notice that shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(vii) DATE OF TERMINATION, ETC. "Date of Termination" shall
mean (a) if your employment is terminated due to your death, the date of your
death; (b) if your employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that you shall not have returned
to the full-time performance of your duties during such thirty (30) day period),
and (c) if your employment is terminated pursuant to Section 3(iii), Section
3(iv) or Section 3(v) or for any other reason (other than death or Disability),
the date specified in the Notice of Termination (which, in the case of a
termination for Cause shall not be less than thirty (30) days from the date such
Notice of Termination is given, and in the case of a termination for Good Reason
or in connection with a Covered Resignation shall not be less than fifteen (15)
nor more than sixty (60) days from the date such Notice of Termination is
given). Notwithstanding anything to the contrary contained in this Section
3(vii), if within fifteen (15) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, then the Date of Termination shall be
the date on which the dispute is finally determined, either by mutual written
agreement of the parties, or otherwise; provided, however, that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence.
4. COMPENSATION UPON TERMINATION.
Following a Change in Control during the term of this
Agreement, you shall be entitled to the benefits described below upon
termination of your employment, provided that such termination occurs during the
term of this Agreement and within the two (2) year period immediately following
the date of such Change in Control. The benefits to which you are entitled,
subject to the terms and conditions of this Agreement, are:
<PAGE> 8
Page Eight
(i) If your employment shall be terminated by the
Corporation for Cause or by you other than (x) for Good Reason or (y) pursuant
to a Covered Resignation, the Corporation shall pay you your full base salary,
when due, through the Date of Termination at the rate in effect at the time
Notice of Termination is given, plus all other amounts to which you are entitled
under any compensation plan or practice of the Corporation at the time such
payments are due, and the Corporation shall have no further obligations to you
under this Agreement.
(ii) If your employment by the Corporation shall be
terminated by you (x) for Good Reason or (y) pursuant to a Covered Resignation,
or by the Corporation other than for Cause or Disability, then you shall be
entitled to the benefits provided below:
(a) the Corporation shall pay to you your full base
salary, when due, through the Date of Termination at the rate in effect at the
time Notice of Termination is given, at the time specified in Section 4(iii),
plus all other amounts to which you are entitled under any compensation plan or
practice of the Corporation at the time such payments are due;
(b) in lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Corporation shall pay as
severance pay to you, at the time specified in Section 4(iii), a lump-sum
severance payment (together with the payments provided in Section 4(ii)(c)
below, the "Severance Payments") equal to the sum of the following:
(A) three (3) times your annual base salary as
in effect as of the Date of Termination or
immediately prior to the Change in Control,
whichever is greater; and
(B) three (3) times the greater of (x) your
targeted annual bonus as in effect as of the
Date of Termination or immediately prior to
the Change in Control, whichever is greater,
or (y) your annual bonus for the year
immediately preceding the Date of
Termination;
<PAGE> 9
Page Nine
(c) notwithstanding any provisions of the
Corporation's stock option plans, incentive plans, or other similar plans, the
restricted period with respect to any restricted stock granted to you thereunder
shall lapse and such shares shall be distributed to you at the time specified in
Section 4(iii);
(d) for a period of one (1) year following the Date
of Termination, the Corporation shall, at its sole expense as incurred, provide
you with financial planning services of substantially the same type and scope as
those which the Corporation was providing to you immediately prior to the Date
of Termination, or, if more favorable to you, the date of the Change in Control;
(e) for a period of two (2) years following the Date
of Termination, the Corporation shall, at its sole expense as incurred, provide
you with outplacement services, the scope and provider of which shall be
selected by you in your sole discretion;
(f) for a thirty-six (36) month period after such
termination, the Corporation shall continue to provide you and your eligible
family members, based on the cost sharing arrangement between you and the
Corporation on the date of the Change in Control, with medical and dental health
benefits at least equal to those which would have been provided to you and them
if your employment had not been terminated or, if more favorable to you, as in
effect generally at any time thereafter; provided, however, that if you become
re-employed with another employer and are eligible to receive medical and dental
health benefits under another employer's plans, the Corporation's obligations
under this Section 4(ii)(f) shall be reduced to the extent comparable benefits
are actually received by you during the thirty-six (36) month period following
your termination, and any such benefits actually received by you shall be
reported to the Corporation. In the event you are ineligible under the terms of
such benefit plans or programs to continue to be so covered, the Corporation
shall provide you with substantially equivalent coverage through other sources
or will provide you with a lump-sum payment in such amount that, after all taxes
on that amount, shall be equal to the cost to you of providing yourself such
benefit coverage. At the termination of the benefits coverage under the second
preceding sentence, you, your spouse and your dependents shall be entitled to
continuation coverage pursuant to section 4980B of the Internal Revenue Code of
1986, as amended (the "Code"), sections 601-608 of the Employee Retirement
Income Security Act of 1974, as
<PAGE> 10
Page Ten
amended, and under any other applicable law, to the extent required by such
laws, as if you had terminated employment with the Corporation on the date such
benefits coverage terminates. The lump-sum shall be determined on a present
value basis using the interest rate provided in section 1274(b)(2)(B) of the
Code on the Date of Termination.
