<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _____ to _____
COMMISSION FILE NO. 1-13394
CHASE INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 51-0328047
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14212 COUNTY ROAD M-50, MONTPELIER, OHIO 43543
(Address of principal executive offices, including Zip Code)
Registrant's telephone number, including area code: (419) 485-3193
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
<TABLE>
<S> <C>
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF JULY 31, 1998....................................9,082,703
NUMBER OF SHARES OF NONVOTING COMMON STOCK OUTSTANDING AS OF JULY 31, 1998..........................6,150,118*
</TABLE>
- ---------
* The Registrant's Nonvoting Common Stock is convertible, on a share-for-share
basis, into Common Stock.
================================================================================
<PAGE> 2
CHASE INDUSTRIES INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
<S> <C>
Consolidated Balance Sheet as of June 30, 1998
and December 31, 1997.............................................. 3
Consolidated Statement of Income for the three and six months ended
June 30, 1998 and 1997............................................. 4
Consolidated Statement of Cash Flows for the six months ended
June 30, 1998 and 1997............................................. 5
Notes to Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................. 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................................... 21
Item 4. Submission of Matters to a Vote of Security Holders......................... 22
Item 6. Exhibits and Reports on Form 8-K............................................ 24
Signature................................................................... 26
</TABLE>
2
<PAGE> 3
CHASE INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,835 $ 924
Receivables, net of allowance for doubtful accounts and
claims of $1,319 and $1,286 in 1998 and 1997, respectively 41,678 42,368
Inventories 62,734 63,688
Prepaid expenses 918 922
Deferred income taxes 2,560 2,509
-------- --------
Total current assets 109,725 110,411
Property, plant and equipment, net 93,318 94,162
Other assets 4,426 4,928
-------- --------
Total assets $207,469 $209,501
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 24,743 $ 37,244
Accrued compensation and benefits 6,109 6,651
Accrued income taxes 1,733 --
Other accrued liabilities 6,613 6,425
Current portion of long-term debt 149 141
-------- --------
Total current liabilities 39,347 50,461
Long-term debt 43,878 48,068
Deferred income taxes 12,901 12,259
-------- --------
Total liabilities 96,126 110,788
-------- --------
Commitments and contingencies -- --
-------- --------
Stockholders' equity:
Common stock, $.01 par value, 36,310,000 and 25,000,000 shares
authorized in 1998 and 1997, respectively, 9,082,028 and
6,002,046 shares issued and outstanding in 1998 and 1997,
respectively 90 60
Nonvoting common stock, $.01 par value, 12,300,000 and
5,000,000 shares authorized in 1998 and 1997, respectively;
6,150,118 and 4,100,079 shares issued and outstanding
in 1998 and 1997, respectively 62 41
Additional paid-in capital 31,476 30,597
Retained earnings 79,715 68,015
-------- --------
Total stockholders' equity 111,343 98,713
-------- --------
Total liabilities and stockholders' equity $207,469 $209,501
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE> 4
CHASE INDUSTRIES INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $112,253 $129,080 $237,371 $255,154
Cost of goods sold (exclusive of depreciation
and amortization shown separately below) 95,072 111,125 201,713 219,047
Lower of cost-or-market writedown 2,424 -- 2,424 --
-------- -------- -------- --------
Gross profit 14,757 17,955 33,234 36,107
Selling, general and administrative expenses 3,623 4,026 7,232 7,887
Depreciation and amortization 2,674 2,431 5,304 4,869
-------- -------- -------- --------
Operating income 8,460 11,498 20,698 23,351
Interest expense, net 845 1,231 1,826 2,513
-------- -------- -------- --------
Income before income taxes 7,615 10,267 18,872 20,838
Provision for income taxes 2,894 3,901 7,172 7,918
-------- -------- -------- --------
Net income $ 4,721 $ 6,366 $ 11,700 $ 12,920
======== ======== ======== ========
Earnings per share*:
Basic $ .31 $ .42 $ .77 $ .85
======== ======== ======== ========
Diluted $ .30 $ .41 $ .75 $ .84
======== ======== ======== ========
</TABLE>
* Adjusted for the three-for-two stock split effective June 6, 1998.
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE> 5
CHASE INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED; IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 11,700 $ 12,920
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,304 4,869
Deferred income tax expense 591 447
Lower of cost-or-market writedown 2,424 --
Changes in assets and liabilities:
Decrease (increase) in receivables 690 (15,420)
(Increase) decrease in inventories (1,470) 6,312
(Decrease) increase in accounts payable (12,501) 1,912
Increase (decrease) in accrued liabilities 1,379 (1,534)
Other, net 189 1,192
-------- --------
Net cash provided by operating activities 8,306 10,698
-------- --------
Investing activities:
Expenditures for property, plant and equipment (6,143) (4,868)
-------- --------
Net cash (used in) investing activities (6,143) (4,868)
-------- --------
Financing activities:
Revolving credit facility borrowings, net 926 2,222
Equipment financing 2,000 --
Principal payments on long-term debt (5,108) (15,100)
Issuance of common stock - options exercised 930 491
-------- --------
Net cash (used in) financing activities (1,252) (12,387)
-------- --------
Net increase (decrease) in cash and cash equivalents 911 (6,557)
Cash and cash equivalents, beginning of period 924 9,763
-------- --------
Cash and cash equivalents, end of period $ 1,835 $ 3,206
======== ========
Supplemental disclosures:
Interest and bank fees paid $ 1,095 $ 1,700
======== ========
Income taxes paid $ 4,561 $ 9,485
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
5
<PAGE> 6
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND INTERIM FINANCIAL INFORMATION
The consolidated balance sheet as of June 30, 1998, and December 31,
1997, the consolidated statement of income for the three and six months ended
June 30, 1998 and 1997, and the consolidated statement of cash flows for the six
months ended June 30, 1998 and 1997, include the accounts of Chase Industries
Inc. (the "Company"), a Delaware corporation, and its wholly-owned subsidiaries,
Chase Brass & Copper Company, Inc. ("CBCC"), a Delaware corporation, Leavitt
Tube Company, Inc. ("Leavitt"), a Delaware corporation, and Holco Corporation
("Holco"), an Illinois corporation and wholly-owned subsidiary of Leavitt.
The accompanying financial statements have been prepared in accordance
with instructions to Form 10-Q and do not include all the information and
footnote disclosures required by generally accepted accounting principles. The
financial information for June 30, 1998 and 1997, included herein is unaudited
and, in the opinion of management, reflects all adjustments necessary,
consisting only of normal recurring adjustments, for a fair presentation of such
financial information.
The results of operations for the three and six months ended June 30,
1998, are not necessarily indicative of the results of operations that may be
expected for the year ended December 31, 1998. This quarterly report on Form
10-Q should be read in conjunction with the annual financial statements included
in the Company's Annual Report on Form 10-K dated March 20, 1998.
On August 30, 1996, the Company acquired, through Leavitt, the assets
and operations of the steel tube division of UNR Industries, Inc., including all
the outstanding stock of Holco (the "Leavitt Acquisition"). Upon consummation of
the Leavitt Acquisition, Leavitt continued operations in the manufacture and
sale of structural and mechanical steel tubing. The net purchase price was
approximately $91.7 million after post-closing adjustments, of which $62 million
was financed with the Bank Credit Facility (as hereinafter defined) and the
remainder with cash. The Leavitt Acquisition was accounted for as a purchase.
On August 24, 1990, the Company acquired, through CBCC, the assets and
operations of a Delaware corporation formerly named Chase Brass & Copper
Company, Incorporated ("Old Chase"), pursuant to the Asset Purchase Agreement
("CBCC Purchase Agreement") dated May 10, 1990, by and between the Company,
CBCC, Old Chase, BP Exploration (Alaska) Inc. ("BPE") and The Standard Oil
Company (the "CBCC Acquisition"). BPE and The Standard Oil Company (collectively
referred to as "BP") own all of the stock of Old Chase. The CBCC Acquisition was
accounted for as a purchase.
6
<PAGE> 7
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is effective for years beginning
after December 15, 1997. The Company is assessing the impact on its financial
statements disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (SFAS 133), which is effective for fiscal
years beginning after June 15, 1999. The new standard requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. Management of the Company believes SFAS 133 will not have a material
effect on its financial position or results of operations.