(g) (1) anything in this Agreement to the contrary
notwithstanding, if it shall be determined that any payment or distribution to
you or for your benefit (whether paid or payable or distributed or
distributable) pursuant to the terms of this Agreement or otherwise (the
"Payment") would be subject to the excise tax imposed by section 4999 of the
Code (the "Excise Tax"), then you shall be entitled to receive from the
Corporation an additional payment (the "Gross-Up Payment") in an amount such
that the net amount of the Payment and the Gross-Up Payment retained by you
after the calculation and deduction of all Excise Taxes (including any interest
or penalties imposed with respect to such taxes) on the payment and all federal,
state and local income tax, employment tax and Excise Tax (including any
interest or penalties imposed with respect to such taxes) on the Gross-Up
Payment provided for in this Section 4(ii)(g), and taking into account any lost
or reduced tax deductions on account of the Gross-Up Payment, shall be equal to
the Payment;
(2) all determinations required to be made under this Section
4(ii)(g), including whether and when the Gross-Up Payment is required and the
amount of such Gross-Up Payment, and the assumptions to be utilized in arriving
at such determinations shall be made by the Accountants (as defined below) which
shall provide you and the Corporation with detailed supporting calculations with
respect to such Gross-Up Payment within fifteen (15) business days of the
receipt of notice from you or the Corporation that you have received or will
receive a Payment. For the purposes of this Section 4(ii)(g), the "Accountants"
shall mean the Corporation's independent certified public accountants serving
immediately prior to the Change in Control. In the event that the Accountants
are also serving as accountant or auditor for the individual, entity or group
effecting the Change in Control, you shall appoint another nationally recognized
public accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accountants hereunder). All
fees and expenses of the Accountants shall be borne solely by the Corporation.
For the purposes of determining whether any of the Payments will be subject to
the Excise Tax and the amount of such Excise Tax, such Payments will be treated
as "parachute payments" within the meaning of section 280G of
<PAGE> 11
Page Eleven
the Code, and all "parachute payments" in excess of the "base amount" (as
defined under section 280G(b)(3) of the Code) shall be treated as subject to the
Excise Tax, unless and except to the extent that in the opinion of the
Accountants such Payments (in whole or in part) either do not constitute
"parachute payments" or represent reasonable compensation for services actually
rendered (within the meaning of section 280G(b)(4) of the Code) in excess of the
"base amount," or such "parachute payments" are otherwise not subject to such
Excise Tax. For purposes of determining the amount of the Gross-Up Payment, you
shall be deemed to pay Federal income taxes at the highest applicable marginal
rate of Federal income taxation for the calendar year in which the Gross-Up
Payment is to be made and to pay any applicable state and local income taxes at
the highest applicable marginal rate of taxation for the calendar year in which
the Gross-Up Payment is to be made, net of the maximum reduction in Federal
income taxes which could be obtained from the deduction of such state or local
taxes if paid in such year (determined without regard to limitations on
deductions based upon the amount of your adjusted gross income), and to have
otherwise allowable deductions for Federal, state and local income tax purposes
at least equal to those disallowed because of the inclusion of the Gross-Up
Payment in your adjusted gross income. To the extent practicable, any Gross-Up
Payment with respect to any Payment shall be paid by the Corporation at the time
you are entitled to receive the Payment and in no event will any Gross-Up
Payment be paid later than five days after the receipt by you of the
Accountant's determination. Any determination by the Accountants shall be
binding upon the Corporation and you. As a result of uncertainty in the
application of section 4999 of the Code at the time of the initial determination
by the Accountants hereunder, it is possible that the Gross-Up Payment made will
have been an amount less than the Corporation should have paid pursuant to this
Section 4(ii)(g) (the "Underpayment"). In the event that the Corporation
exhausts its remedies pursuant to Section 4(ii)(g)(3) and you are required to
make a payment of any Excise Tax, the Underpayment shall be promptly paid by the
Corporation to or for your benefit; and
<PAGE> 12
Page Twelve
(3) you shall notify the Corporation in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Corporation of the Gross-Up Payment. Such notification shall be given as
soon as practicable after you are informed in writing of such claim and shall
apprise the Corporation of the nature of such claim and the date on which such
claim is requested to be paid. You shall not pay such claim prior to the
expiration of the 30-day period following the date on which you give such notice
to the Corporation (or such shorter period ending on the date that any payment
of taxes, interest and/or penalties with respect to such claim is due). If the
Corporation notifies you in writing prior to the expiration of such period that
it desires to contest such claim, you shall:
(A) give the Corporation any information reasonably
requested by the Corporation relating to such claim;
(B) take such action in connection with contesting
such claim as the Corporation shall reasonably request in writing from time to
time, including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Corporation;
(C) cooperate with the Corporation in good faith in
order to effectively contest such claim; and
(D) permit the Corporation to participate in any
proceedings relating to such claims;
provided, however, that the Corporation shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify you for and hold you harmless
from, on an after-tax basis, any Excise Tax or income tax (including interest
and penalties with respect thereto) imposed as a result of such representation
and payment of all related costs and expenses. Without limiting the foregoing
provisions of this Section 4(ii)(g), the Corporation shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct you to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner,
<PAGE> 13
Page Thirteen
and you agree to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Corporation shall determine; provided, however, that if
the Corporation directs you to pay such claim and sue for a refund, the
Corporation shall advance the amount of such payment to you, on an interest-free
basis, and shall indemnify you for and hold you harmless from, on an after-tax
basis, any Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance (including as a result of any
forgiveness by the Corporation of such advance); provided, further, that any
extension of the statute of limitations relating to the payment of taxes for the
taxable year of you with respect to which such contested amount is claimed to be
due is limited solely to such contested amount. Furthermore, the Corporation's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and you shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority;
(h) in any situation where under applicable law the
Corporation has the power to indemnify (or advance expenses to) you in respect
of any judgments, fines, settlements, loss, cost or expense (including
attorneys' fees) of any nature related to or arising out of your activities as
an agent, employee, officer or director of the Corporation or in any other
capacity on behalf of or at the request of the Corporation, the Corporation
shall promptly on written request, indemnify (and advance expenses to) you to
the fullest extent permitted by applicable law, including but not limited to
making such findings and determinations and taking any and all such actions as
the Corporation may, under applicable law, be permitted to have the discretion
to take so as to effectuate such indemnification or advancement. Such agreement
by the Corporation shall not be deemed to impair any other obligation of the
Corporation respecting your indemnification otherwise arising out of this or any
other agreement or promise of the Corporation or under any statute;
(i) the Corporation shall furnish you for six (6) years
following the Date of Termination (without reference to whether the term of this
Agreement continues in effect) with directors' and officers' liability insurance
insuring you against insurable events which occur or have occurred while you
were a director or officer of the
<PAGE> 14
Page Fourteen
Corporation, such insurance to have policy limits aggregating not less than the
amount in effect immediately prior to the Change in Control, and otherwise to be
in substantially the same form and to contain substantially the same terms,
conditions and exceptions as the liability issuance policies provided for
officers and directors of the Corporation in force from time to time, provided,
however, that such terms, conditions and exceptions shall not be, in the
aggregate, materially less favorable to you than those in effect on the date
hereof; provided, further, that if the aggregate annual premiums for such
insurance at any time during such period exceed one hundred and fifty percent
(150%) of the per annum rate of premium currently paid by the Corporation for
such insurance, then the Corporation shall provide the maximum coverage that
will then be available at an annual premium equal to one hundred and fifty
percent (150%) of such rate; and
(j) you shall be fully vested in your accrued benefits under
any qualified or nonqualified pension, profit sharing, deferred compensation or
supplemental plans maintained by the Corporation for your benefit, and the
Corporation shall provide you with additional fully vested benefits under such
plans in an amount equal to the benefits which you would have accrued had you
continued your employment with the Corporation for three (3) additional years
following your Date of Termination; provided, however, that to the extent that
the acceleration of vesting or enhanced accrual of such benefits would violate
any applicable law or require the Corporation to accelerate the vesting of the
accrued benefits of all participants in such plan or plans or to provide
additional benefit accruals to such participants, the Corporation shall pay you
a lump-sum payment at the time specified in Section 4(iii) in an amount equal to
the value of such benefits; provided, further, that to the extent that the
present value of all benefits payable to you under this Section 4(ii)(j) is less
than $250,000, the Corporation shall pay you a lump-sum payment at the time
specified in Section 4(iii) in an amount equal to the difference between
$250,000 and the amount of such benefits which are otherwise payable to you
under this Section 4(ii)(j); provided, further, that if you are eligible to
receive grandfathered benefits under the Corporation's pension plan, the
provisions of this Section 4(ii)(j) shall apply to such grandfathered benefits,
without reduction for age, in addition to any other benefits to which you are
entitled under this Section 4(ii)(j).
<PAGE> 15
Page Fifteen
(iii) The payments provided for in Sections 4(ii)(a), (b),
(c), (d) and (j) shall be made not later than the fifth day following the Date
of Termination; provided, however, that if the amounts of such payments cannot
be finally determined on or before such day, the Corporation shall pay to you on
such day an estimate, as determined in good faith by the Corporation, of the
minimum amount of such payments and shall pay the remainder of such payments
(together with interest at the rate provided in section 1274(b)(2)(B) of the
Code) as soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Corporation to you, payable on
the fifth day after demand by the Corporation (together with interest at the
rate provided in section 1274(b)(2)(B) of the Code).
(iv) You shall not be required to mitigate the amount of any
payment provided for in this Section 4 by seeking other employment or otherwise
nor, except as provided in Section 4(ii)(f), shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any compensation earned by
you as the result of employment by another employer or self-employment, by
retirement benefits, by offset against any amount claimed to be owed by you to
the Corporation, or otherwise.
5. ACCELERATION OF VESTING OF OPTIONS. Notwithstanding anything contained
herein, in the event of a Change in Control during the term of this Agreement,
all outstanding options ("Options"), if any, granted to you under any of the
Corporation's stock option plans, incentive plans or other similar plans (or
options substituted therefor covering the stock of a successor corporation)
shall, effective immediately prior to such Change in Control, become fully
vested and exercisable as to all shares of stock covered thereby.
6. SUCCESSORS; BINDING AGREEMENT.
(i) The Corporation shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Corporation to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform it if no such
succession had taken place. Failure of the Corporation to obtain such assumption
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle you to terminate your employment and
receive compensation from the Corporation in the same amount and on the same
terms to which you would be entitled hereunder if you terminate your employment
for Good Reason following a Change in Control, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be
<PAGE> 16
Page Sixteen
deemed the Date of Termination. Unless expressly provided otherwise,
"Corporation" as used herein shall mean the Corporation as defined in this
Agreement and any successor to its business and/or assets as aforesaid.
(ii) This Agreement shall inure to the benefit of and be
enforceable by you and your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
should die while any amount would still be payable to you hereunder had you
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.
7. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Corporation shall be directed to the
attention of the Board with a copy to the Secretary of the Corporation, or to
such other address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
8. NON- COMPETE, CONFIDENTIALITY AND NON-SOLICITATION COVENANTS.
(i) NON-COMPETE. In consideration of and in connection with
the benefits provided to you under this Agreement, and in order to protect the
goodwill of the Corporation, you hereby agree that, if your employment is
terminated pursuant to a Covered Resignation, then, for a period of twelve (12)
months commencing on the Date of Termination, you shall not, directly or
indirectly, own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be connected as a director, officer,
employee, partner, consultant or otherwise with any of the following entities
(or any subsidiary of any such entity) other than as a shareholder or beneficial
owner owning 5% or less of the outstanding securities of a public company:
Durand International, the Anchor Hocking unit of Newell Co., Cardinal
International, Inc., the Indiana Glass unit of Lancaster Colony Corporation,
Oneida LTD or any glass tableware manufacturer, seller or importer for Bormioli
Rocco Casa SpA, for the Kedaung group of companies of Indonesia or for the
Sisecam group of companies of Turkey including Pasabahce.