2. INVENTORIES:
Inventories are stated at the lower of cost-or-market, with cost
determined on the last-in, first-out (LIFO) basis. Inventories have been written
down to lower of cost-or-market and such amounts are considered cost for
subsequent periods. During second quarter 1998, the Company incurred a non-cash
inventory writedown totaling $2.4 million. The lower of cost-or-market writedown
was caused by the June 1, 1998, 10 cent-per-pound reduction in the brass metal
price.
If the first-in, first-out (FIFO) method for determining cost had been
used, inventories would have been approximately $1.7 million lower and $3.0
million higher at June 30, 1998, and December 31, 1997, respectively.
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials $ 20,255 $ 22,891
Work in process 16,831 12,631
Finished goods 26,890 29,369
-------- --------
63,976 64,891
Tolling metal due customers (1,242) (1,203)
-------- --------
$ 62,734 $ 63,688
======== ========
</TABLE>
3. COMMON STOCK AND EARNINGS PER SHARE:
The Company's Board of Directors declared, and the stockholders
approved, a three-for-two stock split for shareholders of record as of June 6,
1998. The Company's issued shares increased from approximately 10 million to
approximately 15 million shares. Fractional shares resulting from the stock
split were paid in cash, without interest. In conjunction with the stock split,
the Company's Restated Certificate of Incorporation was amended by shareholder
vote to
7
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CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
increase the number of authorized shares from 25 million to 36.31
million for Common Stock and from 5 million to 12.3 million for Non-Voting
Common Stock.
The following is a reconciliation of the denominator used in the
computation of basic and diluted earnings per share, adjusted for the
three-for-two stock split effective June 6, 1998. Average shares are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------------------
1998 1997
----------------------- -----------------------
Shares EPS Shares EPS
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Basic 15,223,213 $ .31 15,146,745 $ .42
Stock options 475,021 (.01) 288,588 (.01)
---------- ------ ---------- ------
Diluted 15,698,234 $ .30 15,435,333 $ .41
========== ====== ========== ======
Six Months Ended June 30,
---------------------------------------------------
1998 1997
----------------------- -----------------------
Shares EPS Shares EPS
---------- ------ ---------- ------
Basic 15,197,915 $ .77 15,131,029 $ .85
Stock options 414,256 (.02) 294,420 (.01)
---------- ------ ---------- ------
Diluted 15,612,171 $ .75 15,425,449 $ .84
========== ====== ========== ======
</TABLE>
All shares of Common Stock and Nonvoting Common Stock are identical,
except that holders of Nonvoting Common Stock have no voting rights. Shares of
Nonvoting Common Stock may be converted, at the option of the holder, into
Common Stock on a share-for-share basis, except to the extent that the holder of
Nonvoting Common Stock is restricted from obtaining certain ownership levels in
the Company pursuant to the Small Business Investment Act of 1958 and the Bank
Holding Company Act of 1956.
At June 30, 1998, and December 31, 1997, the Company had no preferred
stock issued or outstanding. In conjunction with the initial public offering in
November 1994, the Company authorized 1,000,000 shares of preferred stock, none
of which has been issued. The preferences and rights of such preferred stock may
be determined by the Board of Directors at any time prior to issuance.
4. COMMITMENTS AND CONTINGENCIES:
CBCC. In connection with the CBCC Acquisition, the Company and BP
entered into a remediation agreement (the "Remediation Agreement"). Under the
terms of the Remediation Agreement, BP is responsible for certain remediation
activities attributable to environmental releases which occurred prior to the
CBCC Acquisition at CBCC's manufacturing facility and the construction of a
waste water treatment plant to enable CBCC to comply with its waste water
8
<PAGE> 9
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
discharge permit (the "Permit"). BP also is obligated under the CBCC Purchase
Agreement to indemnify the Company for liabilities arising out of certain
environmental conditions that existed as of the CBCC Acquisition date. BP has
performed certain activities in this regard and has acknowledged liability for
certain releases of regulated substances into the environment which occurred
prior to the CBCC Acquisition.
While CBCC's waste water treatment plant has been in operation since
May 1993, CBCC is still experiencing occasional exceedances to certain
limitations contained in the Permit, resulting in violations of the Clean Water
Act. The Ohio Environmental Protection Agency ("Ohio EPA") is kept apprised as
to the status of activities concerning the elimination of exceedances and has
not initiated any enforcement action against CBCC for prior exceedances, but has
indicated that it may do so if exceedances of the Permit limits continue. In
early 1997 CBCC identified certain conditions it believed to be contributing to
the Permit limit exceedances and undertook corrective measures that have reduced
the Permit limit exceedances. Although certain Permit limit exceedances are
still being experienced on occasion, precluding CBCC's routine compliance with
the Permit, CBCC has identified certain additional conditions that may be
contributing to the exceedances and is actively working to correct these
conditions.
CBCC and/or other entities named "Chase Brass & Copper Co." (which may
include Old Chase or divisions of Old Chase) have been named by governmental
agencies and/or private parties as a potentially responsible party ("PRP") under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") and/or state laws with respect to four sites, and may have been
identified as a PRP at one additional site, as described in the following
paragraphs.
In connection with one of the four sites, located in Cleveland, Ohio,
CBCC has been named as one of over 130 defendants in a CERCLA Section 107 action
which seeks recovery of response costs previously spent and proposed to be spent
by the plaintiff. The plaintiff has alleged that between 1990 and 1993 it and
the other ordered parties have incurred response costs in excess of $10 million.
The Company believes that CBCC has had no contact with the site and has no
knowledge as to what, if any, share of response costs has been allocated to
CBCC. The alleged events giving rise to this claim occurred prior to the CBCC
Acquisition, and BP has been notified of this suit and has assumed the defense
thereof.
With respect to a second site, located in Tifton, Georgia, CBCC has
been notified by a group of private parties of its potential identification as a
PRP. The notice alleges that CBCC may be liable for contribution with respect to
prior cleanup costs incurred by third parties at this site and may be required
to participate in funding future cleanup costs at this site. The Company
believes that CBCC has had no contact with the site and has no knowledge as to
what, if any, share of response costs would be allocated to CBCC if it is
determined that CBCC or Old Chase had any contact with this site. BP has been
notified and has assumed the defense of this matter.
9
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CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
With respect to the third and fourth sites, in March 1998 CBCC received
a notice from the EPA of its potential identification as a PRP at two related
sites, one in Kansas City, Kansas, and one in Kansas City, Missouri. According
to the notice, the sites were operated by waste disposal companies from 1982
until 1987, during which time over 1,500 parties sent materials containing
polychlorinated biphenyls ("PCB's") to the site. Based on information provided
with the notice, the Company believes that the brass rod division of Old Chase
may have generated waste materials that were treated and/or disposed of at these
sites. According to the notice, a group of PRP's at the sites are performing an
analysis to evaluate and compare different cleanup alternatives at these sites,
and the EPA is planning to conduct removal activities at both facilities. As
noted above, the alleged activities with respect to these sites occurred between
1982 and 1987 and, therefore, CBCC has had no contact with these sites. The
notice does not provide, and CBCC has no knowledge of, the anticipated cleanup
costs at these sites or the portion, if any, of liability for such costs that
may be allocated based on materials of Old Chase that may have been treated
and/or disposed of at these sites. BP has been notified and has agreed to assume
the defense of this matter.
The additional site, located in Mifflin County, Pennsylvania, was
placed on the United States Environmental Protection Agency's (the "EPA")
National Priorities List in 1989. While CBCC has not received any formal
notification from the EPA or any third party, the Company believes that Old
Chase has been identified by the EPA as a PRP. To the Company's knowledge,
however, neither CBCC nor the brass rod division of Old Chase directly disposed
of hazardous wastes at this site. Nevertheless, BP has been notified by the
Company of CBCC's (or Old Chase's) apparent identification as a PRP and BP's
responsibility for any liability associated with this site as it relates to
periods prior to the date of the CBCC Acquisition. Based on information
available to the Company, it appears that if CBCC or Old Chase were determined
to be liable, liability would be allocated on the basis of 0.5828% of cleanup
costs (or approximately $376,000).
The Company believes that CBCC has no liability for the cleanup costs
related to these sites because (a) such liability is attributable to an entity
that had the same or similar name to that of CBCC, such as a division or
subsidiary of BP (other than the brass rod division of Old Chase), or (b) such
liability arose from acts that occurred prior to the CBCC Acquisition and,
therefore, BP retained such liability under the CBCC Purchase Agreement and is
contractually obligated to indemnify the Company for such liabilities. To the
extent CBCC incurs any cleanup costs with respect to these sites, it intends to
enforce its rights under the CBCC Purchase Agreement to recover such amounts
from BP.