<PAGE> 17
Page Seventeen
(ii) CONFIDENTIALITY. You hereby agree that, for the period
commencing on the Date of Termination and terminating on the third anniversary
thereof, you shall not, directly or indirectly, disclose or make available to
any person, firm, corporation, association or other entity for any reason or
purpose whatsoever, any Confidential Information (as defined below). You agree
that, upon termination of your employment with the Corporation, all Confidential
Information in your possession that is in written or other tangible form
(together with all copies or duplicates thereof, including computer files) shall
be returned to the Corporation and shall not be retained by you or furnished to
any third party, in any form except as provided herein; provided, however, that
you shall not be obligated to treat as confidential, or return to the
(iii) Corporation copies of any Confidential Information that
(i) was publicly known at the time of disclosure to you, (ii) becomes publicly
known or available thereafter other than by any means in violation of this
Agreement or any other duty owed to the Corporation by any person or entity, or
(iii) is lawfully disclosed to you by a third party. As used in this Agreement,
the term "Confidential Information" means: information disclosed to you or known
by you as a consequence of or through your relationship with the Corporation,
about the customers, employees, business methods, public relations methods,
organization, procedures or finances, including, without limitation, information
of or relating to customer lists, of the Corporation and its affiliates.
(iv) NON-SOLICITATION. You hereby agree that, for the period
commencing on the Date of Termination and terminating on the third anniversary
thereof, you shall not, either on your own account or jointly with or as a
manager, agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation,
directly or indirectly solicit or attempt to solicit away from the Corporation
any of its officers or employees or offer employment to any person who, on or
during the six (6) months immediately preceding the date of such solicitation or
offer, is or was an officer or employee of the Corporation; provided, however,
that a general advertisement to which an employee of the Corporation responds
shall in no event be deemed to result in a breach of this Section 8(iii).
9. FUNDING OF OBLIGATIONS. Within a reasonable time following the execution and
delivery of this Agreement by you and the Corporation, the Corporation shall
partially fund its obligations to provide benefits hereunder (including, without
limitation, its obligations under Section 4(ii)(g)) by establishing and
irrevocably partially funding a trust for your benefit and the benefit of other
executives of the Corporation with whom
<PAGE> 18
Page Eighteen
the Corporation has entered into agreements similar to this Agreement. The
Corporation shall initially contribute $1000 to such trust. Such trust shall be
a grantor trust described in section 671 of the Code. Upon the occurrence of a
Potential Change in Control (as defined below), the Corporation shall fully fund
its obligations to provide benefits hereunder (including, without limitation,
its obligations under Section 4(ii)(g)) by irrevocably contributing funds to
such trust on your behalf. The amount of such contribution shall equal the then
present value of the Corporation's obligations under Section 4 hereof as
determined by the firms serving as the Corporation's actuaries and accountants
immediately prior to the Change in Control. Such actuaries and accountants shall
be paid by the Corporation. The establishment and funding of such trust shall
not affect the obligation of the Corporation to provide benefits under the terms
of this Agreement. For purposes of this Agreement a "Potential Change in
Control" shall be deemed to occur if:
(a) the Corporation enters into an agreement, the consummation
of which would result in the occurrence of a Change in Control;
(b) any Person (including the Corporation) publicly announces
an intention to take or to consider taking actions which, if consummated, would
constitute a Change in Control;
(c) any Person who is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Corporation representing ten
percent (10%) or more of the combined voting power of the Corporation's then
outstanding securities, increases such Person's beneficial ownership of such
securities by five percent (5%) or more of the Corporation's then outstanding
securities over the percentage so owned by such Person on the date hereof
provided however, (i) that this subsection (c) shall not apply to the Baron
Group by virtue of their individual or collective beneficial ownership of
securities of the Corporation's outstanding securities as of the date of this
letter so long as the Baron Group does not individually or collectively,
beneficially own, or increase such beneficial ownership to, twenty-five percent
(25%) or more of the combined voting power of the corporation's then outstanding
securities, and (ii) that this subsection (c) shall not apply to Ariel by virtue
of its beneficial ownership of the Corporation's outstanding securities as of
the date of this Agreement so long as Ariel does not beneficially own, or
increase such beneficial ownership to, twenty percent (20%) or more of the
combined voting power of the Corporation's then outstanding securities; or
(d) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
10. MISCELLANEOUS. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of or
<PAGE> 19
Page Nineteen
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of Ohio
without regard to its conflicts of law principles. All references to sections of
the Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Except as provided in Section 4(ii)(g) hereunder,
any payments provided for hereunder shall be paid net of any applicable
withholding required under federal, state or local law. The obligations of the
Corporation under Section 4 shall survive the expiration of the term of this
Agreement. The section headings contained in this Agreement are for convenience
only, and shall not affect the interpretation of this Agreement.