Preliminary studies conducted immediately prior to the CBCC Acquisition
indicated that the site upon which CBCC's manufacturing facility is located has
been contaminated with certain volatile organic compounds, including
trichlorethylene, as well as total petroleum hydrocarbons and certain metals
from historical operating practices. BP conducted initial site investigation
activities in an effort to determine the extent of contamination and appropriate
cleanup methods. After reviewing the results of that investigation, CBCC
determined that additional sampling was
10
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CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
necessary to more fully delineate the extent and magnitude of contamination,
to establish appropriate cleanup standards and to identify available remedial
methods and potential regulatory constraints related to specific remedial
methodologies. In second quarter 1998, CBCC substantially completed the
additional sampling that it believes is necessary. The results of the initial
sampling conducted by BP, the additional sampling conducted by CBCC, and input
from the Ohio EPA are being used to develop a comprehensive remediation plan
for the remainder of the site, which CBCC anticipates completing and submitting
to the Ohio EPA in third or fourth quarter 1998. The investigation has been
conducted on a voluntary basis with the concurrence of the Ohio EPA, and the
Company expects future remediation activities will be conducted on the same
basis. An independent consultant currently is evaluating the sampling results,
and subsequent to June 30, 1998, a remediation plan for a portion of the site
relating to the decommissioning of five sludge lagoons has been prepared and is
expected to be implemented in third quarter 1998 at a projected cost of
approximately $1 million. Under the terms of the Remediation Agreement, BP is
required to fund the costs of remediating the sludge lagoons.
Because the analysis of sampling data and the development of a
comprehensive remediation plan for this site are not yet complete, the Company
presently is unable to estimate with any degree of certainty the amount of
cleanup costs associated with remediation of on-site contamination in addition
to that contemplated with respect to the sludge lagoons, although such costs may
be material. Although BP has acknowledged its contractual obligation to fund
certain investigatory and cleanup activities related to site contamination
attributable to Old Chase's operations, as described below BP and CBCC are
currently involved in litigation regarding, among other things, BP's obligations
under the Remediation Agreement. If BP fails to fulfill its obligations under
the Remediation Agreement to fund remediation activities at CBCC's manufacturing
facility, CBCC will be required to fund these activities. However, to the extent
CBCC is required to fund cleanup costs related to the remediation of
contamination at its manufacturing facility, the Company believes it would be
able to fund these costs with cash on hand and borrowings under its existing
Bank Credit Facility. Therefore, the Company does not believe that funding these
remediation activities will have a material adverse effect on the Company's
financial condition, results of operations or liquidity. Based on the status of
remediation activities, no reserves have been established regarding the
aforementioned matters. Additionally, the Company expects no material impact on
its financial position, results of operations or liquidity as a result of the
existence of any other environmental conditions related to CBCC.
To the extent CBCC incurs cleanup costs with respect to CBCC's site, it
intends to enforce its rights under the CBCC Purchase Agreement and/or
Remediation Agreement to recover such amounts from BP. In the event the Company
is entitled to recovery from BP pursuant to the Remediation Agreement, the CBCC
Purchase Agreement, or otherwise, but is unable to collect such amounts from BP,
the Company may elect to offset the amounts of such recoveries against amounts
payable under the $20 million promissory note issued to Old Chase as part of
the CBCC Acquisition (the "BP Note") to the extent it legally is entitled to do
so. As of June 30, 1998, the Company has offset approximately $2.1 million
payable as interest under the BP Note
11
<PAGE> 12
CHASE INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
against amounts owed by BP and Old Chase under the CBCC Purchase Agreement and
the Remediation Agreement.
On January 7, 1998, a lawsuit entitled Ken-Chas Reserve Company and BP
Exploration (Alaska) Inc. and The Standard Oil Company v. Chase Industries Inc.
and Chase Brass & Copper Company, Inc. was filed in the Court of Common Pleas in
Cuyahoga County, Ohio (the "Petition"). In the Petition, plaintiffs seek
declaratory judgement regarding the calculation of interest payable under the BP
Note, and the recovery of interest amounts previously becoming due and payable
under the BP Note which the Company offset against the receivable from BP.
Plaintiffs also have asserted that, as a result of the Company's failure to pay
interest previously due and payable under the BP Note, the Company is in default
under the BP Note and seek recovery of the $20 million principal amount of the
BP Note. In April 1998 the Company filed an answer disputing the allegations set
forth in the Petition and asserting a counterclaim seeking recovery from BP of
an unspecified amount of damages resulting from BP's breach of representations,
warranties and covenants contained in the CBCC Purchase Agreement and amounts
owed under the Remediation Agreement. The Company's counterclaim also seeks to
enforce a prior settlement agreement between the Company and BP regarding
certain disputes under the CBCC Purchase Agreement and the Remediation Agreement
and seeks a declaratory judgement confirming the Company's entitlement to offset
amounts owed by BP and Old Chase against interest payable under the BP Note and
that no default has occurred under the BP Note. Although the Company disputes
the plaintiffs allegations, the Company believes that, even if plaintiffs were
to prevail in their positions as set forth the Petition, the Company would be
able to pay amounts due, including the principal amount of the BP Note,
utilizing cash on hand, offsets of amounts owing from Old Chase and BP, and, if
necessary, borrowings obtained under the Company's existing Bank Credit
Facility. Therefore, the Company continues to classify the BP Note as
long-term.
Leavitt. Prior to the closing of the Leavitt Acquisition, five
underground storage tanks ("USTs") were removed from Leavitt's facility in
Hammond, Indiana. Prior to removal, one or more of the USTs released petroleum
and other chemical constituents into the environment. Some contamination of
groundwater and soil at the Hammond facility remains in place. Prior to the
Leavitt Acquisition, Old Leavitt had conducted sampling and had requested the
Indiana Department of Environmental Management ("IDEM") to close the UST
removal project. The IDEM has not yet issued a "closure" letter and, in
February 1997, notified Leavitt that additional groundwater sampling will be
required prior to the IDEM considering closure. Additional groundwater sampling
was conducted in fourth quarter 1997, and the test results were submitted to
the IDEM for review. Based on these test results, which indicated the continued
presence in the groundwater of certain contaminants, the IDEM has not agreed to
issue a "closure" letter. Leavitt has engaged an independent consultant to
review the sampling data and provide a recommendation as to further action.
12
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CHASE INDUSTRIES INC.
Pending receipt of the consultant's recommendation and further
direction from the IDEM, the Company currently is unable to determine what, if
any, remedial activities may be required at the Hammond facility. Although the
cleanup costs associated with the environmental conditions at the Hammond
facility may be material, based on the results of the 1997 sampling the Company
believes that the probability that Leavitt would be required to make material
expenditures relating to site cleanup at the Hammond facility appears to be
remote. Therefore, the Company has not made any specific accrual for costs
related to investigation or cleanup at the Hammond facility. To the extent the
Company or Leavitt incurs a liability with respect to site cleanup at the
Hammond facility, UNR Industries, Inc., is obligated under the Leavitt
Acquisition Agreement to indemnify Leavitt for 90% of losses related to certain
environmental conditions, including costs incurred with respect to contaminants
released at Leavitt's properties (including the Hammond facility) prior to the
Leavitt Acquisition, to the extent such losses exceed $400,000 in the aggregate.
In addition, to the extent the contamination at the Hammond facility is
attributed to actions of prior owners, the Company may be entitled to recover
from prior owners costs incurred by the Company at the Hammond site. The Hammond
operations were relocated to Chicago in September 1997, and no manufacturing
activities currently are conducted at the Hammond location.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company, through its wholly owned subsidiaries CBCC and Leavitt, is
a leading manufacturer of free-machining and forging brass rod and structural
and mechanical steel tubing. Chase Industries Inc. is traded on the New York
Stock Exchange under the symbol CSI.
STOCK SPLIT
The Company's Board of Directors declared a three-for-two stock split
for shareholders of record as of June 6, 1998. As a result of the stock split,
the Company's issued shares increased from approximately 10 million to
approximately 15 million shares. Fractional shares resulting from the stock
split were paid in cash, without interest.
CBCC
CBCC is an ISO 9002 certified manufacturer and supplier of
free-machining and forging brass rod in the United States and Canada. CBCC's net
sales represent gross sales of brass rod less sales discounts and freight
charges. The gross sales price of brass rod consists of a metal price charged to
customers and a fabrication price as separate components. Cost of goods sold
includes the cost of brass scrap, which is the principal raw material used in
the manufacturing process and the primary component of cost of goods sold, as
well as the costs of labor, energy and other materials and supplies used in
fabricating the brass scrap into finished rod. Therefore, CBCC's profit levels
depend primarily on the amount of finished rod shipped, fabrication prices, and
the difference between the metal price charged to customers and CBCC's cost of
brass scrap.
13
<PAGE> 14
CHASE INDUSTRIES INC.
The principal raw material used in CBCC's manufacturing process is
brass scrap, approximately 80% of which is obtained from customers and 20% of
which is purchased from scrap dealers at prevailing free-market prices.
Free-market prices of brass scrap fluctuate based on the supply of and demand
for brass scrap and the price for copper and zinc (the major components of
brass), and generally are less than the price at which brass scrap is purchased
from customers ("Metal Buying Price").
CBCC's pricing structure consists of a metal selling price and a
fabrication price as separate components. The metal price charged to customers
("Metal Selling Price") is determined at the time of shipment based on the
then-current Metal Buying Price and is not directly affected by fluctuations in
free-market brass scrap prices. As a result of this pricing structure, increases
and decreases in the Metal Selling Price will affect net sales levels and gross
profit as a percentage of sales, even in the absence of an increase or decrease
in shipments or the fabrication prices charged to customers, but will have
little impact on the Company's gross profit levels. However, the quantity of
free-market brass scrap purchased by CBCC and changes in the difference between
the free-market prices paid for brass scrap and the Metal Buying Price will
affect the Company's gross profit, even in the absence of an increase or a
decrease in shipments or net sales levels.
In addition to sales made under the pricing structure described above,
some sales are made on a tolling basis. In a tolling arrangement, the customer
consigns brass scrap to CBCC and is charged a fabrication price for processing
the brass scrap into finished rod. Tolling transactions reduce the Company's net
sales by the Metal Selling Price that otherwise would be charged to the customer
in a sale of finished brass rod and cost of goods sold by the Metal Buying Price
that otherwise would be paid to the customer. To a lesser extent, tolling
transactions also affect the Company's gross profit to the extent CBCC is unable
to take advantage of the pricing differential on brass scrap purchased and sold.
To partially offset the effect of tolling transactions on the Company's gross
profit, CBCC requires tolling customers to deliver 1.04 pounds of brass scrap in
exchange for each pound of finished rod shipped.
LEAVITT
Leavitt is a leading producer of structural and mechanical electric
resistance welded steel tubing in square, rectangular and round shapes in sizes
ranging from 1/2 inch to 10 inch squares and equivalent rectangles and 3/8 inch
to 12 3/4 inches in outer diameter for round sizes. Leavitt's financial
performance may be impacted by changes in the price it pays for flat-rolled
steel, the primary cost component of Leavitt's finished product, which is based
on the market conditions in the flat-rolled steel industry. Based on the
then-current market conditions in the steel tubing industry, Leavitt may or may
not pass the economic impact of steel price changes on to its customers through
changes in the selling price.
14
<PAGE> 15
CHASE INDUSTRIES INC.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998, Compared with Three Months Ended June 30, 1997
Net sales decreased $16.8 million, or 13%, to $112.3 million in 1998.
The decline was the result of lower brass Metal Selling Prices and a 10% decline
in steel tubing shipments. The decline in steel tubing shipments resulted from
an attempted steel tubing price increase which prompted many customers to delay
purchases or shift purchases to other suppliers.
Second quarter gross profit was also adversely affected by a $2.4
million non-cash inventory writedown, which is equivalent to $1.5 million after
tax and 10 cents per diluted share. The writedown was caused by a
10-cent-per-pound reduction in the Metal Selling Price effective June 1, 1998.
This price reduction brought the cumulative Metal Selling Price reduction to 25
cents per pound, or 25%, since December 1997. The current Metal Selling Price is
the lowest since 1988, and management believes the lower price will encourage
demand for brass products.
As a result of the above factors, gross profit decreased $3.2 million,
or 18%, to $14.8 million in second quarter 1998 compared with 1997
Selling, general and administrative expenses decreased $403,000, or
10%, to $3.6 million and depreciation and amortization increased $243,000, or
10%, to $2.7 million in second quarter 1998.
As a result of the above factors, operating income decreased $3.0
million, or 26%, to $8.5 million in second quarter 1998 compared with 1997.
Net interest expense decreased $386,000, or 31%, to $845,000 in second
quarter 1998, primarily as a result of prepayments of Leavitt Acquisition debt.
Based on the above factors, net income decreased $1.6 million, or 26%,
to $4.7 million. Basic earnings per share decreased to $.31 in second quarter
1998 compared with $.42 in second quarter 1997. Diluted earnings per share was
$.30 in second quarter 1998 compared with $.41 in second quarter 1997. The per
share amounts have been adjusted for the three-for-two stock split effective
June 6, 1998.
Six Months Ended June 30, 1998, Compared with Six Months Ended June 30, 1997
Net sales decreased $17.8 million, or 7%, to $237.4 million in 1998
primarily due to lower brass Metal Selling Prices.
15
<PAGE> 16
CHASE INDUSTRIES INC.
Gross profit for the six months ended June 30, 1998, was adversely
affected by the $2.4 million non-cash inventory writedown caused by lower Metal
Selling Prices. Since December 1997, the cumulative reduction in the Metal
Selling Price totals 25 cents per pound, or 25%. The current Metal Selling Price
is the lowest since 1988, and management believes the lower price will encourage
demand for brass products.
Additionally, production interruptions from the integration of the new
brass rod billet heaters in first quarter 1998 and lower contributions from
reduced free market brass scrap purchases also adversely impacted results for
the six months ended June 30, 1998.
As a result of the above factors, gross profit decreased $2.9 million,
or 8%, to $33.2 million for the six months ended June 30, 1998, compared with
1997.
Selling, general and administrative expenses decreased $655,000, or 8%,
to $7.2 million and depreciation and amortization increased $435,000, or 9%, to
$5.3 million for the six months ended June 30, 1998.
As a result of the above factors, operating income decreased $2.7
million, or 11%, to $20.7 million for the six months ended June 30, 1998,
compared with 1997.
Net interest expense decreased $687,000, or 27%, to $1.8 million for
the six months ended June 30, 1998, primarily as a result of prepayments of
Leavitt Acquisition debt.
Based on the above factors, net income decreased $1.2 million, or 9%,
to $11.7 million. Basic earnings per share decreased to $.77 for the six months
ended June 30, 1998, compared with $.85 in 1997. Diluted earnings per share was
$.75 for the six months ended June 30, 1998, compared with $.84 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
General
At June 30, 1998, cash and cash equivalents totaled $1.8 million
compared with $924,000 at year end 1997. Total debt at June 30, 1998, was $44.0
million compared with $48.2 million at year end 1997. All Leavitt Acquisition
debt payments originally due through October 2000 had been prepaid as of June
30, 1998.
Working Capital
At June 30, 1998, working capital was $70.4 million, a $10.4 million,
or 17%, increase from $60.0 million at December 31, 1997.
16
<PAGE> 17
CHASE INDUSTRIES INC.
At June 30, 1998, the increase in working capital predominantly
resulted from a $12.5 million, or 34%, decrease in accounts payable. The
decrease in accounts payable was principally due to the 25% decline in metal
prices as discussed above, as well as the timing of raw material purchases.
The Company's current ratio was 2.79 at June 30, 1998, compared to 2.19
at December 31, 1997.
Cash Flow Provided by Operating Activities
For the six months ended June 30, 1998, net cash provided by operating
activities was $8.3 million, which included net income of $11.7 million and
depreciation and amortization of $5.3 million, partially offset by an increase
in working capital, excluding cash, debt and deferred taxes, of $9.5 million.
For the six months ended June 30, 1997, net cash provided by operating
activities was $10.7 million, which included net income of $12.9 million and
depreciation and amortization of $4.9 million, partially offset by an increase
in working capital, excluding cash, debt and deferred income taxes, of $8.5
million.
Cash Flow Used in Investing Activities
Capital expenditures were $6.1 million for the six months ended June
30, 1998, and $4.9 million for the six months ended June 30, 1997.
Cash Flow Used in Financing Activities
Cash used in financing activities of $1.3 million for the six months
ended June 30, 1998, consisted of the net repayments of long-term debt totaling
$4.2 million, proceeds of $2 million received in conjunction with the lease of
billet heating equipment and $930,000 from the issuance of common stock for
stock options exercised.