11. SEVERABILITY. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
12. COUNTERPARTS. This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
13. SUITS, ACTIONS, PROCEEDINGS, ETC..
(i) JURISDICTION AND VENUE. No suit, action or proceeding with
respect to this Agreement, nor any judgment entered by any court in respect
thereof, may be brought in any court, domestic or foreign, or before any similar
domestic or foreign authority, other than in a court of competent jurisdiction
in the State of Ohio, and you and the Corporation hereby irrevocably waive any
right which you or the Corporation, as applicable, may otherwise have had to
bring such a suit, action, proceeding or judgment in any other court, domestic
or foreign, or before any similar domestic or foreign authority. You and the
Corporation hereby submit to the exclusive jurisdictions of such courts for the
purpose of any such suit, action, proceeding or judgment. By your execution and
delivery of this Agreement, you appoint the Secretary of the Corporation, at the
Corporation's office in Toledo, Ohio, as your agent upon which process may be
served in any such suit, action or proceeding; and by its execution and delivery
of this Agreement, the Corporation appoints the Secretary of the Corporation, at
its office in Toledo, Ohio, as its agent upon which process may be served in any
such suit, action or proceeding. Service of process upon such applicable agent,
together
<PAGE> 20
Page Twenty
with actual notice of such service given to you or the Corporation, as
applicable, in the manner provided in Section 7 hereof, shall be deemed in every
respect effective service of process upon the applicable party in any suit,
action, proceeding or judgment. Nothing herein shall be deemed to limit the
ability of you or the Corporation to serve any such writs, process or summonses
in any other manner permitted by applicable law. You and the Corporation hereby
irrevocably waive any objections which you or the Corporation, as applicable,
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement brought in any court of
competent jurisdiction in the State of Ohio, and hereby further irrevocably
waive any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. Notwithstanding the foregoing,
in the event that no court of competent jurisdiction in the State of Ohio will
accept such jurisdiction and venue, then any suit, action or proceeding with
respect to this Agreement, or any judgment entered by any court in respect
thereof, may be brought in any court of competent jurisdiction in the
continental United States which has jurisdiction over such suit, proceeding or
action and the parties thereto.
(ii) COMPENSATION DURING DISPUTE, ETC.. Your compensation
during any disagreement, dispute, controversy, claim, suit, action or proceeding
(collectively, a "Dispute") arising out of or relating to this Agreement or the
interpretation of this Agreement shall be as follows:
If there is a termination by you or the Corporation followed
by a Dispute as to whether you are entitled to the payments and other benefits
provided under this Agreement, then, during the period of that Dispute the
Corporation shall pay you fifty percent (50%) of the amount specified in
Sections 4(ii)(a) and 4(ii)(b) hereof, and the Corporation shall provide you
with the other benefits provided in Section 4(ii) of this Agreement, if, but
only if, you agree in writing that if the Dispute is resolved against you, you
shall promptly refund to the Corporation all payments you receive under Sections
4(ii)(a) and 4(ii)(b) of this Agreement plus interest at the rate provided in
Section 1274(d) of the Code, compounded quarterly. If the Dispute is resolved in
your favor, promptly after resolution of the dispute the Corporation shall pay
you the sum that was withheld during the period of the Dispute plus interest at
the rate provided in Section 1274(d) of the Code, compounded quarterly.
(iii) LEGAL FEES. The Corporation shall pay to you all legal
fees and expenses incurred by you in connection with any Dispute arising out of
or relating to this Agreement or the interpretation thereof (including, without
limitation, all such fees
<PAGE> 21
Page Twenty-One
and expenses, if any, incurred in contesting or disputing any termination of
your employment or in seeking to obtain or enforce any right or benefit provided
by this Agreement, or in connection with any tax audit or proceeding to the
extent attributable to the application of section 4999 of the Code to any
payment or benefit provided hereunder).
14. ENTIRE AGREEMENT. This Agreement restates and supersedes the prior agreement
between you and the corporation dated May 27, 1998 as amended May 21, 1999. This
Agreement sets forth the entire agreement of the parties hereto in respect of
the subject matter contained herein and supersedes all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto; and any prior agreement of the parties hereto in respect of
the subject matter contained herein, including, without limitation, any prior
severance agreements, is hereby terminated and cancelled; provided, however,
that the Employment Agreement, dated as of August 1, 1999 by and between you and
the Corporation, as amended, shall remain in full force and effect and shall,
pursuant to the terms and conditions thereof, provide certain severance benefits
to you upon certain terminations of employment. Any of your rights hereunder
shall be in addition to any rights you may otherwise have under benefit plans or
agreements of the Corporation to which you are a party or in which you are a
participant, including, but not limited to, any Corporation sponsored employee
benefit plans and stock options plans. Provisions of this Agreement shall not in
any way abrogate your rights under such other plans and agreements.
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Corporation the enclosed copy of this
letter, which shall then constitute our agreement on this subject.
Sincerely,
LIBBEY INC.
By: /s/ A. H. Smith
----------------------------
Its: Vice President and Secretary
Agreed and Accepted as of the,
1st day of August , 1999.
- ----- ----------
/s/ K. A. Boerger
- -----------------------
<PAGE> 1
EXHIBIT 10.69
NON-QUALIFIED STOCK OPTION AGREEMENT
------------------------------------
THIS AGREEMENT, dated ____________, 19__, is made by and
between Libbey, Inc., a Delaware corporation hereinafter referred to as
"Company," and _________________________, an employee or consultant of the
Company or a Subsidiary of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the
opportunity to purchase shares of its $0.01 par value Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms
of which are hereby incorporated by reference and made a part of this
Agreement); and
WHEREAS, the Committee, appointed to administer the Plan, has
determined that it would be to the advantage and best interest of the Company
and its shareholders to grant the Non-Qualified Option provided for herein to
the Optionee as an inducement to enter into or remain in the service of the
Company or its Subsidiaries and as an incentive for increased efforts during
such service, and has advised the Company thereof and instructed the undersigned
officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants
herein contained and other good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
-----------
Whenever the following terms are used in this Agreement, they
shall have the meaning specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates. All capitalized terms
used herein without definition shall have the meanings ascribed to such terms in
the Plan.
Section 1.1. - Board
- ------------ -----
"Board" shall mean the Board of Directors of the Company.