Financing activities during the six months ended June 30, 1997,
included net repayments of long-term debt of $12.9 million partially offset by
$491,000 from the issuance of common stock for stock options exercised.
Capital Resources
In 1996, the Company launched a capital project referred to as "Project
400." The project is designed to increase CBCC's foundry, extrusion system and
finishing capabilities, with an ultimate goal of increasing finished brass rod
production capability by one-third to approximately 400 million pounds annually.
The first phase of the project included the installation of three new billet
heaters in fourth quarter 1997 which were fully operational by the end of first
quarter 1998.
17
<PAGE> 18
CHASE INDUSTRIES INC.
In second quarter 1998, the Company announced Phase II of Project 400,
which is a multi-year investment that includes construction of a new brass
foundry to enable the Company to provide customers with multiple alloys. Casting
equipment having a lead time of approximately one year was ordered in July 1998
for the new foundry. It is anticipated that capital projects will be paid for
with cash flow provided by operating activities and the Bank Credit Facility, as
necessary.
Bank Credit Facility
In connection with the Leavitt Acquisition in August 1996, the Company
entered into a new credit facility (the "Bank Credit Facility") of $100 million
agented by PNC Bank, National Association. The Bank Credit Facility replaced the
Company's existing $33 million bank credit facility and includes a $60 million
term loan ("Term Loan") and a $40 million revolving credit facility ("Revolving
Credit Facility"). The Company prepaid $5 million on the Term Loan in 1998, $30
million in 1997 and $10 million in 1996, including all amounts originally due
through October 2000. The remaining balance on the Term Loan is payable in
quarterly installments in amounts ranging from $975,000 in January 2001 to
$2,025,000 due April 2002. The total borrowing capacity under the Revolving
Credit Facility is determined monthly by a formula based on levels of inventory
and accounts receivable, up to a maximum of $40 million. The Revolving Credit
Facility commitment expires August 30, 2001, and the Company can request a
one-year extension of the expiration date at any time.
Effective June 16, 1997, the Company and PNC Bank agreed to an
amendment to the Bank Credit facility which reduced the Company's LIBOR spread
and provided a Federal funds interest rate option for the Revolving Credit
Facility. Advances under the Bank Credit Facility will bear interest at
alternative variable rates based on certain percentages, as provided in the
agreement, in excess of the lending bank's prime rate, the Federal funds rate or
LIBOR, with interest payable quarterly or as of the end of each LIBOR borrowing
period, whichever is shorter.
The Bank Credit Facility contains certain covenants that, among other
things, limit the Company's ability to incur additional debt or pay dividends.
The covenants also require the Company to maintain a minimum interest coverage
ratio and level of net worth and restrict the Company from exceeding a maximum
ratio of debt to cash flow from operations. The Bank Credit Facility also
requires the Company to maintain CBCC and Leavitt as wholly-owned subsidiaries.
As of June 30, 1998, $15.0 million was outstanding under the Term Loan
and $8.5 million was outstanding under the Revolving Credit Facility. Total
availability under the Revolving Credit Facility was $31.5 million.
BP Note
In connection with the CBCC Acquisition, the Company issued a
promissory note to Old Chase in the original principal amount of $20.0 million
(the "BP Note"). The BP Note was recorded at the CBCC Acquisition date at a
discount using a 10.4% effective interest rate. The
18
<PAGE> 19
CHASE INDUSTRIES INC.
BP Note initially was scheduled to mature in August 1996, and the Company, at
its option, extended the maturity date to August 1999, with interest payable
annually from August 1996 through maturity at 9.28%. The BP Note contained a
contingent interest payment based upon average Company earnings (as defined in
the BP Note) for the years ended December 31, 1990 through 1995. The contingent
interest, totaling $254,000 and due August 1996, and the annual interest of
$1,856,000 due August 1997, were offset against the receivable from BP. See Note
4 of Notes to Consolidated Financial Statements and Part II. Item 1. Legal
Proceedings.
IMPACT OF THE YEAR 2000 ISSUE
Year 2000 issues are due to computer software being written using two
digits rather than four to define a specific fiscal or calendar year. As a
result, date-sensing software may recognize "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations or inability to engage in normal business activities.
Based on the Company's assessment of its Year 2000 risks and for other
business purposes as well, CBCC implemented modifications to its business
systems in years 1995 through 1997 and converted all of its management
information processing software to new software. The new programs are not
subject to Year 2000 programming issues, utilizing a minimum of four digit
fields, and therefore are Year 2000 compliant.
Leavitt's business and management information systems are not currently
Year 2000 compliant. For this and other business reasons, Leavitt is in the
process of converting to new software, which is Year 2000 compliant and also
will assist in improved management of the business. Substantial conversion tasks
have been completed. The capital expenditures for the system implementation are
projected to be approximately $2 million, and it is expected that the upgrade to
the new software will be completed in second quarter 1999.
The Company is in the process of assessing its vulnerability to Year
2000 failures on the part of its vendors and customers and will be surveying
major vendors and customers to determine their vulnerability to Year 200
failures, including assessing the potential impact of vendor and customer
failures on the Company.
CONTINGENCIES - ENVIRONMENTAL MATTERS
As discussed in Note 4 of Notes to Consolidated Financial Statements,
each of CBCC and Leavitt are subject to certain contingent environmental
liabilities. Because analysis of sampling data and the development of any
required remediation plans with respect to such environmental conditions have
not been completed, the Company currently is unable to estimate with any degree
of certainty the amount of cleanup costs associated therewith. However, the
cleanup costs associated with these environmental conditions may be material
and, in the event CBCC or Leavitt, as applicable, were determined to be solely
responsible or liable for site cleanup activities (due to the inability
19
<PAGE> 20
CHASE INDUSTRIES INC.
or unwillingness of other responsible parties to perform or pay for such
activities), such expenditures could have a material adverse effect on the
Company's earnings and financial condition.
Notwithstanding this potential (although uncertain) material liability,
with respect to Leavitt's facilities, the Company does not believe that it will
be required to make material expenditures with respect to these environmental
conditions or that the cleanup costs or other liabilities associated with such
conditions will have a material adverse effect on the Company's financial
condition, results of operations or liquidity. With respect to CBCC's facility,
although BP has acknowledged its contractual obligation to fund certain
investigatory and cleanup activities related to site contamination attributable
to Old Chase's operations, as described below and in Note 4 of Notes to
Consolidated Financial Statements, BP and CBCC currently are involved in
litigation regarding, among other things, BP's obligations under the Remediation
Agreement. If BP fails to fulfill its obligations under the Remediation
Agreement to fund remediation activities at CBCC's manufacturing facility, CBCC
will be required to fund these activities. However, to the extent CBCC is
required to fund cleanup costs related to the remediation of contamination at
its manufacturing facility, the Company believes it would be able to fund these
costs with cash on hand and borrowings under its existing Bank Credit Facility.
Therefore, the Company does not believe that funding these remediation
activities will have a material adverse effect on the Company's financial
condition, results of operations or liquidity. Based on the status of
remediation activities, no reserves have been established regarding the
aforementioned matters.
The statements set forth herein regarding anticipated expenditures for
environmental matters are forward looking, are based on sampling results
currently available to the Company, as well as certain assumptions regarding
applicable cleanup standards and methodologies and, with respect to the $1
million projected cost for the remediation of the five sludge lagoons discussed
in Note 4 of Notes to Consolidated Financial Statements, a remediation plan
developed by an independent consulting firm. Actual costs required to be
expended by the Company with respect to such matters may differ materially from
current expectations depending on the final resolution of known uncertainties,
including discovery of additional contaminants at the sludge lagoons during
remediation, finalization of a comprehensive remediation plan for CBCC's entire
manufacturing site, acceptance by applicable governmental agencies of proposed
cleanup standards at the sludge lagoons and the remainder of CBCC's site, the
discovery of additional contaminants during the remediation of the remainder of
CBCC's site, any change in CBCC's proposed use of its property which affects
any applicable cleanup standard and, with respect to Leavitt, the results of
any additional sampling that may be necessary or required at the Hammond,
Indiana property and any remediation activities as may be required by the IDEM
at such site.