Section 1.2. - Change in Control
- ------------ -----------------
(a) any Person (as defined below) is or becomes the Beneficial
Owner (as defined below), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power of the
Company's then outstanding securities. For purposes of this Agreement, (A) the
term "Person" is used as such term is used in Sections 13(d) and 14(d) of the
Exchange Act; provided, however, that the term shall not include the Company,
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company,
<PAGE> 2
and any corporation owned, directly or indirectly, by the shareholders of the
Company, in substantially the same proportions as their ownership of stock of
the Company, and (B) the term "Beneficial Owner" shall have the meaning given to
such term in Rule 13d-3 under the Exchange Act; and provided, further, that this
subsection (a) shall not apply to any Person who is a the Beneficial Owner,
directly or indirectly, of securities of the Company representing twenty percent
(20%) or more of the combined voting power of the Company's then outstanding
securities as of the effective date of the Plan so long as such Person does not
beneficially own, or increase such beneficial ownership to twenty five percent
(25%) or more of the combined voting power of the Company's then outstanding
securities;
(b) during any period of two (2) consecutive years (not
including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in Sections 2(a), (c) or (d))
whose election by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved
(hereinafter referred to as "Continuing Directors"), cease for any reason to
constitute at least a majority thereof;
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation (or other entity), other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than 662/3% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation;
(d) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets; or
(e) any Person is or becomes the Beneficial Owner, directly or
indirectly, of securities of the Company representing ten percent (10%) or more
of the combined voting power of the Company's then outstanding securities (a
"10% Owner") and (A) the identity of the Chief Executive Officer of the Company
is changed during the period beginning sixty (60) days before the attainment of
the ten percent (10%) beneficial ownership and ending two (2) years thereafter,
or (B) individuals constituting at least one-third (1/3) of the members of the
Board at the beginning of such period shall cease for any reason to serve on the
Board during the period beginning sixty (60) days before the attainment of the
ten percent (10%) beneficial ownership and ending two (2) years thereafter;
provided, however, that this subsection (e) shall not apply to any Person who is
a 10% Owner as of the effective date of the Plan so long as such Person does not
increase such beneficial ownership by five percent (5%) or more over the
percentage so owned by such Person as of the effective date of the Plan.
2
<PAGE> 3
Section 1.3. - Code
- ------------ ----
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
Section 1.4. - Committee
- ------------ ---------
"Committee" shall mean the Compensation Committee of the
Board, or another committee of the Board, appointed as provided in Section 10.1
of the Plan.
Section 1.5. - Common Stock
- ------------ ------------
"Common Stock" shall mean the common stock of the Company, par
value $0.01 per share.
Section 1.6. - Company
- ------------ -------
"Company" shall mean Libbey Inc., a Delaware corporation.
Section 1.7. - Director
- ------------ --------
"Director" shall mean a member of the Board.
Section 1.8. - Exchange Act
- ------------ ------------
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
Section 1.9. - Fair Market Value
- ------------ -----------------
"Fair Market Value" of a share of Common Stock as of a given
date shall be (a) the closing price of a share of Common Stock on the principal
exchange on which shares of Common Stock are then trading, if any (or as
reported on any composite index which includes such principal exchange), on the
trading day previous to such date, or if shares were not traded on the trading
day previous to such date, then on the next preceding date on which a trade
occurred, or (b) if Common Stock is not traded on an exchange but is quoted on
Nasdaq or a successor quotation system, the mean between the closing
representative bid and asked prices for the Common Stock on the trading day
previous to such date as reported by Nasdaq or such successor quotation system;
or (c) if Common Stock is not publicly traded on an exchange and not quoted on
Nasdaq or a successor quotation system, the Fair Market Value of a share of
Common Stock as established by the Committee acting in good faith.
Section 1.10. - Option
- ------------- ------
"Option" shall mean the non-qualified option to purchase
Common Stock of the Company granted under this Agreement.
Section 1.11. - Plan
- ------------- ----
"Plan" shall mean The 1999 Equity Participation Plan of Libbey
Inc.
3
<PAGE> 4
Section 1.12. - Rule 16b-3
- ------------- ----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended from time to time.
Section 1.13. - Secretary
- ------------- ---------
"Secretary" shall mean the Secretary of the Company.
Section 1.14. - Securities Act
- ------------- --------------
"Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.15. - Subsidiary
- ------------- ----------
"Subsidiary" shall mean any corporation in an unbroken chain
of corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.16. - Termination of Employment
- ------------- -------------------------
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company or any
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (a) terminations where there is a
simultaneous reemployment or continuing employment of the Optionee by the
Company or any Subsidiary, (b) at the discretion of the Committee, terminations
which result in a temporary severance of the employee-employer relationship, and
(c) at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its sole discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Terminations of
Employment. Notwithstanding any other provision of this Agreement or of the
Plan, the Company or any Subsidiary has an absolute and unrestricted right to
terminate the Optionee's employment at any time for any reason whatsoever, with
or without cause, except to the extent expressly provided otherwise in writing.
ARTICLE II.
GRANT OF OPTION
---------------
Section 2.1. - Grant of Option
- ------------ ---------------
In consideration of the Optionee's agreement to provide
services to the Company or its Subsidiaries, and for other good and valuable
consideration, on the date hereof the
4
<PAGE> 5
Company irrevocably grants to the Optionee the option to purchase any part or
all of an aggregate of ________ shares of its $0.01 par value Common Stock upon
the terms and conditions set forth in this Agreement.
Section 2.2. - Purchase Price
- ------------ --------------
The purchase price of the shares of stock covered by the
Option shall be $_____ per share without commission or other charge.