CONTINGENCIES - LEGAL PROCEEDINGS
As discussed in Item 1. Legal Proceedings of Part II, the Company and
CBCC are defendants in a lawsuit regarding amounts payable under the BP Note. As
discussed therein, the Company disputes the allegations made in the lawsuit, but
believes that, even if the plaintiffs were to prevail in their positions, the
Company would be able to pay amounts due, including the principal amount of the
BP Note, utilizing cash on hand, offsets of amounts owing from Old Chase and BP,
and, if necessary, borrowings obtained under the Company's existing
20
<PAGE> 21
CHASE INDUSTRIES INC.
Bank Credit Facility. Therefore, the Company continues to classify the BP Note
as long-term, and believes that judgement against the Company and CBCC would not
have a material adverse effect on the Company's financial condition, results of
operations or liquidity.
SAFE HARBOR
Management uses estimates and assumptions in discussing future operations of the
Company and conditions in the industries in which it operates. Such forecasts
made by the Company, including forecasts regarding demand for the Company's
products, are forward looking and are subject to risks and uncertainties which
could cause actual results to differ materially from historical results or those
anticipated. Actual results will be affected by general economic and industry
conditions in the end-use markets for the Company's products, as well as the
impact of competitive products and pricing, including without limitation the
impact of imports. The end-use markets for CBCC's products include primarily
construction and remodeling, industrial machinery and equipment, electronics and
transportation, while the end-use markets for Leavitt's products include
primarily non-residential construction, agriculture and consumer durables.
Foreign economic activity and the relationship of the U.S. dollar to other
currencies also affect import levels and exports of U.S. manufactured products
containing parts made from brass rod and steel tubing. The Company's shipments
also will be affected by its ability to maintain manufacturing operations at its
current levels without significant interruption.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 7, 1998, a lawsuit entitled Ken-Chas Reserve Company and BP
Exploration (Alaska) Inc. and The Standard Oil Company v. Chase Industries Inc.
and Chase Brass & Copper Company, Inc. was filed in the Court of Common Pleas in
Cuyahoga County, Ohio (the "Petition"). In the Petition, plaintiffs seek
declaratory judgement regarding the calculation of interest payable under the BP
Note. Under the BP Note, a contingent interest payment was payable August 24,
1996, calculated pursuant to a formula based on the Company's "EBDIT" (defined
in the BP Note as earnings before depreciation, interest and taxes, as
determined in accordance with GAAP) for years 1990 through 1995. In calculating
the interest payable August 24, 1996, the Company followed the express terms of
the BP Note and, accordingly, deducted amortization from earnings for the
purposes of the interest calculation. In calculating the interest payable on
August 24, 1996, in accordance with the express terms of the BP Note, the
interest payable was $254,748, which the Company offset against the receivable
from BP. Plaintiffs allege that, notwithstanding the express terms of the BP
Note, the term "EBDIT" should be interpreted to refer to earnings before
depreciation, interest, taxes and amortization and, based on such
interpretation, allege that the contingent interest payable under the BP Note in
August 1996 should have been $5,833,811.
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<PAGE> 22
CHASE INDUSTRIES INC.
In addition, under the BP Note, interest is payable August 24 of each
year from and after August 24, 1996, until the BP Note matures on August 24,
1999. The interest due and payable August 24, 1997, was $1,856,000, which amount
the Company also offset against the receivable from BP. Plaintiffs also seek
money judgement against the Company for payment of the $1,856,000 in interest
that was payable as of August 24, 1997.
On March 24, 1998, plaintiffs filed an amended complaint in which they
assert that, as a result of failing to pay interest as described in the
Petition, the Company is in default under the BP Note. The Petition, as amended,
seeks an additional judgement in the principal amount of $20 million (the
original and currently outstanding principal amount of the BP Note.) In April
1998 the Company filed an answer disputing the allegations set forth in the
Petition and asserting a counterclaim seeking recovery from BP of an unspecified
amount of damages resulting from BP's breach of representations, warranties and
covenants contained in the Asset Purchase Agreement and amounts owed under the
Remediation Agreement. The Company's counterclaim also seeks to enforce a prior
settlement agreement between the Company and BP regarding certain disputes under
the CBCC Purchase Agreement and the Remediation Agreement and seeks a
declaratory judgement confirming the Company's entitlement to offset amounts
owed by BP and Old Chase against interest payable under the BP Note and that no
default has occurred under the BP Note.
The Company disputes the allegations made by the Plaintiffs regarding
the interpretation of EBDIT, believes that the Company properly offset the
interest amounts payable in August 1996 and 1997 against the receivable from BP,
and believes this lawsuit is without merit. On the same basis, the Company
disputes that a default exists under the BP Note. In the event plaintiffs were
to prevail in their positions, the Company believes that it would be able to pay
amounts due, including the principal amount of the BP Note, utilizing cash on
hand, offsets of amounts owing from Old Chase and BP, and, if necessary,
borrowings obtained under its existing Bank Credit Facility and, therefore,
judgement against the Company and CBCC would not have material adverse effect on
the Company's financial condition, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May 26,
1998, for the purpose of electing a board of directors, ratifying the
appointment of independent accountants and transacting such other business as
outlined below. Proxies for the meeting were solicited pursuant to Section 14(a)
of the Securities Exchange Act of 1934 and there was no solicitation in
opposition to management's solicitations.
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CHASE INDUSTRIES INC.
All of management's nominees for directors as listed in the Proxy
Statement dated April 25, 1998, were elected with the following vote:
<TABLE>
<CAPTION>
Shares Voted "For" Shares "Withheld" Broker Non-Votes
------------------ ----------------- ----------------
<S> <C> <C> <C>
Martin V. Alonzo 5,453,042 29,492 -0-
Raymond E. Cartledge 5,453,534 29,000 -0-
Charles E. Corpening 5,452,989 29,545 -0-
Donald J. Donahue 5,453,087 29,447 -0-
John R. Kennedy 5,452,942 29,592 -0-
Thomas F. McWilliams 5,453,534 29,000 -0-
William R. Toller 5,452,684 29,850 -0-
</TABLE>
The appointment of Coopers & Lybrand L.L.P. (now known as
PricewaterhouseCoopers LLP) as independent accountants was ratified by the
following vote:
<TABLE>
<CAPTION>
Shares Voted "For" Shares Voted "Against" Shares Abstaining Broker Non-Votes
- ------------------ ---------------------- ----------------- ----------------
<S> <C> <C> <C>
5,477,651 4,383 500 -0-
</TABLE>
The proposal to amend the Company's Restated Certificate of Incorporation
to increase the authorized capital stock and evidence a three-for-two stock
split was ratified by the following vote:
<TABLE>
<CAPTION>
Shares Voted "For" Shares Voted "Against" Shares Abstaining Broker Non-Votes
- ------------------ ---------------------- ----------------- ----------------
<S> <C> <C> <C>
5,448,465 32,669 1,400 -0-
</TABLE>
The proposal to amend the Company's 1997 Non-Employee Director Stock
Option Plan to permit non-employee directors to defer board and committee
meeting fees and receive stock options in lieu thereof was ratified by the
following vote:
<TABLE>
<CAPTION>
Shares Voted "For" Shares Voted "Against" Shares Abstaining Broker Non-Votes
- ------------------ ---------------------- ----------------- ----------------
<S> <C> <C> <C>
5,243,820 236,264 2,450 -0-
</TABLE>
23
<PAGE> 24
CHASE INDUSTRIES INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
+3.1 - Restated Certificate of Incorporation of the Company
(previously filed in paper format as Exhibit 4.1 to the
Company's Registration Statement on Form S-8 dated
December 9, 1994, Registration No. 33-87278).
3.2 - Certificate of First Amendment to the Company's
Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to the Company's Current Report
on Form 8-K dated May 14, 1997) and Certificate of
Second Amendment to the Company's Restated Certificate
of Incorporation (incorporated by reference to Exhibit
3.2 to the Company's Current Report on Form 8-K dated
May 26, 1998).
3.3 - By-Laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1 as filed with the Securities and Exchange
Commission on November 3, 1994, Registration No.
33-83178).
4.1 - Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration
No. 33-83178).
4.2 - Exchange Agreement dated November 4, 1994, between the
Company and Citicorp Venture Capital Ltd. ("CVC")
(incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-8 dated
December 9, 1994, Registration No. 33-87278).
4.3 - Voting Agreement dated November 4, 1994, between the
Company, CVC and Martin V. Alonzo ("Mr. Alonzo")
(incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-8 dated
December 9, 1994, Registration No. 33-87278).
+27 - Financial Data Schedules (EDGAR filing only).