Section 2.3. - Consideration to Company
- ------------ ------------------------
In consideration of the granting of this Option by the
Company, the Optionee agrees to render faithful and efficient services to the
Company or a Subsidiary, with such duties and responsibilities as the Company
shall from time to time prescribe, for a period of at least one (1) year from
the date this Option is granted. Nothing in this Agreement or in the Plan shall
confer upon the Optionee any right to continue in the employ of the Company or
any Subsidiary, or shall interfere with or restrict in any way the rights of the
Company and its Subsidiaries, which are hereby expressly reserved, to discharge
the Optionee at any time for any reason whatsoever, with or without cause.
Section 2.4. - Adjustments in Option
- ------------ ---------------------
The Committee shall make adjustments with respect to the
Option in accordance with the provisions of Section 11.3 of the Plan.
ARTICLE III.
PERIOD OF EXERCISABILITY
------------------------
Section 3.1. - Commencement of Exercisability
- ------------ ------------------------------
(a) Subject to subsection (b), Section 3.4 and Section 5.6,
the Option shall become exercisable in four cumulative installments as follows:
(i) The first installment shall consist of forty
percent (40%) of the shares covered by the Option and shall become
exercisable on the first anniversary hereof.
(ii) The second installment consisting of sixty
percent (60%) of the shares covered by the Option shall become
exercisable on the second anniversary hereof.
(iii) The third installment consisting of eighty
percent (80%) of the shares covered by the Option shall become
exercisable on the third anniversary hereof.
(iv) The fourth installment consisting of one hundred
percent (100%) of the shares covered by the Option shall become
exercisable on the fourth anniversary hereof.
5
<PAGE> 6
(b) No portion of the Option which is unexercisable at
Termination of Employment shall thereafter become exercisable.
Section 3.2. - Duration of Exercisability
- ------------ --------------------------
The installments provided for in Section 3.1 are cumulative.
Each such installment which becomes exercisable pursuant to Section 3.1 shall
remain exercisable until it becomes unexercisable under Section 3.3.
Section 3.3. - Expiration of Option
- ------------ --------------------
The Option may not be exercised to any extent by anyone after
the first to occur of the following events:
(a) The expiration of ten (10) years and one day from the date
the Option was granted; or
(b) The expiration of three (3) months from the date of the
Optionee's Termination of Employment unless such Termination of Employment
results from his death, his retirement, or his disability provided that if the
Optionee dies within said three months period, the period shall be extended to
end one year from the date of Optionee's death; or
(c) The expiration of three (3) years from the date of the
Optionee's Termination of Employment by reason of his retirement, disability or
death provided that if the Optionee dies within said three years period, the
period shall be extended to end one year from the date of Optionee's death.
Section 3.4. - Acceleration of Exercisability
- ------------ ------------------------------
(a) In the event of a Termination of Employment resulting from
an Optionee's retirement (after attaining age 55 and completion of at least 5
years of employment), death, or disability , the Option shall be exercisable as
to a minimum of 20% of the shares covered hereby, notwithstanding the extent, if
any, to which this Option may have become otherwise exercisable under Section
3.1.
(b) Notwithstanding Section 3.1(a), in the event of a Change
in Control, the Option shall, immediately prior to the effective date of the
Change in Control, automatically become fully exercisable for all of the shares
of Common Stock at the time subject to the Option, and may be exercised for any
or all of those shares as fully-vested shares of Common Stock.
6
<PAGE> 7
ARTICLE IV.
EXERCISE OF OPTION
------------------
Section 4.1. - Person Eligible to Exercise
- ------------ ---------------------------
Except as provided in Section 5.2, during the lifetime of the
Optionee, only he may exercise the Option or any portion thereof. After the
death of the Optionee, any exercisable portion of the Option may, prior to the
time when the Option becomes unexercisable under Section 3.3, be exercised by
his personal representative or by any person empowered to do so under the
deceased Optionee's will or under the then applicable laws of descent and
distribution.
Section 4.2. - Partial Exercise
- ------------ ----------------
Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3; PROVIDED, HOWEVER, that each partial exercise shall be for not less
than twenty-five (25) shares (or the minimum installment set forth in Section
3.1, if a smaller number of shares) and shall be for whole shares only.
Section 4.3. - Manner of Exercise
- ------------ ------------------
The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when the Option or such portion becomes
unexercisable under Section 3.3:
(a) A written notice complying with the applicable rules
established by the Committee stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion; and
(b) (i) Full cash payment to the Secretary of the Company for
the shares with respect to which such Option or portion is exercised;
or
(ii) With the consent of the Committee, (A) shares of
the Company's Common Stock owned by the Optionee, duly endorsed for
transfer to the Company, with a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Option or
exercised portion thereof, or (B) shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option, with a Fair
Market Value on the date of exercise of the Option or any portion
thereof equal to the aggregate exercise price of the Option or
exercised portion thereof; or
(iii) With the consent of the Committee, a full
recourse promissory note bearing interest (at no less than such rate as
shall then preclude the imputation of interest under the Code or
successor provision) and payable upon such terms as may be prescribed
by the Committee. The Committee may also prescribe the form of such
note and the security to be given for such note. The Option may not be
exercised, however, by delivery
7
<PAGE> 8
of a promissory note or by a loan from the Company when or where such
loan or other extension of credit is prohibited by law; or
(iv) With the consent of the Committee, property of
any kind which constitutes good and valuable consideration; or
(v) With the consent of the Committee, a notice that
the Optionee has placed a market sell order with a broker with respect
to shares of the Company's Common Stock then issuable upon exercise of
the Option, and that the broker has been directed to pay a sufficient
portion of the net proceeds of the sale to the Company in satisfaction
of the Option exercise price; or
(vi) With the consent of the Committee, any
combination of the consideration provided in the foregoing
subparagraphs (i), (ii), (iii), (iv) and (v); and
(c) A bona fide written representation and agreement, in a
form satisfactory to the Committee, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee may, in its sole
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Committee may require an opinion of counsel acceptable to it to the effect that
any subsequent transfer of shares acquired on an Option exercise does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
shares; and
(d) Full payment to the Company (or other employer
corporation) of all amounts which, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; with the consent of the
Committee, (i) shares of the Company's Common Stock owned by the Optionee, duly
endorsed for transfer, with a Fair Market Value on the date of delivery equal to
the sums required to be withheld, or (ii) shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option with a Fair Market Value on
the date of exercise of the Option or any portion thereof equal to the sums
required to be withheld, may be used to make all or part of such payment; and
8
<PAGE> 9
(e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option.
Section 4.4. - Conditions to Issuance of Stock Certificates
- ------------ --------------------------------------------
The shares of stock deliverable upon the exercise of the
Option, or any portion thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the Company. Such
shares shall be fully paid and nonassessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares of stock
purchased upon the exercise of the Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed; and
(b) The completion of any registration or other qualification
of such shares under any state or federal law or under rulings or regulations of
the Securities and Exchange Commission or of any other governmental regulatory
body, which the Committee shall, in its sole discretion, deem necessary or
advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Committee shall, in its sole
discretion, determine to be necessary or advisable; and
(d) The receipt by the Company of full payment for such
shares, including payment of all amounts which, under federal, state or local
tax law, the Company (or other employer corporation) is required to withhold
upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time establish for
reasons of administrative convenience.
Section 4.5. - Rights as Shareholder
- ------------ ---------------------
The holder of the Option shall not be, nor have any of the
rights or privileges of, a shareholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.
9
<PAGE> 10
ARTICLE V.
OTHER PROVISIONS
----------------
Section 5.1. - Administration
- ------------ --------------
The Committee shall have the power to interpret the Plan and
this Agreement and to adopt such rules for the administration, interpretation
and application of the Plan as are consistent therewith and to interpret, amend
or revoke any such rules. All actions taken and all interpretations and
determinations made by the Committee in good faith shall be final and binding
upon the Optionee, the Company and all other interested persons. No member of
the Committee shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or the Option. In its
sole discretion, the Board may at any time and from time to time exercise any
and all rights and duties of the Committee under the Plan and this Agreement
except with respect to matters which under Rule 16b-3 or Section 162(m) of the
Code, or any regulations or rules issued thereunder, are required to be
determined in the sole discretion of the Committee.
Section 5.2. - Option Not Transferable
- ------------ -----------------------
Neither the Option nor any interest or right therein or part
thereof shall be sold, pledged, assigned, or transferred in any manner other
than by will or the laws of descent and distribution, unless and until such
Option has been exercised, or the shares underlying such Option have been
issued, and all restrictions applicable to such shares have lapsed.
Notwithstanding the foregoing the Option may be transferred by the Optionee, in
writing and with prior written notice to the Committee, by gift, without the
receipt of any consideration, to a member of the Optionee's immediate family, as
defined in Rule 16a-1 under the Exchange Act, or to a trust for the exclusive
benefit of, or any other entity owned solely by, such members, provided, that
the Option shall continue to be subject to all of the terms and conditions as
applicable to the original Optionee, and the transferee shall execute any and
all such documents requested by the Committee in connection with the transfer,
including without limitation to evidence the transfer and to satisfy any
requirements for an exemption for the transfer under applicable federal and
state securities laws. Neither the Option nor any interest or right therein or
part thereof shall be liable for the debts, contracts or engagements of the
Optionee or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any other
means whether such disposition be voluntary or involuntary or by operation of
law by judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect, except to the extent that such disposition is
permitted by the preceding sentence.
Section 5.3. - Shares to Be Reserved
- ------------ ---------------------
The Company shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
10
<PAGE> 11
Section 5.4. - Notices
- ------------ -------
Any notice to be given under the terms of this Agreement to
the Company shall be addressed to the Company in care of its Secretary, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service;
provided, however, that any notice to be given by the Optionee relating to the
exercise of the Option or any portion thereof shall be deemed duly given upon
receipt by the Secretary or his office.
Section 5.5. - Titles
- ------------ ------
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
Section 5.6. - Shareholder Approval
- ------------ --------------------
The Plan will be submitted for approval by the Company's
shareholders within twelve (12) months after the date the Plan was initially
adopted by the Board. This Option may not be exercised to any extent by anyone
prior to the time when the Plan is approved by the shareholders, and if such
approval has not been obtained by the end of said twelve-month period, this
Option shall thereupon be cancelled and become null and void.
Section 5.7. - Construction
- ------------ ------------
This Agreement shall be administered, interpreted and enforced
under the internal laws of the State of Delaware without regard to conflicts of
laws thereof.
Section 5.8. - Conformity to Securities Laws
- ------------ -----------------------------
The Optionee acknowledges that the Plan is intended to conform
to the extent necessary with all provisions of the Securities Act and the
Exchange Act and any and all regulations and rules promulgated by the Securities
and Exchange Commission thereunder, including, without limitation, the
applicable exemptive conditions of Rule 16b-3. Notwithstanding anything herein
to the contrary, the Plan shall be administered, and the Option is granted and
may be exercised, only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the Plan and this
Agreement shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
11
<PAGE> 12
Section 5.9. - Amendments
- ------------ ----------
This Agreement and the Plan may be amended without the consent
of the Optionee provided that such amendment would not impair any rights of the
Optionee under this Agreement. No amendment of this Agreement shall, without the
consent of the Optionee, impair any rights of the Optionee under this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
LIBBEY INC..
By ___________________________________
Arthur H. Smith, Secretary
_______________________________
Optionee
_______________________________
_______________________________
Address
Optionee's Taxpayer
Identification Number:
_______________________________
12
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