- -------------
+ Filed herewith
24
<PAGE> 25
CHASE INDUSTRIES INC.
b. REPORTS ON FORM 8-K
During the quarter ended June 30, 1998, the Company filed one
Current Report on Form 8-K, dated May 26, 1998, to report
under Item 5 an increase in the Company's authorized shares
of capital stock and a three-for-two split of the Company's
outstanding common stock for shareholders of record on June
6, 1998.
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<PAGE> 26
CHASE INDUSTRIES INC.
S I G N A T U R E
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 hereto duly authorized.
CHASE INDUSTRIES INC.
Date: July 31, 1998 By: /S/ MICHAEL T. SEGRAVES
-------------------------------
Michael T. Segraves
Vice President
Chief Financial Officer
(duly authorized officer and
Principal Financial Officer)
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<PAGE> 27
CHASE INDUSTRIES INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Sequentially
No. Description of Exhibits Numbered Page
- ------- ----------------------- -------------
<S> <C> <C>
+3.1 - Restated Certificate of Incorporation of the Company
(previously filed in paper format as Exhibit 4.1 to the
Company's Registration Statement on Form S-8 dated
December 9, 1994, Registration No. 33-87278).
3.2 - Certificate of First Amendment to the Company's
Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to the Company's Current Report
on Form 8-K dated May 14, 1997) and Certificate of
Second Amendment to the Company's Restated Certificate
of Incorporation (incorporated by reference to Exhibit
3.2 to the Company's Current Report on Form 8-K dated
May 26, 1998).
3.3 - By-Laws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1 as filed with the Securities and Exchange
Commission on November 3, 1994, Registration No.
33-83178).
4.1 - Specimen Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 as filed with the Securities and
Exchange Commission on November 3, 1994, Registration
No. 33-83178).
4.2 - Exchange Agreement dated November 4, 1994, between the
Company and Citicorp Venture Capital Ltd. ("CVC")
(incorporated by reference to Exhibit 4.4 to the
Company's Registration Statement on Form S-8 dated
December 9, 1994, Registration No. 33-87278).
4.3 - Voting Agreement dated November 4, 1994, between the
Company, CVC and Martin V. Alonzo ("Mr. Alonzo")
(incorporated by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-8 dated
December 9, 1994, Registration No. 33-87278).
+27 - Financial Data Schedules (EDGAR filing only).
- -------------
+ Filed herewith
</TABLE>
27
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
CHASE BRASS INDUSTRIES, INC.
(Incorporated on April 17, 1990)
Chase Brass Industries, Inc., a Delaware corporation (hereinafter called
the "Corporation"), hereby adopts this Restated Certificate of Incorporation
pursuant to the provisions of Section 245 of the General Corporation Law of the
State of Delaware:
1. The name of the Corporation is Chase Brass Industries, Inc., originally
incorporated under the name Chase Brass & Copper Holding Company.
2. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on April 17, 1990.
3. This Restated Certificate of Incorporation has been duly authorized by
the board of directors of the Corporation at a meeting of the board of directors
of the Corporation or by a unanimous written consent to corporate action in
conformity with the provisions of Section 245 of the General Corporation Law of
the State of Delaware.
4. The Restated Certificate of Incorporation of the Corporation only
restates and integrates, and does not further amend, the provisions of the
Corporation's Certificate of Incorporation as previously amended, and there is
no discrepancy between those provisions and the provisions of this Restated
Certificate of Incorporation. The Restated Certificate of Incorporation of the
Corporation is as follows:
FIRST: The name of the Corporation is Chase Brass Industries, Inc.
SECOND: The registered office of the Corporation in the State of Delaware
is located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage in
any and all lawful acts and activity for which corporations may be organized
under the General Corporation Law of Delaware. The Corporation will have
perpetual existence.
FOURTH: 4.1 AUTHORIZED SHARES
The total number of shares of all classes of stock that the Corporation
shall have authority to issue is thirty-one million (31,000,000) shares of
capital stock, classified as follows:
(i) One million (1,000,000) shares of preferred stock, par value
$.01 per share ("Preferred Stock");
<PAGE> 2
(ii) Twenty-five Million (25,000,000) shares of common stock,
par value $.01 per share ("Common Stock"); and
(iii) Five million (5,000,000) shares of nonvoting common stock,
par value $.01 per share ("Nonvoting, Common Stock").
The Common Stock and Nonvoting Common Stock hereinafter are referred to
collectively as the "Authorized Common Stock."
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock and the Authorized Common
Stock are set forth in Sections 4.2 and 4.3, respectively, of this Article
FOURTH. Certain general provisions are set forth in Section 4.4 of this Article
FOURTH.
4.2 PREFERRED STOCK
A. The Preferred Stock may be issued from time to time in one or more
classes or series, the shares of each class or series to have such designations
and powers, preferences, and rights, and qualifications, limitations, and
restrictions thereof, as are stated and expressed herein and in the resolution
or resolutions providing for the issue of such class or series adopted by the
board of directors of the Corporation as hereafter prescribed.
B. Authority is hereby expressly granted to and vested in the board of
directors of the Corporation to authorize the issuance of the Preferred Stock
from time to time in one or more classes or series, and with respect to each
class or series of the Preferred Stock, to fix and state by the resolution or
resolutions from time to time adopted providing for the issuance thereof the
following:
(i) whether or not the class or series is to have voting rights,
full, special, or limited, or is to be without voting rights, and whether or not
such class or series is to be entitled to vote as a separate class either alone
or together with the holders of one or more other classes or series of stock;
(ii) the number of shares to constitute the class or series and
the designations thereof;
(iii) the preferences, and relative, participating, optional, or
other special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or series;
(iv) whether or not the shares of any class or series shall be
redeemable at the option of the Corporation or the holders thereof or upon the
happening of any specified event, and, if redeemable, the redemption price or
prices (which may be payable in the form of cash, notes, securities, or other
property), and the time or times at which, and the terms and conditions upon
which, such shares shall be redeemable and the manner of redemption;
2
<PAGE> 3
(v) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and, if such retirement or
sinking fund or funds are to be established, the annual amount thereof, and the
terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash,
stock of the Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the relation to the
payment of dividends payable on any other class or classes or series of stock,
whether or not such dividends shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts thereof that the
holders of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(viii) whether or not the shares of any class or series, at the
option of the Corporation or the holder thereof or upon the happening of any
specified event, shall be convertible into or exchangeable for, the shares of
any other class or classes or of any other series of the same or any other class
or classes of stock, securities, or other property of the Corporation and the
conversion price or prices or ratio or ratios or the rate or rates at which such
exchange may be made, with such adjustments, if any, as shall be stated and
expressed or provided for in such resolution or resolutions; and
(ix) such other special rights and protective provisions with
respect to any class or series as may to the board of directors of the
Corporation seem advisable.
C. The shares of each class or series of the Preferred Stock may vary from
the shares of any other class or series thereof in any or all of the foregoing
respects. The board of directors of the Corporation may increase the number of
shares of the Preferred Stock designated for any existing class or series by a
resolution adding to such class or series authorized and unissued shares of the
Preferred Stock not designated for any other class or series. The board of
directors of the Corporation may decrease the number of shares of the Preferred
Stock designated for any existing class or series by a resolution subtracting
from such class or series authorized and unissued shares of the Preferred Stock
designated for such existing class or series, and the shares so subtracted shall
become authorized, unissued, and undesignated shares of the Preferred Stock.
4.3 COMMON STOCK AND NONVOTING COMMON STOCK
Except as otherwise provided herein, all shares of Common Stock and
Nonvoting Common Stock will be identical and will entitle holders thereof to the
same rights and privileges.
A. Voting Rights and Amendments. The holders of Common Stock shall have
the general right to vote for all purposes, including the election of directors,
as provided by law. Each
3
<PAGE> 4
holder of Common Stock shall be entitled to one vote for each share thereof
held. Except as otherwise required by law, the holders of Nonvoting Common stock
shall have no voting rights.
B. Dividends; Stock Splits and Combinations. When and as dividends are
declared thereon, whether payable in cash, property or securities of the
Corporation, the holders of the Authorized Common Stock will be entitled to
share equally on a share--for--share basis in such dividends; provided, that if
dividends are declared that are payable in shares of Common Stock or Nonvoting
Common Stock, dividends will be declared that are payable at the same rate on
each class of the Authorized Common Stock, and that such dividends will be
payable in shares of Common Stock to holders of Common Stock and in shares of
Nonvoting Common Stock to holders of Nonvoting Common Stock. If the Corporation
in any manner subdivides or combines the outstanding shares of either class of
the Authorized Common Stock, the outstanding shares of the other class of the
Authorized Common Stock will be proportionately subdivided or combined.
C. Conversion
(1) Conversion of Nonvoting Common Stock into Common Stock.
(i) Subject to applicable interpretations of Title III of the Small
Business Investment Act of 1958, as amended, and the Bank Holding Company of
1956, as amended, and the regulations promulgated thereunder (or any substitute
laws and regulations that hereafter may become effective) which may be
applicable to any holder of Nonvoting Common Stock, restricting the ability of
such holder to exercise any right of conversion of such shares for shares of
Common Stock, each record holder of shares of Nonvoting Common Stock may at any
time convert any portion or all of such holder's shares of Nonvoting Common
Stock into shares of Common Stock on a one--for--one basis. The conversion shall
be effective upon the delivery by the holder to the Corporation of a written
notice which sets forth the number of shares to be converted, and the holder
shall thereafter comply with the conversion procedures set forth in subsection
4.3.C.(2) hereof.
(ii) The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock, or its treasury
shares, solely for the purpose of issue upon the conversion of shares of
Nonvoting Common Stock, such number of shares of Common Stock as is then
issuable upon the conversion of all outstanding shares of Nonvoting Common
Stock. The Corporation shall take all such action as may be reasonably necessary
to assure that all shares of Common Stock to be issued upon conversion of
Nonvoting Common Stock may be so issued without violation of any law,
regulation, rule or other requirement of any governmental authority applicable
to the Corporation or any requirement of any domestic securities exchange upon
which the shares of the Authorized Common Stock may be listed.
(2) Conversion Procedure.
(i) Promptly following each conversion of shares of Nonvoting Common
Stock into shares of Common Stock, the holder or holders of such converted
shares will surrender the certificate or certificates representing the shares
converted at the principal office of the Corporation
4
<PAGE> 5
at any time during the normal business hours, together with a written notice
that such holder is surrendering such shares to be exchanged for new
certificates representing Common Stock. Such conversion will be effective at the
time provided in Subsection 4.3.C.(1)(i), and upon delivery of the certificate
or certificates representing the shares converted as provided in this Subsection
4.3.C.(2)(i), the rights of the holder of the converted Nonvoting Common Stock
as such holder will cease and the person or persons in whose name or names the
certificate or certificates for shares of Common Stock are to be issued will
become the holder or holders of record of the shares of Common Stock. All shares
of Nonvoting Common Stock exchanged for shares of Common Stock in accordance
with this Section 4.3 shall, upon such exchange, once again be available for
issuance as shares of Nonvoting Common Stock.
(ii) Promptly after such surrender and the receipt of such written
notice, the Corporation will issue and deliver in accordance with the
surrendering holder's instructions one or more new certificates for Common Stock
issuable in connection with such conversion.
(iii) The issuance of certificates for Common Stock upon conversion
will be made without charge to the holders of such shares for any issuance tax
in respect thereof or other costs incurred by the Corporation in connection with
such conversion and the related issuance of certificates.
(iv) The Corporation will not close its books against the transfer of
shares of Authorized Common Stock in any manner that would interfere with the
timely conversion of such shares.
(3) Registration and Listing. If any shares of the Authorized Common
Stock required to be reserved for purposes of conversion hereunder require,
before such shares may be issued upon conversion, registration with or approval
of any governmental authority under any federal or state law (other than any
registration under the Securities Act of 1933, as amended, or any state
securities law required by reason of any transfer involved in such conversion),
or listing on any domestic securities exchange, the Corporation shall, at its
expense and as promptly as possible, use its best efforts to cause such shares
to be duly registered or approved or listed, as the case may be.
4.4 GENERAL
A. Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its Preferred Stock, Common
Stock and Nonvoting Common Stock from time to time for such consideration (not
less than the par value thereof) as may be fixed by the board of directors of
the Corporation, which is expressly authorized to fix the same in its absolute
and uncontrolled discretion subject to the foregoing conditions. Shares so
issued for which the consideration shall have been paid or delivered to the
Corporation shall be deemed fully paid stock and shall not be liable to any
further call or assessment thereon, and the holders of such shares shall not be
liable for any further payments in respect of such shares.
5
<PAGE> 6
B. The Corporation shall have authority to create and issue rights and
options entitling their holders to purchase shares of the Corporation's capital
stock of any class or series or other securities of the Corporation, and such
rights and options shall be evidenced by instrument(s) approved by the board of
directors of the Corporation. The board of directors of the Corporation shall be
empowered to set the exercise price, duration, times for exercise, and other
terms of such options or rights; provided, however, that the consideration to be
received for any shares of capital stock subject thereto shall not be less than
the par value thereof.
C. The Corporation shall have authority to grant by contract to the
holders of the stock of the Corporation, or the holders of any class or series
of a class thereof, the preemptive right to subscribe to any or all additional
issues of stock of the Corporation of any or all classes or series thereof, or
to any securities of the Corporation convertible into such stock to the extent
approved by the board of directors of the Corporation.
FIFTH: Directors of the Corporation need not be elected by written ballot
unless the by-laws of the Corporation otherwise provide.
SIXTH: The board of directors of the Corporation shall have the power to
adopt, amend and repeal the by-laws of the Corporation.
SEVENTH: No contract or transaction between the Corporation and one or
more of its directors, officers, or stockholders or between the Corporation and
any person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers, or stockholders are directors, officers, or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board of directors of the Corporation or committee which authorizes the
contract or transaction, or solely because his, her, or their votes are counted
for such purpose, if: (i) the material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
board of directors of the Corporation or the committee, and the board of
directors of the Corporation or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to his or her relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved, or
ratified by the board of directors of the Corporation, a committee thereof, or
the stockholders. Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the board of directors of the
Corporation or of a committee which authorizes the contract or transaction.
EIGHTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation,
6
<PAGE> 7
is or was serving at the request of the Corporation as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the same
exists or may hereafter be amended. Such right shall be a contract right and as
such shall run to the benefit of any director or officer who is elected and
accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this Article
EIGHTH is in effect. Any repeal or amendment of this Article EIGHTH shall be
prospective only and shall not limit the rights of any such director or officer
or the obligations of the Corporation with respect to any claim arising from or
related to the services of such director or officer in any of the foregoing
capacities prior to any such repeal or amendment to this Article EIGHTH. Such
right shall include the right to be paid by the Corporation expenses incurred in
defending any such proceeding in advance of its final disposition to the maximum
extent permitted under the Delaware General Corporation Law, as the same exists
or may hereafter be amended. If a claim for indemnification or advancement of
expenses hereunder is not paid in full by the Corporation within sixty (60) days
after a written claim has been received by the Corporation, the claimant may at
any time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim, and if successful in whole or in part, the claimant shall
also be entitled to be paid the expenses of prosecuting such claim. It shall be
a defense to any such action that such indemnification or advancement of costs
of defense are not permitted under the Delaware General Corporation Law, but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its board of directors or any committee thereof,
independent legal counsel, or stockholders) to have made its determination prior
to the commencement of such action that indemnification of, or advancement of
costs of defense to, the claimant is permissible in the circumstances nor an
actual determination by the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, by-law,
resolution of stockholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
NINTH: A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability
7
<PAGE> 8
(i) for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. Any repeal or amendment of this
Article NINTH by the stockholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the Corporation arising from an act or omission occurring prior to
the time of such repeal or amendment. In addition to the circumstances in which
a director of the Corporation is not personally liable as set forth in the
foregoing provisions of this Article NINTH, a director shall not be liable to
the Corporation or its stockholders to such further extent as permitted by any
law hereafter enacted, including without limitation any subsequent amendment to
the Delaware General Corporation Law.
TENTH: The holders of each series or class of Common Stock and Preferred
Stock shall have such preemptive rights, if any, to subscribe to additional
issues of stock of such series or class or to any security convertible into
stock of such series or class as may from time to time be granted expressly to
such holders of Common Stock or Preferred Stock by written agreement entered
into by and among the Corporation and all holders of the series or class of
Common Stock or Preferred Stock to which such preemptive right relates.
IN WITNESS WHEREOF, this instrument has been executed for and on behalf
and in the name of the Corporation by its officers thereunto duly authorized on
December 6, 1994.
CHASE BRASS INDUSTRIES, INC.
By: /s/ MARTIN V. ALONZO
-------------------------------
Martin V. Alonzo,
President and Chief Executive Officer
8
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